<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 1, 2000
REGISTRATION NO. 333-41506
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
OPLINK COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 3674 77-0411346
(Prior to reincorporation) (Primary Standard Industrial (I.R.S. Employer Identification No.)
DELAWARE Classification Code Number)
(State or other jurisdiction of
incorporation or organization)
</TABLE>
3469 NORTH FIRST STREET
SAN JOSE, CALIFORNIA 95134
(408) 433-0606
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Joseph Y. Liu
Chief Executive Officer
Oplink Communications, Inc.
3469 North First Street
San Jose, California 95134
(408) 433-0606
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
Matthew W. Sonsini, Esq. Cynthia A. Rotell, Esq.
Cooley Godward LLP Latham & Watkins
Five Palo Alto Square 633 West Fifth Street
3000 El Camino Real Suite 4000
Palo Alto, California 94306-2155 Los Angeles, California 90071
(650) 843-5000 (213) 485-1234
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This registration statement contains two forms of prospectus: one to be used
in connection with a United States and Canadian offering of the registrant's
common stock and one to be used in a concurrent international offering of the
common stock. The international prospectus will be identical to the U.S.
prospectus except that it will have a different front cover page and
underwriting section. The U.S. prospectus is included herein and is followed by
the alternate front cover page and underwriting section to be used in the
international prospectus, each of which have been labeled "Alternative Pages for
International Prospectus."
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 1, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
[OPLINK LOGO]
SHARES
COMMON STOCK
Oplink Communications, Inc. is offering shares of its common stock. This
is our initial public offering and no public market currently exists for our
shares. We have applied for approval for quotation of our common stock on the
Nasdaq National Market under the symbol "OPLK." We anticipate that the initial
public offering price will be between $ and $ per share.
--------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
---------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------- -------------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to Oplink Communications, Inc...................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Oplink Communications, Inc. has granted the underwriters a 30-day option to
purchase up to an additional shares of common stock to cover
over-allotments.
--------------------------
ROBERTSON STEPHENS
CIBC WORLD MARKETS
J.P. MORGAN & CO.
UBS WARBURG LLC
THE DATE OF THIS PROSPECTUS IS , 2000
<PAGE>
[INSIDE FRONT COVER GRAPHIC]
Telecommunications Market
Segmentation
[Graphic depiction of the telecommunications market segments using an
inverted triangle sectioned horizontally into four trapezoids, each of the four
trapezoids representing one of the market segments. The trapezoids are labeled
in descending order: "Networks," "Systems," "Modules" and "Components." Oplink's
logo is located adjacent to the "Modules" and "Components" segments denoting
Oplink's focus on these market segments.
[The background of this page consists of graphing lines with "Bandwidth
Creation; Bandwidth Management" in large letters along the bottom.]
[GATEFOLD GRAPHIC]
FIBER OPTIC COMPONENTS AND INTEGRATED OPTICAL MODULES
[OPLINK LOGO]
[Graphic depiction of the ultra-long haul/long haul, metropolitan and access
systems. The three systems are labeled: "Ultra-Long Haul/Long Haul,"
"Metropolitan" and "Access." This diagram is surrounded by pictures of six
Oplink products representing four of Oplink's product categories. The four
categories are labeled: "Wavelength Expansion Products," "Optical Amplification
Products," "Optical Wavelength Performance Monitoring & Protection Products" and
"Optical Switching Products." Each product picture has an arrow pointing to the
system in which that product is used.]
[INSIDE BACK COVER GRAPHIC]
Wavelength Expansion Products
<TABLE>
<CAPTION>
<S> <C>
DWDMs and Interleavers
[Picture of DWDM and
Interleaver]
APPLICATIONS: Increase bandwidth efficiency
</TABLE>
Optical Amplification Products
<TABLE>
<CAPTION>
<S> <C>
Pump Combiners, Signal/Pump WDMs, Isolators and Tap Couplers
[Picture of isolator and
integrated hybrid components
and polarization beam
combiner]
APPLICATIONS: EDFA and Raman amplifications
</TABLE>
Wavelength Performance Monitoring & Protection Products
<TABLE>
<CAPTION>
<S> <C>
Monitoring/Protection and Supervisory Modules
APPLICATIONS: Monitor network performance, provide network [Picture of
protection Monitoring/Protection module]
</TABLE>
Optical Switching Products
<TABLE>
<CAPTION>
<S> <C>
Optical Switches, Add/Drop and Circulators
[Picture of Optical Switch and
Add/Drop module]
APPLICATIONS: Optical signal switching, optical add/drop
</TABLE>
<PAGE>
YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT CONTAINED
IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES
OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE
OF OUR COMMON STOCK. IN THIS PROSPECTUS, THE "COMPANY," "OPLINK," "WE," "US,"
AND "OUR" REFER TO OPLINK COMMUNICATIONS, INC.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 1
Risk Factors................................................ 4
Note Regarding Forward-Looking Statements................... 18
Use of Proceeds............................................. 18
Dividend Policy............................................. 18
Capitalization.............................................. 19
Dilution.................................................... 20
Selected Consolidated Financial Data........................ 22
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Business.................................................... 32
Management.................................................. 47
Related Party Transactions.................................. 61
Principal Stockholders...................................... 63
Description of Capital Stock................................ 65
Shares Eligible for Future Sale............................. 67
United States Federal Tax Considerations for Non-United
States Holders............................................ 69
Underwriting................................................ 72
Legal Matters............................................... 75
Experts..................................................... 75
Where You Can Find More Information......................... 75
Index To Consolidated Financial Data........................ F-1
</TABLE>
------------------------
UNTIL , 2000, ALL DEALERS, WHETHER OR NOT PARTICIPATING IN THIS
OFFERING, THAT EFFECT TRANSACTIONS IN THESE SECURITIES MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE DEALER'S OBLIGATION
TO DELIVER A PROSPECTUS WHEN ACTING AS AN UNDERWRITER IN THIS OFFERING AND WHEN
SELLING PREVIOUSLY UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
i
<PAGE>
SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION IN THIS PROSPECTUS, INCLUDING RISK FACTORS, REGARDING OUR COMPANY
AND THE COMMON STOCK BEING SOLD IN THIS OFFERING.
OUR COMPANY
We design, manufacture and supply fiber optic components and integrated
optical modules that increase the performance of optical networks. We sell our
products worldwide to communication equipment suppliers including: ADVA AG,
Alcatel Optronics, Cisco Systems, Corning Incorporated, JDS Uniphase
Corporation, Lucent Technologies, NEC Electronics, Nortel Networks Corporation
and Sycamore Networks. Our customers use our broad line of products to enable
their fiber optics systems to perform the following applications:
- WAVELENGTH EXPANSION--using dense wavelength division multiplexing, or
DWDM, to transmit large amounts of data through multiple wavelengths of
light.
- OPTICAL AMPLIFICATION--amplifying optical signals without the need to
enhance the signals electronically.
- WAVELENGTH PERFORMANCE MONITORING AND PROTECTION--controlling the
direction of light signals by monitoring wavelength performance within an
optical network.
- OPTICAL SWITCHING--redirecting light signals to multiple points without
requiring the signal to be converted into an electrical one.
These applications address the unique requirements of all segments of
communication networks including: ultra-long haul, for cross-country
connections; long haul, for long distance connections between cities;
metropolitan, for connections within urban areas; and access, for connections to
individual businesses and homes. Our highly-trained engineering and marketing
staff works closely with our customers early in their product development cycles
to design components and integrated optical modules that meet their particular
requirements. We combine our design expertise with our manufacturing
capabilities in the United States and China to rapidly produce large volumes of
high performance products.
Data traffic has increased rapidly during the past several years furthering
demand for greater capacity, or bandwidth, on existing communication networks.
Limitations of these networks and recent breakthroughs in optical component
technology have led to the widespread deployment of fiber optic technology,
which is able to transport larger amounts of data. These breakthroughs include
new technologies that expand the bandwidth of existing optical fiber networks
and that provide intelligence, or the ability to monitor and manage optical
signals. Fiber optic components and integrated optical modules are the core
elements of optical systems that provide these capabilities within a network. We
believe that manufacturers that provide a broad line of sophisticated and
customized components and modules in large volume will be in a strong position
to capture market share in the rapidly growing fiber optic market.
Our objective is to become a leading supplier of advanced components and
integrated optical modules for the fiber optic communications industry. Key
elements of our strategy include:
- expanding our manufacturing capacity in both the United States and China
as well as enhancing our manufacturing capabilities through automation;
- building new and expanding existing customer relationships to increase
market penetration by focusing on custom design and quality;
- expanding and enhancing our existing line of optical components and
integrated optical modules for all segments of the optical network;
- continuing to develop optical products with features that allow service
providers to effectively manage their optical networks;
- continuing to attract talented personnel; and
- pursuing selective acquisitions of businesses and technologies.
1
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered.................................... shares
Common stock to be outstanding after the offering....... shares
Use of proceeds......................................... For expansion of manufacturing facilities,
marketing and distribution activities,
research and development activities, working
capital and other general corporate purposes
and acquisitions. See "Use of Proceeds."
Proposed Nasdaq National Market symbol.................. OPLK
</TABLE>
The common stock outstanding after this offering is based on shares
outstanding as of March 31, 2000 and excludes:
- 12,462,924 shares issuable upon exercise of outstanding options as of
March 31, 2000 with a weighted average exercise price of $1.1706;
- 587,817 shares reserved for future issuance under our stock option plans;
and
- 174,452 shares of common stock issuable upon exercise of outstanding
warrants as of March 31, 2000 with a weighted average exercise price of
$0.3439.
Unless otherwise indicated, the information in this prospectus:
- assumes no exercise of the underwriters' over-allotment option;
- reflects, except in the consolidated financial statements and notes
thereto, the conversion of all outstanding shares of our convertible
preferred stock into shares of common stock upon completion of this
offering; and
- assumes our reincorporation in Delaware before completion of this
offering, and the associated changes in our charter documents.
2
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
-------------------------------------------------------------- -----------------------
1995 1996 1997 1998 1999 1999 2000
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues............................... $ -- $ 10 $ 426 $ 2,493 $ 9,094 $ 5,276 $ 20,661
Gross profit (loss).................... -- 7 (451) (471) 1,869 590 3,241
Loss from operations................... (111) (436) (1,406) (3,429) (2,745) (1,721) (6,519)
Net loss............................... (108) (426) (1,397) (3,486) (2,744) (1,720) (6,199)
Net loss per share: Basic and
diluted.............................. $ (9.35) $ (4.76) $ (4.48) $ (3.91)
Weighted average shares: Basic and
diluted.............................. 229,808 731,671 612,847 1,586,534
Pro forma net loss per share........... $ (0.10) $ (0.13)
Weighted average shares................ 36,426,738 47,717,720
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 2000
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $37,444 $37,881
Working capital............................................. 45,069 45,486
Total assets................................................ 63,443 83,535
Long term liability......................................... 1,021 1,021
Convertible preferred stock................................. 58,373 --
Total stockholder's (deficit) equity........................ (5,565) 72,468
</TABLE>
- Pro forma balance sheet data gives effect to (i) the conversion of all
outstanding shares of our preferred stock into shares of our common stock
upon the closing of this offering; and (ii) the issuance of
6,720,000 shares of our common stock to the holders of all outstanding
capital stock of Telelight Communications Inc. in connection with our
acquisition of Telelight on April 6, 2000.
- Pro forma as adjusted balance sheet data gives effect to our sale of
shares of common stock in this offering at an assumed initial public
offering price of $ per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses.
CORPORATE INFORMATION
We were incorporated in California in September 1995 and plan to
reincorporate in Delaware prior to the completion of this offering. Our
principal executive offices are located at 3469 North First Street, San Jose,
California 95134-1803, and our telephone number at that address is
(408) 433-0606. Our website is located on the world wide web at "oplink.com."
Information contained in our website is not part of this prospectus.
3
<PAGE>
RISK FACTORS
ANY INVESTMENT IN OUR SHARES OF OUR COMMON STOCK INVOLVES A HIGH DEGREE OF
RISK. YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING INFORMATION ABOUT THESE RISKS,
TOGETHER WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE YOU
DECIDE TO BUY OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR,
OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION WOULD LIKELY SUFFER.
IN THESE CIRCUMSTANCES, THE MARKET PRICE OF OUR COMMON STOCK COULD DECLINE, AND
YOU MAY LOSE ALL OR PART OF THE MONEY YOU PAID TO BUY OUR COMMON STOCK.
RISKS RELATED TO OUR FINANCIAL CONDITION
WE HAVE INCURRED SIGNIFICANT LOSSES, AND OUR FAILURE TO INCREASE OUR REVENUES
COULD PREVENT US FROM ACHIEVING PROFITABILITY.
We have incurred significant losses since our inception and expect to incur
losses in the future. We incurred net losses of $6.2 million for the nine months
ended March 31, 2000 and have not achieved profitability on a quarterly or
annual basis. As of March 31, 2000, we had an accumulated deficit of
$13.8 million. We have a large amount of fixed expenses, and we expect to
continue to incur significant and increasing manufacturing, sales and marketing,
product development and administrative expenses. As a result, we will need to
generate significantly greater revenues while containing costs and operating
expenses to achieve profitability. Our revenues may not continue to grow, and we
may never generate sufficient revenues to achieve profitability. Please see
"Selected Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a discussion of our financial
condition.
WE DEPEND UPON A SMALL NUMBER OF CUSTOMERS FOR A SUBSTANTIAL PORTION OF OUR
REVENUES, AND ANY DECREASE IN REVENUES FROM, OR LOSS OF, THESE CUSTOMERS WITHOUT
A CORRESPONDING INCREASE IN REVENUES FROM OTHER CUSTOMERS WOULD HARM OUR
OPERATING RESULTS.
We depend upon a small number of customers for a substantial portion of our
revenues. Our top four customers together accounted for 75.0% of our revenues in
the nine months ended March 31, 2000. Lucent Technologies, JDS Uniphase,
Sycamore Networks and Marubun Corporation accounted for 36.0%, 15.8%, 12.6% and
10.6% of our revenues for the nine months ended March 31, 2000. We expect that
we will continue to depend upon a small number of customers for a substantial
portion of our revenues.
Our revenues generated from these customers, individually or in the
aggregate, may not reach or exceed historic levels in any future period. For
example, we may not be the sole source of supply to our customers, and they may
choose to purchase our products from other vendors. Furthermore, we could
experience a downturn in the business of our existing customers, which could
result in significantly decreased sales to these customers and harm our results
of operations. In this regard, Lucent has indicated that it may decrease and
eventually discontinue incorporating one of our products into some of its
products over the next two years. Lucent's purchases of these products in the
nine months ended March 31, 2000 accounted for 26.6% of our revenues. Lucent may
not introduce or sell significant quantities of other products that incorporate
this product. Loss or cancellations of orders from, or any downturn in the
business of, any of these customers could harm our revenues.
BECAUSE WE HAVE A LIMITED OPERATING HISTORY, WE MAY BE UNABLE TO ACCURATELY
FORECAST OUR REVENUES, AND OUR QUARTERLY REVENUES AND OPERATING RESULTS MAY
FLUCTUATE SIGNIFICANTLY FROM QUARTER TO QUARTER.
As a result of our limited operating history, it is difficult to forecast
our revenues accurately, and we have limited meaningful historical financial
data upon which to plan future operating expenses. We did not commence sales of
our products until late 1996 and only recently began selling our products in
large volume. Our revenues, expenses and operating results have varied
significantly from quarter to
4
<PAGE>
quarter in the past and may fluctuate significantly in the future. The factors,
many of which are more fully discussed in other risk factors, that are likely to
cause these variations include, among others:
- fluctuations in demand for, and sales of, our products;
- cancellations of orders and shipment rescheduling;
- our ability to significantly expand our manufacturing capacity at our
facilities in San Jose, California and China;
- the availability of raw materials used in our products and increases in
the price of these raw materials;
- the ability of our manufacturing operations in China to timely produce and
deliver products and components in the quantity and of the quality we
require;
- our ability to achieve acceptable production yields;
- the practice of communication equipment suppliers to sporadically place
large orders with short lead times;
- the mix of products and the average selling prices of the products we
sell;
- competitive factors, including introductions of new products and product
enhancements by competitors, entry of new competitors into the optical
networking components market and pricing pressures;
- our ability to develop, introduce, manufacture and ship new and enhanced
optical networking products in a timely manner without defects;
- costs associated with and the outcomes of any intellectual property or
other litigation to which we are, or may become, a party; and
- economic conditions specific to the communications and related industries
and the development and size of the markets for our products.
A high percentage of our expenses, including those related to manufacturing,
engineering, research and development, sales and marketing and general and
administrative functions, are essentially fixed in the short term. As a result,
if we experience delays in generating and recognizing revenues, our quarterly
operating results are likely to be harmed. As we expand our manufacturing
capacity, we will incur expenses in one quarter relating to the expansion that
may not result in off-setting revenues until a subsequent quarter. New product
introductions can also result in a mismatching of research and development
expenses and sales and marketing expenses that are incurred in one quarter with
revenues that are not recognized until a subsequent quarter when the new product
is introduced. If growth in our revenues does not exceed the increase in our
expenses, our results of operations will be harmed.
Due to the factors noted above and other risks discussed in this section, we
believe that quarter-to-quarter comparisons of our operating results will not be
meaningful. You should not rely on our results for one quarter as any indication
of our future performance. It is likely that, in future quarters, our operating
results may be below the expectations of securities analysts or investors. If
this occurs, the price of our common stock is likely to decrease.
5
<PAGE>
RISKS RELATED TO OUR BUSINESS
IF WE FAIL TO RAPIDLY EXPAND OUR MANUFACTURING CAPACITY, WE MAY NOT BE ABLE TO
DELIVER SUFFICIENT QUANTITIES OF PRODUCTS TO OUR CUSTOMERS IN A TIMELY MANNER,
WHICH WOULD HARM OUR OPERATING RESULTS.
We manufacture all of our products in our facilities in San Jose, California
and Zhuhai and Fuzhou, China and currently are expanding our manufacturing
capacity at our San Jose and Zhuhai facilities. We must devote significant
resources to expand our manufacturing capacity. The expansion at different
facilities will be expensive, will require management's time and may disrupt our
operations. Additional risks associated with rapidly increasing manufacturing
capacity include:
- a lack of availability of manufacturing personnel;
- difficulties in achieving adequate yields from new manufacturing lines;
- inability to quickly implement an adequate set of financial controls to
track levels of inventory;
- our failure to acquire additional facilities in desirable locations on
commercially reasonable terms; and
- our inability to procure the necessary equipment.
We are just beginning to receive orders for significant quantities of
products while simultaneously increasing our manufacturing capacity.
Communication equipment suppliers typically require that their vendors commit to
provide specified quantities of products over a given period of time. We could
be unable to pursue many large orders if we do not have sufficient manufacturing
capacity to enable us to commit to provide customers with specified quantities
of products. If we are unable to commit to deliver sufficient quantities of our
products to satisfy a customer's anticipated needs, we will lose the order and
the opportunity for significant sales to that customer for a lengthy period of
time.
IF WE FAIL TO EFFECTIVELY MANAGE THE RAPID EXPANSION OF OUR OPERATIONS,
INCLUDING THE ANTICIPATED SIGNIFICANT INCREASE IN THE NUMBER OF OUR EMPLOYEES,
OUR OPERATING RESULTS COULD BE HARMED.
We currently operate facilities in San Jose, California and in China. We are
continuing to expand the scope of our operations domestically and
internationally and to increase the number of our employees substantially. As of
June 30, 2000, we had a total of 570 full-time employees in San Jose and 717
full-time employees in China. We plan to hire a significant number of employees
over the next several quarters in connection with the expansion of our
manufacturing operations. The growth in employees and our operations, combined
with the challenges of expanding and managing geographically-dispersed
operations, has placed, and will continue to place, a significant strain on our
management systems and resources. We expect that we will need to continue to
improve our financial and managerial controls, reporting systems and procedures,
and will need to continue to expand, train and manage our workforce worldwide.
Any failure to effectively manage this expansion could harm our operating
results.
IF WE FAIL TO EFFECTIVELY MANAGE OUR INVENTORY LEVELS, OUR OPERATING RESULTS
COULD BE HARMED.
Because we experience long lead times for raw materials and are often
required to purchase significant amounts of raw materials far in advance of
product shipments, we may not effectively manage our inventory levels, which
could harm our operating results. If we underestimate our requirements, we may
have inadequate inventory, which could result in delays in shipments and loss of
customers. If we purchase raw materials in anticipation of orders that do not
materialize, we will have to carry or write off excess inventory and our gross
margins will decline. Even if we receive these orders, the additional
manufacturing capacity that we add to meet the customer's requirements may be
underutilized in a subsequent quarter. We are in the early stages of
implementing automated manufacturing management systems, and at present most of
the data, including some inventory levels,
6
<PAGE>
are tracked manually. The current limitations of our manufacturing management
systems increase the risk that we may fail to effectively manage our inventory.
As we grow, we will need to implement new systems, which we may fail to do on a
timely basis. The risks associated with managing our inventory are increased by
the fact that we ship products to our largest customer, Lucent, on a consignment
basis, such that we carry the shipped products as inventory until Lucent accepts
the products for use.
BECAUSE WE DEPEND ON THIRD PARTIES TO SUPPLY SOME OF OUR RAW MATERIALS AND
EQUIPMENT, WE MAY NOT BE ABLE TO OBTAIN SUFFICIENT QUANTITIES OF THESE MATERIALS
AND EQUIPMENT, WHICH COULD LIMIT OUR ABILITY TO FILL CUSTOMER ORDERS AND HARM
OUR OPERATING RESULTS.
We depend on third parties to supply the raw materials and equipment we use
to manufacture our products. To be competitive, we must obtain from our
suppliers, on a timely basis, sufficient quantities of raw materials at
acceptable prices. We obtain most of our critical raw materials from a single or
limited number of suppliers and generally do not have long-term supply contracts
with them. As a result, our suppliers could terminate the supply of a particular
material at any time without penalty. Difficulties in obtaining raw materials in
the future may limit our product shipments. In this regard, we experienced
difficulties in obtaining GRIN lenses in the quarters ended March 31 and
June 30, 2000.
Some of our raw material suppliers are single sources, and finding
alternative sources may involve significant expense and delay, if these sources
can be found at all. For example, all of our GRIN lenses, which are incorporated
into substantially all of our products, are obtained from Nippon Sheet Glass.
Our failure to obtain these materials or other single or limited-source raw
materials could delay or reduce our product shipments, which could result in
lost orders, increase our costs, reduce our control over quality and delivery
schedules and require us to redesign our products. If a significant supplier
became unable or unwilling to continue to manufacture or ship materials in
required volumes, we would have to identify and qualify an acceptable
replacement. A material delay or reduction in shipments, any need to identify
and qualify replacement suppliers or any significant increase in our need for
raw materials that cannot be met on acceptable terms could harm our business.
We also depend on a limited number of manufacturers and vendors that make
and sell the complex equipment we use in our manufacturing process. In periods
of high market demand, the lead times from order to delivery of this equipment
could be as long as nine months. If there are delays in the delivery of this
equipment or if there are increases in the cost of this equipment, it could harm
our operating results.
OUR MARKETS ARE HIGHLY COMPETITIVE, AND IF WE ARE UNABLE TO COMPETE SUCCESSFULLY
OUR REVENUES COULD DECLINE, WHICH WOULD HARM OUR OPERATING RESULTS.
The market for fiber optic components is intensely competitive. We believe
that our principal competitors are the major manufacturers of optical components
and modules, including vendors selling to third parties and business divisions
within communication equipment suppliers. Our principal competitors in the
components market include Avanex Corporation, Ciena Corporation, Corning, DiCon
Fiberoptics, Furukawa Electrical, JDS Uniphase, which recently acquired E-TEK
Dynamics and announced its intended acquisition of SDL, Lucent, New Focus,
Nortel, Sumitomo and Tyco Electronics. We believe that we primarily compete with
diversified suppliers, such as Corning, JDS Uniphase, Lucent and Nortel, for the
majority of our product line and to a lesser extent with niche players that
offer a more limited product line. Competitors in any portion of our business
may also rapidly become competitors in other portions of our business. In
addition, our industry has recently experienced significant consolidation, and
we anticipate that further consolidation will occur. This consolidation has
further increased competition.
Many of our current and potential competitors have significantly greater
financial, technical, marketing, purchasing, manufacturing and other resources
than we do. As a result, these competitors
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may be able to respond more quickly to new or emerging technologies and to
changes in customer requirements, to devote greater resources to the
development, promotion and sale of products, or to deliver competitive products
at lower prices.
Several of our existing and potential customers are also current and
potential competitors of ours. JDS Uniphase, for example, generated 15.8% of our
revenues in the nine months ended March 31, 2000. These companies may develop or
acquire additional competitive products or technologies in the future and
thereby reduce or cease their purchases from us. In light of the consolidation
in the optical networking industry, we also believe that the size of the
suppliers will be an increasingly important part of a purchaser's
decision-making criteria in the future. We cannot assure you that we will be
able to compete successfully with existing or new competitors or that the
competitive pressures we face will not result in lower prices for our products,
loss of market share, or reduced gross margins, any of which could harm our
business.
New technologies are emerging due to increased competition and customer
demand. The introduction of new products incorporating new technologies or the
emergence of new industry standards could make our existing products
noncompetitive. For example, new technologies are being developed in the design
of wavelength division multiplexers that compete with the thin film filters that
we incorporate in our products. These technologies include arrayed waveguide
grating, or AWG, which is being developed by Lucent and NTT, and Fiber Bragg
Grating, or FBG, which is being developed by Ciena. If our competitors adopt new
technologies before we do, we could lose market share and our business would
suffer.
OUR WAVELENGTH EXPANSION PRODUCTS HAVE ACCOUNTED FOR THE VAST MAJORITY OF OUR
REVENUES, AND OUR REVENUES COULD BE HARMED IF THE PRICE OF OR DEMAND FOR THESE
PRODUCTS DECLINES OR IF THESE PRODUCTS FAIL TO ACHIEVE BROADER MARKET
ACCEPTANCE.
Although we currently offer a broad spectrum of products, sales of our
wavelength expansion products accounted for the vast majority of our revenues in
the nine months ended March 31, 2000. These products include, among others,
dense wavelength division multiplexers, or DWDMs, and noise reduction filters.
We believe that our future growth and a significant portion of our future
revenues will depend on the commercial success of our wavelength expansion
products. Customers that have purchased wavelength expansion products may not
continue to purchase these products from us. Any decline in the price of, or
demand for, our wavelength expansion products, or their failure to achieve
broader market acceptance, could harm our revenues.
THE OPTICAL NETWORKING COMPONENT INDUSTRY IS EXPERIENCING DECLINING AVERAGE
SELLING PRICES, WHICH COULD CAUSE OUR GROSS MARGINS TO DECLINE AND HARM OUR
OPERATING RESULTS.
The optical networking component industry is experiencing declining average
selling prices, or ASPs, as a result of increasing competition and greater unit
volumes as communication service providers continue to deploy fiber optic
networks. We anticipate that ASPs will continue to decrease in the future in
response to product introductions by competitors, price pressures from
significant customers and greater manufacturing efficiencies achieved through
increased automation in the manufacturing process. These ASP declines have
contributed and may continue to contribute to a decline in our gross margins,
which could harm our results of operations.
OUR FAILURE TO ACHIEVE ACCEPTABLE MANUFACTURING YIELDS IN A COST-EFFECTIVE
MANNER COULD DELAY PRODUCT SHIPMENTS TO OUR CUSTOMERS AND HARM OUR OPERATING
RESULTS.
Because manufacturing our products involves complex and precise processes
and the majority of our manufacturing costs are relatively fixed, manufacturing
yields are critical to our results of operations. Lower than expected
manufacturing yields could delay product shipments and harm our
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operating results. Factors that affect our manufacturing yields include the
quality of raw materials used to make our products, quality of workmanship and
our manufacturing processes. Our or our suppliers' inadvertent use of defective
materials could significantly reduce our manufacturing yields. Furthermore,
because of the large labor component in and complexity of the manufacturing
process, quality of workmanship is critical to achieving acceptable yields. We
cannot assure you that we will be able to hire and train a sufficient number of
qualified personnel to cost-effectively produce our products with the quality
and in the quantities required by our customers. Changes in our manufacturing
processes or those of our suppliers could also impact our yields. In some cases,
existing manufacturing techniques, which involve substantial manual labor, may
not allow us to cost-effectively meet our manufacturing yield goals so that we
maintain acceptable gross margins while meeting the cost targets of our
customers. We will need to develop new manufacturing processes and techniques
that will involve higher levels of automation in order to increase our gross
margins and help achieve the targeted cost levels of our customers. We may not
achieve manufacturing cost levels that will allow us to achieve acceptable gross
margins or fully satisfy customer demands.
OUR PRODUCTS MAY HAVE DEFECTS THAT ARE NOT DETECTED UNTIL FULL DEPLOYMENT OF A
CUSTOMER'S EQUIPMENT, WHICH COULD RESULT IN A LOSS OF CUSTOMERS, DAMAGE TO OUR
REPUTATION AND SUBSTANTIAL COSTS.
Our products are deployed in large and complex optical networks and must be
compatible with other system components. Our products can only be fully tested
for reliability when deployed in networks for long periods of time. Our
customers may discover errors, defects or incompatibilities in our products
after they have been fully deployed and operated under peak stress conditions.
Our products may also have errors, defects or incompatibilities that are not
found until after a system upgrade is installed. Errors, defects,
incompatibilities or other problems with our products could result in:
- loss of customers;
- loss of or delay in revenues;
- loss of market share;
- damage to our brand and reputation;
- inability to attract new customers or achieve market acceptance;
- diversion of development resources;
- increased service and warranty costs;
- legal actions by our customers; and
- increased insurance costs.
If any of these occur, our operating results could be harmed.
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IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY, OUR ABILITY TO SUCCEED
WILL BE HARMED.
Our ability to compete successfully and achieve future growth will depend,
in part, on our ability to protect our proprietary technology. We rely on a
combination of patent, copyright, trademark and trade secret laws and
restrictions on disclosure to protect our intellectual property rights. However,
the steps we have taken may not prevent the misappropriation of our intellectual
property, particularly in foreign countries, such as China, where the laws may
not protect our proprietary rights as fully as in the United States. We
currently hold 10 patents and have 22 pending patent applications in the United
States. We cannot assure you that patents will be issued from pending or future
applications or that, if patents are issued, they will not be challenged,
invalidated or circumvented. Rights granted under these patents may not provide
us with meaningful protection or any commercial advantage. If we are unable to
protect our proprietary technology, our ability to succeed will be harmed. We
may in the future initiate claims or litigation against third parties for
infringement of our proprietary rights. These claims could result in costly
litigation and the diversion of our technical and management personnel.
WE ARE CURRENTLY DEFENDANTS IN TWO PATENT DISPUTES AND MAY BE INVOLVED IN OTHER
INTELLECTUAL PROPERTY DISPUTES IN THE FUTURE, WHICH WILL DIVERT MANAGEMENT'S
ATTENTION, AND COULD CAUSE US TO INCUR SIGNIFICANT COSTS AND PREVENT US FROM
SELLING OR USING THE CHALLENGED TECHNOLOGY.
Participants in the communications and optical components markets in which
we sell our products have experienced frequent litigation regarding patent and
other intellectual property rights. Numerous patents in these industries are
held by others, including our competitors and academic institutions. We have no
means of knowing that a patent application has been filed until the patent is
issued. Optical component suppliers may seek to gain a competitive advantage or
other third parties may seek an economic return on their intellectual property
portfolios by making infringement claims against us.
In November 1999, E-TEK Dynamics filed a lawsuit against us in the United
States District Court for the Northern District of California alleging
infringement of E-TEK's patent relating to fiber optic couplers based on our
manufacture and sale of our DWDM products. E-TEK seeks an award for damages and
injunctive relief. Our DWDM products generated a majority of our revenues for
the nine months ended March 31, 2000. An adverse ruling in this matter would
materially adversely affect our financial condition. In addition, in June 2000,
Chorum Technologies, Inc. filed a lawsuit against us and our wholly-owned
subsidiary, Telelight Communications Inc., in the United States District Court
for the Northern District of Texas alleging, among other things, infringement of
two U.S. patents allegedly owned by Chorum relating to fiber optical
interleaving, based on our manufacture of and offer to sell various fiber optic
interleaver products. Chorum seeks an award for damages and injunctive relief.
For additional information concerning these matters, see "Business--Legal and
Regulatory Matters."
Defending these lawsuits, and any additional litigation to which we may
become a party in the future as a result of alleged infringement of others'
intellectual property, will likely be costly and time consuming and will divert
the efforts and attention of our management and technical personnel. Patent
litigation is highly complex and can extend for a protracted period of time,
which can substantially increase the cost of litigation. Accordingly, the
expenses and diversion of resources associated with either of these matters, or
any other intellectual property litigation to which we may become a party, could
seriously harm our business and financial condition. Any intellectual property
litigation also could invalidate our proprietary rights and force us to do one
or more of the following:
- obtain from the owner of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not be
available on reasonable terms, or at all;
- stop selling, incorporating or using our products that use the challenged
intellectual property;
- pay substantial money damages; or
- redesign the products that use the technology.
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If we are forced to take any of these actions, it could result in a
substantial reduction in our revenue and could result in losses over an extended
period of time.
IF WE ARE UNABLE TO DEVELOP NEW PRODUCTS AND PRODUCT ENHANCEMENTS THAT ACHIEVE
MARKET ACCEPTANCE, SALES OF OUR PRODUCTS COULD DECLINE, WHICH WOULD HARM OUR
OPERATING RESULTS.
The communications industry is characterized by rapid technological change,
frequent new product introductions, changes in customer requirements and
evolving industry standards. As a result, our products could quickly become
obsolete as new technologies are introduced and incorporated into new and
improved products. Our future success depends on our ability to anticipate
market needs and to develop products that address those needs. Our failure to
predict market needs accurately or to develop new products or product
enhancements in a timely manner will harm market acceptance and sales of our
products. In this regard, we are currently developing bandwidth creation
products as well as bandwidth management products. If the development of these
products or any other future products takes longer than we anticipate, or if we
are unable to develop and introduce these products to market, our revenues could
suffer and we may not gain market share. Even if we are able to develop and
commercially introduce these new products, the new products may not achieve
widespread market acceptance.
WE DEPEND ON THE CONTINUED GROWTH AND SUCCESS OF THE COMMUNICATIONS INDUSTRY,
WHICH IS EXPERIENCING RAPID CONSOLIDATION AND REALIGNMENT AND MAY NOT CONTINUE
TO DEMAND FIBER OPTIC PRODUCTS, THEREBY REDUCING DEMAND FOR OUR PRODUCTS AND
HARMING OUR OPERATING RESULTS.
We depend on the continued growth and success of the communications
industry, including the continued growth of the Internet as a widely-used medium
for commerce and communication and the continuing demand for increased bandwidth
over communications networks. Trends that are currently driving growth in the
communications industry may not continue in a manner favorable to us and
technological or other developments in the communications industry may not favor
growth in the markets served by our products. Furthermore, the rate at which
communication service providers and other fiber optic network users have built
new fiber optic networks or installed new systems in their existing fiber optic
networks has fluctuated in the past and these fluctuations may continue in the
future. These fluctuations may result in reduced demand for new or upgraded
fiber optic systems that utilize our products and, therefore, may result in
reduced demand for our products.
The communications industry is also experiencing rapid consolidation and
realignment, as industry participants seek to capitalize on the rapidly changing
competitive landscape developing around the Internet and new communications
technologies such as fiber optic and wireless communications networks. As the
communications industry consolidates and realigns to accommodate technological
and other developments, our customers may consolidate or align with other
entities in a manner that harms our business.
BECAUSE NONE OF OUR CUSTOMERS IS OBLIGATED TO PURCHASE OUR PRODUCTS, THEY MAY
CANCEL OR DEFER THEIR PURCHASES ON SHORT NOTICE AND AT ANY TIME, WHICH COULD
HARM OUR OPERATING RESULTS.
We do not have contracts with our customers that provide any assurance of
future sales, and sales are typically made pursuant to individual purchase
orders, often with extremely short lead times. Accordingly, our customers:
- may stop purchasing our products at any time without penalty;
- are free to purchase products from our competitors;
- are not required to make minimum purchases; and
- may cancel orders that they place with us.
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Sales to any single customer may vary significantly from quarter to quarter.
Our customers generally do not place purchase orders far in advance. In
addition, our customer purchase orders have varied significantly from quarter to
quarter. Our customers base their purchase orders on a decision to deploy their
systems in a particular geographic area and may not order additional products
until they make their next major deployment decision. This means that customers
who account for a significant portion of our revenues in one quarter may not
place any orders in the succeeding quarter, which makes it difficult to forecast
revenue in future periods. Moreover, our expense levels are based in part on our
expectations of future revenue, and we may be unable to adjust costs in a timely
manner in response to revenue shortfalls. This can result in significant
quarterly fluctuations in our operating results.
OUR LENGTHY AND VARIABLE QUALIFICATION AND SALES CYCLE MAKES IT DIFFICULT TO
PREDICT THE TIMING OF A SALE OR WHETHER A SALE WILL BE MADE, WHICH MAY HARM OUR
OPERATING RESULTS.
Our customers typically expend significant efforts in evaluating and
qualifying our products and manufacturing process prior to placing an order.
This evaluation and qualification process frequently results in a lengthy sales
cycle, typically ranging from nine to twelve months and sometimes longer. While
our customers are evaluating our products and before they place an order with
us, we may incur substantial sales, marketing, research and development
expenses, expend significant management efforts, increase manufacturing capacity
and order long lead-time supplies. Even after this evaluation process, it is
possible a potential customer will not purchase our products for deployment. In
addition, product purchases are frequently subject to unplanned processing and
other delays, particularly with respect to larger customers for which our
products represent a very small percentage of their overall purchase activity.
Long sales cycles may cause our revenues and operating results to vary
significantly and unexpectedly from quarter to quarter, which could cause
volatility in our stock price.
WE DEPEND ON KEY PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY IN A RAPIDLY
CHANGING MARKET, AND IF WE ARE UNABLE TO HIRE ADDITIONAL PERSONNEL, OUR ABILITY
TO SELL OUR PRODUCTS COULD BE HARMED.
Our future success depends upon the continued services of our executive
officers, particularly Joe Liu, our Chief Executive Officer, Alex Hsu, our
President, and other key engineering, finance, sales, marketing, manufacturing
and support personnel. In addition, we depend substantially upon the continued
services of key management personnel at our Chinese subsidiaries. None of our
officers or key employees is bound by an employment agreement for any specific
term, and these personnel may terminate their employment at any time. In
addition, we do not have "key person" life insurance policies covering any of
our employees.
As a result of the expansion of our operations, we must hire a significant
number of additional employees in the near future, particularly engineering,
sales and manufacturing personnel. Our ability to continue to attract and retain
highly-skilled personnel will be a critical factor in determining whether we
will be successful in the future. Competition for highly-skilled personnel is
intense, especially in the San Francisco Bay area. We may not be successful in
attracting, assimilating or retaining qualified personnel to fulfill our current
or future needs. In addition, many of the members of our management team have
only been with us for a relatively short period of time. For example,
Mr. Jingyu Xu, Senior Vice President of Engineering, joined us in
November 1999, and Messrs. Zhimin Liu, our Chief Scientist, and Bruce Horn, our
Chief Financial Officer, joined us in April 2000. If our new management team
does not work effectively together, it could seriously harm our business.
A SUBSTANTIAL PORTION OF OUR MANUFACTURING OPERATIONS ARE LOCATED IN CHINA,
WHICH EXPOSES US TO THE RISK THAT OUR FAILURE TO COMPLY WITH THE LAWS AND
REGULATIONS OF CHINA, OR EVENTS IN THAT COUNTRY, WILL DISRUPT OUR OPERATIONS.
A substantial portion of our manufacturing operations are located in China
and are subject to the laws and regulations of China. Our operations in China
may be adversely affected by changes in the
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laws and regulations of China, such as those relating to taxation, import and
export tariffs, environmental regulations, land use rights, property and other
matters. China's central or local government may impose new, stricter
regulations or interpretations of existing regulations which would require
additional expenditures. China's economy differs from the economies of many
countries in terms of structure, government involvement, level of development,
growth rate, capital reinvestment, allocation of resources, self-sufficiency and
rate of inflation, among others. Our results of operations and financial
condition may be harmed by changes in the political, economic or social
conditions in China.
In addition, events out of our control in China, such as political unrest,
war, labor strikes and work stoppages, could disrupt our operations. There is
currently political tension between the United States and China, which could
lead to a break down in trade relations. There is also significant tension
between China and Taiwan, which could result in hostilities. If any of these
events occurs, it would be difficult for us to establish manufacturing
operations at an alternative location on comparable terms.
Our operations in China also expose us to the following general risks
associated with international operations:
- difficulties and costs of staffing and managing foreign operations with
personnel who have expertise in optical network technology;
- unexpected changes in regulatory or certification requirements for optical
systems or networks;
- disruptions in the transportation of our products and other risks related
to the infrastructure of foreign countries;
- fluctuations in the value of currencies; and
- economic instability.
BECAUSE SOME OF OUR THIRD-PARTY SALES REPRESENTATIVES AND DISTRIBUTORS CARRY
PRODUCTS OF ONE OR MORE OF OUR COMPETITORS, THEY MAY NOT RECOMMEND OUR PRODUCTS
OVER COMPETITORS' PRODUCTS.
A majority of our revenues are derived from sales through our domestic and
international sales representatives and distributors. Our sales representatives
and distributors are independent organizations that generally have exclusive
geographic territories and generally are compensated on a commission basis. We
expect that we will continue to rely on our independent sales representatives
and distributors to market, sell and support many of our products. Some of our
third-party sales representatives and distributors carry products of one or more
of our competitors. As a result, these sales representatives and distributors
may not recommend our products over competitors' products.
IF WE DO NOT EXPAND OUR SALES ORGANIZATION, WE MAY FACE DIFFICULTIES IN
INCREASING MARKET AWARENESS AND SALES OF OUR PRODUCTS, WHICH COULD PREVENT US
FROM ACHIEVING AND MAINTAINING PROFITABILITY.
We currently have a small sales force. We will need to hire additional
qualified sales personnel domestically and internationally to increase market
awareness and sales of our products. Competition for qualified sales personnel
in our industry is intense and we might not be able to hire and train the kind
and number of sales personnel we need to be successful. If we are unable to
expand our sales organization, we may not be able to increase market awareness
or sales of our products, which could prevent us from achieving and maintaining
profitability.
BECAUSE SOME OF OUR MANUFACTURING OPERATIONS ARE LOCATED IN ACTIVE EARTHQUAKE
FAULT ZONES, WE FACE THE RISK THAT A LARGE EARTHQUAKE COULD HARM OUR OPERATIONS.
A substantial portion of our manufacturing operations are located in San
Jose, California, an active earthquake fault zone. This region has experienced
large earthquakes in the past and may likely experience them in the future. A
large earthquake in the San Jose area could disrupt our
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manufacturing operations for an extended period of time, which would limit our
ability to supply our products to our customers in sufficient quantities on a
timely basis, harming our customer relationships.
OUR FAILURE TO COMPLY WITH GOVERNMENTAL REGULATIONS COULD SUBJECT US TO
LIABILITY.
Our failure to comply with a variety of federal, state and local laws and
regulations in the United States and China could subject us to criminal, civil
and administrative penalties. Our products are subject to U.S. export control
laws and regulations that regulate the export of products and disclosure of
technical information to foreign countries. These laws and regulations may
require licenses for export to some of our products and disclosure of technology
to some countries, including China, where a substantial portion of our
manufacturing operations occur, and foreign citizens, including a number of our
employees. We plan to file an application shortly to obtain a commodity
classification confirming that we may export our products and disclose our
technology to foreign countries, including China, and citizens, including
Chinese nationals, without export licenses. In the event this classification is
not obtained, we have alternatively filed applications to obtain licenses
permitting us to disclose our technology to specified employees. However, we
cannot assure you that we will obtain these classification and licenses.
Furthermore, the Department of Commerce has initiated an inquiry as to whether
one of our employees received information in violation of licensing
requirements. We may be found to have violated export restrictions with respect
to this individual and in the past, which could result in criminal, civil and
administrative penalties, including the denial of export privileges. In
addition, we are subject to laws relating to the storage, use, discharge and
disposal of toxic or otherwise hazardous or regulated chemicals or materials
used in our manufacturing processes. While we believe that we are currently in
compliance in all material respects with these laws and regulations, if we fail
to store, use, discharge or dispose of hazardous materials appropriately, we
could be subject to substantial liability or could be required to suspend or
adversely modify our manufacturing operations. In addition, we could be required
to pay for the cleanup of our properties if they are found to be contaminated,
even if we are not responsible for the contamination. We employ a number of
foreign nationals in our U.S. operations and as a result we are subject to
various laws related to the status of those employees with the Immigration and
Naturalization Service. Our failure to comply with the forgoing laws or any
other laws and regulations could subject us to liability.
IF WE ARE UNABLE TO RAISE ANY NEEDED ADDITIONAL CAPITAL, WE MAY NOT BE ABLE TO
GROW OUR BUSINESS, WHICH COULD LOWER THE VALUE OF YOUR INVESTMENT.
The development and marketing of new products and the expansion of our
manufacturing facilities and associated support personnel will require a
significant commitment of resources. We may continue to utilize significant
amounts of capital to incur significant operating losses. If the market for
optical networking components develops at a slower pace than we anticipate, or
if we fail to establish significant market share and achieve a significantly
increased level of revenue. If cash from available sources is insufficient, or
if cash is used for acquisitions or other unanticipated uses, we may need to
raise additional capital. Additional capital may not be available on terms
favorable to us, or at all. If we are unable to raise additional capital when we
require it our business could be seriously harmed. In addition, any additional
issuance of equity or equity-related securities will be dilutive to our
stockholders.
OUR BUSINESS STRATEGY INVOLVES ACQUIRING OTHER BUSINESSES AND MAKING STRATEGIC
INVESTMENTS. IF WE ARE UNABLE SUCCESSFULLY TO INTEGRATE ACQUIRED BUSINESSES OR
MANAGE OUR INVESTMENTS, OUR OPERATING RESULTS MAY DECLINE.
We have in the past and expect in the future to pursue acquisitions of
businesses, products and technologies, or the establishment of joint venture
arrangements that could expand our business. The negotiation of potential
acquisitions or joint ventures, as well as the integration of an acquired or
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jointly developed business, technology, service or product could cause diversion
of management's time and our resources. Future acquisitions could result in:
- additional operating expenses without additional revenues;
- potential dilutive issuances of equity securities;
- the incurrence of debt and contingent liabilities;
- amortization of goodwill and other intangibles;
- research and development write-offs; and
- other acquisition-related expenses.
We may not be able to successfully integrate acquired businesses or joint
ventures with our operations. In addition, we may not receive the intended
benefits of any future acquisition or joint venture. If future acquisitions
disrupt our operations, our business may suffer.
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RISKS RELATED TO OUR COMMON STOCK AND THIS OFFERING
THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK AND A PUBLIC MARKET FOR OUR
SECURITIES MAY NOT DEVELOP OR BE SUSTAINED, WHICH COULD MAKE IT MORE DIFFICULT
FOR YOU TO SELL YOUR STOCK.
Prior to this offering, you could not buy or sell our common stock publicly.
We cannot assure you that an active public market for our common stock will
develop or be sustained after this offering, which could make it more difficult
for you to sell your stock. In addition, the market price for our common stock
might fall below the initial public offering price. The initial public offering
price was determined based on negotiations between us and the representatives of
the underwriters, based on factors that may not be indicative of future market
performance. The initial public offering price may bear no relationship to the
price at which the common stock will trade subsequent to the completion of this
offering. The financial markets in the United States have experienced
significant price and volume fluctuations and market prices of technology
companies have been and continue to be extremely volatile. Volatility in the
price of our common stock may be caused by factors outside our control.
THERE MAY BE SALES OF A SUBSTANTIAL AMOUNT OF OUR COMMON STOCK AFTER THIS
OFFERING BY OUR STOCKHOLDERS AND THESE SALES COULD CAUSE OUR STOCK PRICE TO
DECLINE.
Our current stockholders hold 67,280,611 shares of our common stock,
including shares issuable upon conversion of outstanding preferred stock upon
consummation of this offering, and options and we had warrants to purchase an
aggregate of shares outstanding as of June 30, 2000. Our executive
officers, directors and substantially all of our stockholders, who held an
aggregate of shares of our common stock, or over % of our
total outstanding shares on , 2000, had executed lock-up agreements
that prevent them from selling or otherwise disposing of our common stock for a
period of 180 days from the date of this prospectus without the prior written
approval of FleetBoston Robertson Stephens, Inc. These lock-up agreements will
expire on , 2000, and an aggregate of shares will be eligible
for sale, in some cases subject only to the volume, manner of sale and notice
requirements of Rule 144 under the Securities Act. In addition, the holders of
outstanding preferred stock are entitled to registration of the shares of common
stock issuable upon conversion of their preferred stock under certain
circumstances.
Sales of a substantial number of shares of our common stock after this
offering could cause our stock price to fall. In addition, the sale of these
shares could impair our ability to raise capital through the sale of additional
stock in the future at a price that we deem appropriate.
YOU WILL BE RELYING ON THE JUDGMENT OF OUR MANAGEMENT REGARDING OUR USE OF
PROCEEDS.
We have not designated any specific use for the net proceeds from our sale
of common stock described in this prospectus. Rather, we expect to use the net
proceeds for the expansion of our manufacturing facilities, marketing and
distribution activities, working capital and other general corporate purposes
and acquisitions. Consequently, our management will have significant flexibility
in applying the net proceeds of this offering. You will be relying on the
judgment of our management regarding the application of the proceeds. Our
management will have the ability to change the application of the proceeds of
this offering without stockholder approval.
INSIDERS WILL CONTINUE TO HAVE SUBSTANTIAL CONTROL OVER US AFTER THIS OFFERING
AND COULD DELAY OR PREVENT A CHANGE IN OUR CORPORATE CONTROL, WHICH MAY
NEGATIVELY AFFECT YOUR INVESTMENT.
Our founders, officers, directors and their affiliates will, in the
aggregate, beneficially own approximately % of our outstanding shares
after this offering, or % if the underwriters' over-allotment option is
exercised in full. As a result, these groups acting together will be able to
control, or acting independently will be able to substantially influence, the
outcome of all matters requiring approval by our stockholders, including the
election of directors and approval of significant corporate transactions. This
ability may have the effect of delaying or preventing a change in control,
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or causing a change in control which may not be favored by our other
stockholders. See "Principal Stockholders."
NEW INVESTORS IN OUR COMPANY WILL EXPERIENCE IMMEDIATE DILUTION, AND YOUR
INVESTMENT MAY BE NEGATIVELY AFFECTED.
The initial public offering price of our common stock is substantially
higher than the book value per share of our outstanding common stock.
Accordingly, if you purchase our common stock in this offering, you will incur
immediate dilution of approximately $ in the book value per share of
our common stock from the price you pay for our common stock. Based on the
initial public offering price of our common stock, our current stockholders will
have an aggregate unrealized gain of approximately $ as a result of the
offering.
WE EXPECT TO EXPERIENCE SIGNIFICANT VOLATILITY IN OUR STOCK PRICE DUE TO THE
NATURE OF THE INDUSTRY IN WHICH WE OPERATE, WHICH COULD CAUSE YOU TO LOSE ALL OR
PART OF YOUR INVESTMENT.
We expect the market price of our common stock to fluctuate significantly in
response to a number of specific factors, some of which are beyond our control,
including:
- quarterly variations in our operating results;
- changes in financial estimates by securities analysts and our failure to
meet any estimates;
- changes in market values of comparable companies;
- announcements by us or our competitors of new products or of significant
acquisitions, strategic partnerships or joint ventures;
- any loss by us of a major customer;
- the outcome of, and costs associated with, any litigation to which we are
or may become a party;
- additions or departures of key management or engineering personnel; and
- future sales of our common stock.
PROVISIONS OF OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY HAVE ANTI-TAKEOVER
EFFECTS THAT COULD PREVENT ANY CHANGE IN CONTROL, WHICH COULD NEGATIVELY AFFECT
YOUR INVESTMENT.
Provisions of Delaware law and of our certificate of incorporation and
bylaws could make it more difficult for a third party to acquire us, even if
doing so would be beneficial to our stockholders. These provisions permit us to:
- issue preferred stock with rights senior to those of the common stock
without any further vote or action by the stockholders;
- provide for a classified board of directors;
- eliminate the right of the stockholders to call a special meeting of
stockholders;
- eliminate the right of stockholders to act by written consent; and
- impose various procedural and other requirements which could make it
difficult for stockholders to effect certain corporate actions.
Any of the foregoing provisions could limit the price that certain investors
might be willing to pay in the future for shares of our common stock.
17
<PAGE>
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to our future plans, objectives,
expectations and intentions, and the assumptions underlying or relating to any
of these statements. These statements may be identified by the use of words such
as "expect," "anticipate," "intend," "plan," "will" and similar expressions. Our
actual results could differ materially from those discussed in these statements.
Factors that could contribute to such differences include those discussed in
"Risk Factors," "Business," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this prospectus.
USE OF PROCEEDS
The net proceeds we will receive from the sale of the shares of
common stock offered by us are estimated to be $ , or $ if the
underwriters' over-allotment option is exercised in full, after deducting the
estimated underwriting discounts and commissions and the estimated offering
expenses payable by us based on the initial public offering price of $ per
share.
The principal purposes of this offering are:
- to obtain additional capital;
- to create a public market for our common stock;
- to increase our visibility and credibility; and
- to facilitate future access to the public equity markets.
We intend to use the net proceeds we receive from the offering for expansion
of manufacturing facilities, marketing and distribution activities, research and
development activities, working capital and other general corporate purposes and
acquisitions. However, we have no specific agreements or commitments and are not
currently engaged in any negotiations with respect to any acquisitions.
Accordingly, our management will retain broad discretion as to the allocation of
the net proceeds of this offering. We intend to invest the net proceeds of this
offering in short-term, interest-bearing investment grade securities until they
are used.
DIVIDEND POLICY
We have never declared or paid dividends on our capital stock and do not
anticipate paying any dividends in the foreseeable future. We currently intend
to retain our earnings, if any, for the development of our business.
18
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000:
- on an actual basis;
- on a pro forma basis to reflect the conversion of all shares of our
convertible preferred stock outstanding as of March 31, 2000 into
55,051,672 shares of common stock upon completion of this offering and the
issuance of 6,720,000 shares of our common stock to the holders of all
outstanding capital stock of Telelight in connection with our acquisition
of Telelight on April 6, 2000; and
- on a pro forma as adjusted basis to reflect our receipt of the net
proceeds from the sale of shares of common stock by us at a public
offering price of $ per share less estimated underwriting
discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
MARCH 31, 2000
-------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ---------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Cash and equivalents................................... $37,444 $37,881 $ --
======= ======= ======
Capital lease obligations, non current................. $ 1,021 $ 1,021 $1,021
------- ------- ------
Convertible Preferred Stock:
$.001 par value, 55,091,672 authorized; issued and
outstanding; 55,051,672 in 2000, zero pro forma, and
zero pro forma as adjusted........................... 58,373 -- --
------- ------- ------
Stockholders' (deficit) equity:
Common Stock, $.001 par value, 80,000,000 shares
authorized; issued and outstanding; 4,469,259 in
2000; 66,240,931 pro forma, and pro forma as
adjusted........................................... 4 66 --
Additional paid-in capital........................... 15,170 100,361 --
Deferred compensation................................ (6,965) (6,965) --
Accumulated deficit.................................. (13,774) (20,994) --
------- ------- ------
Total stockholders' (deficit) equity............... (5,565) 72,468 --
------- ------- ------
Total capitalization............................. $53,829 $73,489 --
======= ======= ======
</TABLE>
The outstanding share information excludes:
- 12,462,924 shares of common stock issuable on exercise of outstanding
options under our stock option plans as of March 31, 2000 with a weighted
average exercise price of $1.17 per share;
- 174,452 shares of common stock issuable upon exercise of outstanding
warrants as of March 31, 2000 with a weighted average exercise price of
$0.3439;
- 587,817 shares of stock available for future grants under our 1995 and
1998 stock option plans as of March 31, 2000;
- 2,000,000 shares of stock to be reserved for issuance under our 2000
Employee Stock Purchase Plan that will become effective upon the closing
of this offering; and
- 10,000,000 shares of stock to be reserved for issuance under our 2000
Equity Incentive Plan that will become effective upon the closing of this
offering.
You should read this table with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
the related notes. See also "Management--Employee and Director Benefit Plans"
and "Description of Capital Stock."
19
<PAGE>
DILUTION
Our pro forma net tangible book value at March 31, 2000 was approximately
$53.5 million, or $0.81 per share after giving effect to the conversion of all
outstanding shares of our convertible preferred stock into shares of common
stock upon completion of this offering; and the issuance of 6,720,000 shares of
our common stock to the holders of all outstanding capital stock of Telelight in
connection with our acquisition of Telelight on April 6, 2000. Pro forma net
tangible book value per share is equal to our total tangible assets less our
total liabilities, divided by the total number of shares of our common stock
outstanding. After giving effect to the sale of the shares of our common
stock offered in this offering at an assumed initial public offering price of
$ per share, after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by us, our pro forma as
adjusted net tangible book value at March 31, 2000 would have been approximately
$ million or $ per share. This represents an immediate increase in net
tangible book value of $ per share to existing stockholders and an immediate
dilution of $ per share to new investors purchasing shares of our common
stock in this offering. The following table illustrates the per share dilution
to the new investors:
After giving effect to the sale of the shares of common stock by us at
the initial public offering price of $ per share, less the underwriting
discounts and commissions and our estimated offering expenses, our pro forma net
tangible book value at March 31, 2000, would be $ million, or $ per share.
This represents an immediate increase in the pro forma net tangible book value
of $ per share to existing stockholders and an immediate dilution of $ per
share to new investors purchasing shares at the initial public offering price of
$ per share. The following table illustrates this per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share............. $
-------
Pro forma net tangible book value per share at March 31,
2000.................................................... $
-------
Increase per share attributable to new investors..........
-------
Pro forma net tangible book value per share after this
offering................................................
-------
Dilution per share to new investors in this offering........ $
=======
</TABLE>
The following table shows on a pro forma basis at , 2000, after giving
effect to the conversion of all outstanding shares of our preferred stock into
an aggregate of shares of common stock upon the closing of this offering,
the exercise of warrants to purchase shares of common stock at an exercise
price of $ per share prior to this offering. The table also shows the
number of shares of common stock purchased from us, the total consideration paid
to us and the average price paid per share by existing stockholders and by new
investors purchasing common stock in this offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- -------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... % $ % $
New investors..............
------ ------ --------- --------- ---------
Total.................. % $ %
====== ====== ========= =========
</TABLE>
The above information is based on shares outstanding as of , 2000. It
excludes:
- shares of common stock reserved for issuance upon exercise of
outstanding options at , 2000 with a weighted average exercise price
of $ per share;
20
<PAGE>
- shares of common stock issuable upon exercise of an outstanding
warrant with an exercise price of $ per share; and
- shares available for issuance under our 1995 Stock Option Plan, 1998
Stock Plan, 2000 Employee Stock Purchase Plan and 2000 Equity Incentive
Plan.
Assuming the exercise of all options and warrants outstanding as of ,
2000, our pro forma net tangible book value at , 2000 would be $ million,
or $ per share, which would represent an immediate increase in the pro forma
net tangible book value of $ per share to existing stockholders and an
immediate dilution of $ per share to new investors.
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with, and are qualified by reference to, our consolidated financial
statements and related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The selected consolidated
statement of operations data for the fiscal years ended June 30, 1997, 1998 and
1999 and selected consolidated balance sheet data as of June 30, 1998 and 1999
are derived from, and qualified by reference to, the audited consolidated
financial statements included elsewhere in this prospectus. The selected
consolidated statement of operations data for the fiscal years ended June 30,
1995 and 1996 and the selected consolidated balance sheet data as of June 30,
1995, 1996 and 1997 are derived from unaudited financial statements not included
in this prospectus.
The selected consolidated statement of operations data for the nine months
ended March 31, 1999 and 2000 and the selected consolidated balance sheet data
as of March 31, 2000 are derived from unaudited consolidated financial
statements included elsewhere in this prospectus. The unaudited consolidated
financial statements have been prepared by us on a basis consistent with our
audited consolidated financial statements and, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of our results of operations and financial
position as of and for those periods. Historical results are not necessarily
indicative of results that may be expected for any future period.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------------------------------------------- -------------------------
1995 1996 1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues........................ $ -- $ 10 $ 426 $ 2,493 $ 9,094 $ 5,276 $ 20,661
Cost of revenues................ -- 3 877 2,964 7,225 4,686 17,420
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit (loss)............. -- 7 (451) (471) 1,869 590 3,241
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating expenses
Research and development...... -- 57 524 455 626 412 1,362
Sales and marketing........... -- -- 238 527 802 515 1,392
General and administrative.... 111 386 193 683 826 509 2,259
Amortization of deferred
compensation................ -- -- -- -- 3,044 1,899 4,747
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses.... 111 443 955 1,665 5,298 3,335 9,760
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loss from operations............ (111) (436) (1,406) (2,136) (3,429) (2,745) (6,519)
Interest and other income
(expense), net................ 3 10 9 (12) (57) 1 320
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss........................ $ (108) $ (426) $ (1,397) $ (2,148) $ (3,486) $ (2,744) $ (6,199)
=========== =========== =========== =========== =========== =========== ===========
Net loss per share--basic and
diluted....................... $ -- $ -- $ -- $ (9.35) $ (4.76) $ (4.48) $ (3.91)
=========== =========== =========== =========== =========== =========== ===========
Weighted average shares......... -- -- -- 229,808 731,671 612,847 1,586,534
=========== =========== =========== =========== =========== =========== ===========
Pro forma net loss per
share--basic and diluted...... $ (0.10) $ (0.13)
=========== ===========
Weighted average shares......... 36,426,738 47,717,720
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
---------------------------------------------------- MARCH 31,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 358 $ 711 $ 106 $ 933 $ 4,757 $37,444
Working capital (deficit)................................... 356 (411) 182 1,512 5,637 45,069
Total assets................................................ 511 1,302 1,361 3,061 11,711 63,443
Long term liabilities....................................... -- -- -- -- -- 1,021
Total convertible preferred stock........................... 600 600 2,646 6,373 12,083 58,373
Total stockholders' deficit................................. (108) (534) (1,924) (4,089) (4,525) (5,565)
</TABLE>
22
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined statement of operations data
presents the results of our operations for the year ended June 30, 1999 and the
nine months ended March 31, 2000, combined with the statement of operations of
Telelight for the same periods, giving effect to the acquisition as if it
occurred at the beginning of the period presented. The unaudited pro forma
combined balance sheet gives effect to the acquisition as if it occurred on
March 31, 2000, and combines our unaudited balance sheet as of March 31, 2000
with the unaudited balance sheet of Telelight as of the same date. The unaudited
pro forma combined financial information is presented for illustrative purposes
only and is not necessarily indicative of the operating results or financial
position that would have occurred if the transaction had been consummated at the
dates indicated, nor is it necessarily indicative of the future operating
results or financial position of the combined companies.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1999 MARCH 31, 2000
---------------------- ----------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C>
PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA:
Revenues............................................ $ 9,134 $ 21,252
Cost of revenues.................................... 9,103 19,241
---------- ---------
Gross profit........................................ 31 2,011
---------- ---------
Operating expenses:
Research and development.......................... 809 1,564
Sales and marketing............................... 802 1,403
General and administrative........................ 1,053 2,535
Amortization of deferred compensation............. 3,044 4,747
Goodwill amortization............................. 2,905 2,179
---------- ---------
Total operating expenses........................ 8,613 12,428
---------- ---------
Loss from operations................................ (8,582) (10,417)
Interest and other income (expense), net............ (37) 345
---------- ---------
Net loss............................................ $ (8,619) $ (10,072)
========== =========
Net loss per share.................................. $ (1.16) $ (1.21)
========== =========
Weighted average shares............................. 7,451,671 8,306,534
========== =========
<CAPTION>
MARCH 31,
2000
----------------------
(IN THOUSANDS)
PRO FORMA COMBINED BALANCE SHEET DATA:
<S> <C> <C>
Cash and cash equivalents................................................... $ 37,881
Working capital............................................................. 45,486
Total assets................................................................ 83,535
Long term liabilities....................................................... 1,021
Convertible preferred stock................................................. 58,373
Stockholders' equity........................................................ 14,926
</TABLE>
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS
OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH "SELECTED CONSOLIDATED
FINANCIAL DATA" AND OUR FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED
ELSEWHERE IN THIS PROSPECTUS. IN ADDITION TO HISTORICAL INFORMATION, THE
DISCUSSION IN THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED BY THESE FORWARD-LOOKING STATEMENTS DUE TO FACTORS INCLUDING, BUT
NOT LIMITED TO, THOSE FACTORS SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN
THIS PROSPECTUS.
OVERVIEW
We design, manufacture and supply fiber optic components and integrated
optical modules that increase the performance of optical networks. We provide a
broad line of products to communication equipment suppliers to enable bandwidth
creation and management within an optical network. We were incorporated in
September 1995 and began shipping product for sale in the latter half of 1996.
In April 1999, we established manufacturing operations in Zhuhai, China. In
April 2000, we acquired Telelight Communications Inc., a designer and
manufacturer of fiber optic components with operations in Sunnyvale, California
and Fuzhou, China.
We generate revenues from the sale of fiber optic components and integrated
optical modules. To date, we have developed over 20 types of primary components.
In addition, we have integrated these components through various combinations
and are able to provide over 100 customized solutions for our customers. Our
products are generally categorized into the following four major groups:
wavelength expansion, optical amplification, wavelength performance monitoring
and protection and optical switching. The vast majority of our revenues are
derived from our wavelength expansion products, in particular, dense wavelength
division multiplexers, or DWDMs, and noise reduction filters.
We sell our products through our direct sales force, sales representatives
and distributors. For the nine months ended March 31, 2000, we sold our products
to over 100 communication equipment suppliers. A relatively small number of
these suppliers have accounted for a significant portion of our revenues to
date, and we expect this trend to continue for the foreseeable future. For the
nine months ended March 31, 2000, sales to Lucent Technologies, JDS Uniphase,
Sycamore Networks and Marubun Corporation were 36.0%, 15.8%, 12.6% and 10.6% of
revenues. Sales to Lucent are made to three different groups within the Lucent
organization, each making their own purchase decisions. Sales to the Optical
Network Group, the Optical Electronics Group and Bell Labs comprised 27.1%, 8.4%
and 0.5% of our sales for the nine months ended March 31, 2000. Lucent has
indicated that it may decrease and eventually discontinue incorporating one of
our products into some of its products over the next two years, which represents
26.6% of our revenues for the nine months ended March 31, 2000. Sales to
Marubun, a distributor in Japan, primarily consist of sales to NEC and Hitachi.
For the year ended June 30, 1999, and the nine months ended March 31, 2000,
sales to international customers represented 22.5% and 21.0% of revenues. All of
our sales are transacted in U.S. dollars.
Except for sales to Lucent, we recognize revenues from product sales at the
time the product is shipped to our customers, including our distributors,
provided there are no significant uncertainties with respect to customer
acceptance or collection. Our distributors do not have the right to return or
exchange products. Substantially all shipments to Lucent are on a consignment
basis, and we do not recognize revenues until Lucent accepts the products for
use. In most cases, Lucent will accept products and we will recognize revenues
within one to two months of shipment. We continue to report products shipped to
Lucent as our inventory until they are accepted.
We have manufacturing operations in San Jose, California and Zhuhai and
Fuzhou, China. We have expanded and plan to continue to expand our manufacturing
capacity as our business grows. We
24
<PAGE>
are currently expanding our facilities in San Jose and Zhuhai. In addition, we
have acquired rights to a parcel of land in China which we intend to use for
future expansion of our manufacturing facilities.
COST OF REVENUES. Our cost of revenues consists of raw material, salaries
and related personnel expense, manufacturing overhead, and provisions for excess
and obsolete inventories and warranties. We expect cost of revenues, as a
percentage of revenues, to fluctuate from period to period. Our gross margins
will primarily be affected by production yield, our pricing policies, mix of
products sold, costs incurred in establishing additional manufacturing lines and
facilities, and manufacturing volume. The fiber optic component industry is
typically characterized by rapidly declining average selling prices, increasing
unit volumes and declining margins.
RESEARCH AND DEVELOPMENT EXPENSES. Our research and development expenses
consist primarily of salaries and related personnel costs, fees paid to
consultants and outside service providers, patent filing costs, non-recurring
engineering charges and prototype costs, all of which relate to the design,
development, testing, pre-manufacturing and enhancement of our products. We
expense our research and development costs as they are incurred. We believe that
developing customer solutions at the prototype stage is critical to our
strategic product development objectives. We further believe that, in order to
meet the changing requirements of our customers, we will need to fund
investments in several concurrent product development projects. As a result, we
expect our research and development expenses to increase in absolute dollar
amount and as a percentage of revenues in the future.
SALES AND MARKETING EXPENSES. Our sales and marketing expenses consist
primarily of salaries and related expenses for marketing, sales, customer
service and application engineering support personnel, commissions paid to the
internal sales personnel and representatives, as well as costs associated with
promotional and other marketing expenses. We intend to expand our direct sales
operations, as well as engage additional sales representatives and distributors
to increase market awareness and revenues. As we hire additional sales and
marketing personnel, initiate additional marketing programs to support our
products and establish sales offices, we expect that sales and marketing
expenses will increase in absolute dollar amount over the next year but remain
approximately at the current percentage of revenues.
GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative
expenses consist primarily of salaries and related expenses for executive,
finance, accounting, and human resources personnel, professional fees and other
corporate expenses. As we add personnel and incur additional costs related to
the growth of our business and our operation as a public company, we expect
general and administrative expenses to increase in absolute dollar amount but
decrease as a percentage of revenues.
DEFERRED COMPENSATION. Deferred compensation is recognized in connection
with the granting of stock options to employees and consultants. During the
period from July 1, 1998 to March 31, 2000, we recorded deferred compensation
within stockholders' equity of approximately $14.8 million, representing the
difference between the estimated fair value of the common stock for accounting
purposes and the exercise price of these options at the date of grant. These
amounts are being amortized over the vesting period of the applicable options,
which is generally a maximum of four years from the date of hire. We expect to
record additional deferred compensation for the quarter ended June 30, 2000 and
through the effective date of this offering.
ACQUISITION OF TELELIGHT. We acquired Telelight on April 6, 2000 in a
merger transaction accounted for as a purchase business combination. The results
of operations of Telelight will be included in our consolidated financial
statements beginning on the date of the acquisition. The purchase price of
Telelight consisted of 6,720,000 shares of our common stock valued at
$26.9 million. We also incurred direct acquisition costs of approximately
$200,000 resulting in an aggregate purchase price of $27.1 million. Telelight
was founded in 1998 to design, develop and sell fiber optic components which are
designed to increase capacity and bandwidth of fiber optic communications
networks. We will
25
<PAGE>
record goodwill and other purchased intangible assets of approximately
$19.0 million associated with the Telelight acquisition. Goodwill and other
intangible assets are being amortized on a straight-line basis over their
estimated useful lives of four years.
RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, certain data from
our consolidated statement of operations expressed as a percentage of revenues:
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED JUNE 30, ENDED MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues................................. 205.9 118.9 79.4 88.8 84.3
------ ----- ----- ----- -----
Gross profit (loss).............................. (105.9) (18.9) 20.6 11.2 15.7
------ ----- ----- ----- -----
Operating expenses
Research and development....................... 123.0 18.3 6.9 7.8 6.6
Sales and marketing............................ 55.9 21.1 8.8 9.8 6.7
General and administrative..................... 45.3 27.4 9.1 9.6 10.9
Amortization of deferred compensation.......... -- -- 33.5 36.0 23.0
------ ----- ----- ----- -----
Total operating expenses..................... 224.2 66.8 38.3 43.2 47.2
------ ----- ----- ----- -----
Loss from operations............................. (330.1) (85.7) (37.7) (52.0) (31.5)
Interest and other income (expense), net......... 2.1 (0.5) (0.6) -- 1.5
------ ----- ----- ----- -----
Net loss......................................... (328.0)% (86.2)% (38.3)% (52.0)% (30.0)%
====== ===== ===== ===== =====
</TABLE>
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 1999 AND 2000
REVENUES. Revenues increased $15.4 million, or 292%, from $5.3 million in
the nine months ended March 31, 1999 to $20.7 million for the nine months ended
March 31, 2000. This increase in revenues was primarily due to increased
shipments of our wavelength expansion products to new and existing customers.
This increase was offset by a decrease in the price of a product sold to Lucent
and a decrease in the average selling price of some of our other products.
GROSS PROFIT (LOSS). Gross profit increased $2.7 million, or 449%, from
$590,000 in the nine months ended March 31, 1999 to $3.2 million for the nine
months ended March 31, 2000. This resulted in an increase in gross margins from
11.2% to 15.7%. The increase in our gross margin was primarily the result of
increased unit shipments of our products and economies of scale resulting from
higher production volumes. This increase was partially offset by a decrease in
the average selling price of some of our products and the recording of a
provision for excess and obsolete inventory of $2.7 million compared to a
provision of $326,000 in the nine months ended March 31, 1999.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
$950,000, or 231%, from $412,000 for the nine months ended March 31, 1999 to
$1.4 million for the nine months ended March 31, 2000. The increase in research
and development expenses was primarily due to increases in personnel-related
costs and prototype expenses.
SALES AND MARKETING. Sales and marketing expenses increased $877,000, or
170%, from $515,000 for the nine months ended March 31, 1999 to $1.4 million for
the nine months ended March 31, 2000. The increase in sales and marketing
expense was primarily due to increases in sales and marketing personnel and
related costs, commission expenses to our internal and external sales
representatives and tradeshow, advertising and other customer-related costs.
26
<PAGE>
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$1.8 million, or 344%, from $509,000 for the nine months ended March 31, 1999 to
$2.3 million for the nine months ended March 31, 2000. The increase in general
and administrative expenses was primarily due to increases in personnel and
related costs, professional services and bad debt reserves.
AMORTIZATION OF DEFERRED COMPENSATION. Through March 31, 2000, we have
recorded a total of $14.8 million in deferred compensation. Amortization of
deferred compensation expenses increased $2.8 million, or 150%, from
$1.9 million for the nine months ended March 31, 1999 to $4.7 million for the
nine months ended March 31, 2000.
INTEREST AND OTHER INCOME (EXPENSE), NET. Interest and other income for the
nine months ended March 31, 1999 was $1,000 as compared to $320,000 for the nine
months ended March 31, 2000. This increase is due to larger cash balances from
the proceeds of our preferred stock financing in February 1999.
PROVISION FOR INCOME TAXES. We incurred operating losses for the nine
months ended March 31, 1999 and 2000 and therefore had no provision for income
taxes in either period. As of June 30, 1999, we had $3.7 million in net
operating losses, which are available to offset future income subject to an
annual limitation of $500,000. If not used, the net operating losses will expire
between 2004 and 2019.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED JUNE 30, 1997, 1998 AND 1999
REVENUES. Our revenues were $426,000, $2.5 million and $9.1 million for the
fiscal years 1997, 1998 and 1999. These changes represent an increase of 485%
from 1997 to 1998 and 265% from 1998 to 1999. The increases in revenue are
primarily attributable to increased volume shipment of new and existing
products.
GROSS PROFIT (LOSS). Our gross profit (loss) was $(451,000), $(471,000) and
$1.9 million for the fiscal years 1997, 1998 and 1999. Our gross profit of
$1.9 million for fiscal year 1999 represented 20.6% of revenues. The improvement
in our gross margin from fiscal year 1998 to 1999 was primarily the result of
increased unit shipments of our products, combined with a decrease in the cost
of materials that are used in our products and economies of scale associated
with higher production levels.
RESEARCH AND DEVELOPMENT. Research and development expenses were $524,000,
$455,000 and $626,000 for the fiscal years 1997, 1998 and 1999. These changes
represent a decrease of 13% from fiscal years 1997 to 1998 and an increase of
38% from fiscal years 1998 to 1999. The decrease in research and development
expense from fiscal 1997 to fiscal 1998 was primarily due to prototype expenses.
The increase in research and development expenses from fiscal 1998 to fiscal
1999 was primarily due to increases in personnel-related costs and prototype
expenses.
SALES AND MARKETING. Sales and marketing expenses were $238,000, $527,000
and $802,000 for the fiscal years 1997, 1998 and 1999. These changes represent
an increase of 121% from fiscal years 1997 to 1998 and an increase of 52% from
fiscal years 1998 to 1999. The increase in sales and marketing expense for each
period was primarily due to increases in sales and marketing personnel and
related costs, commission expenses and tradeshow, advertising and other
customer-related costs.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$193,000, $683,000 and $826,000 for the fiscal years 1997, 1998 and 1999. These
changes represent an increase of 254% from fiscal years 1997 to 1998 and an
increase of 21% from fiscal years 1998 to 1999. The increase in general and
administrative expenses for each period was primarily due to increases in
personnel and related costs and professional services.
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AMORTIZATION OF DEFERRED COMPENSATION. Through June 30, 1999, we recorded a
total of $6.5 million in deferred stock compensation. We recognized amortization
of stock compensation of $3.0 million for the fiscal year 1999, and none during
the fiscal year 1998 or 1997.
INTEREST AND OTHER INCOME (EXPENSE), NET. Interest and other income
(expense) for the fiscal years 1997, 1998 and 1999 was $9,000 of income as
compared to $12,000 and $57,000 of expense. The increase in expense from fiscal
1997 as compared to fiscal 1998 and 1999 was primarily due to increases in
interest expense associated with borrowings.
PROVISION FOR INCOME TAXES. We incurred operating losses during the fiscal
years 1997, 1998 and 1999 and had no provision for income taxes in any of these
periods. As of June 30, 1999, we had $3.7 million in net operating losses, which
are available to offset future income subject to an annual limitation of
$500,000. If not used, the net operating losses will expire between 2004 and
2019.
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QUARTERLY RESULTS OF OPERATIONS
The following table presents our operating results for the last seven
quarters. The information for each of these quarters is unaudited but has been
prepared on the same basis as the audited consolidated financial statements
appearing elsewhere in this prospectus. In the opinion of management, all
necessary adjustments, consisting only of normal recurring adjustments, have
been included to present fairly the unaudited quarterly results when read in
conjunction with the audited consolidated financial statements and the related
notes appearing elsewhere in this prospectus. These operating results are not
necessarily indicative of the results of any future period:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
(DOLLARS IN THOUSANDS)
----------------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1998 1998 1999 1999 1999 1999 2000
--------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........................................... $1,576 $1,657 $ 2,043 $3,818 $4,432 $ 6,817 $ 9,412
Cost of revenues................................... 1,482 1,506 1,698 2,539 3,274 5,322 8,824
------ ------ ------- ------ ------ ------- -------
Gross profit....................................... 94 151 345 1,279 1,158 1,495 588
------ ------ ------- ------ ------ ------- -------
Operating expenses:
Research and development......................... 75 156 181 214 218 289 855
Sales and marketing.............................. 163 163 189 287 311 481 600
General and administrative....................... 156 144 209 317 719 612 928
Amortization of deferred compensation............ -- -- 1,899 1,145 533 1,270 2,944
------ ------ ------- ------ ------ ------- -------
Total operating expenses....................... 394 463 2,478 1,963 1,781 2,652 5,327
------ ------ ------- ------ ------ ------- -------
Loss from operations............................... (300) (312) (2,133) (684) (623) (1,157) (4,739)
Interest and other income (expense), net........... (2) (13) 16 (58) 35 23 262
------ ------ ------- ------ ------ ------- -------
Net Loss........................................... $ (302) $ (325) $(2,117) $ (742) $ (588) $(1,134) $(4,477)
====== ====== ======= ====== ====== ======= =======
Revenues........................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues................................... 94.0 90.9 83.1 66.5 73.9 78.1 93.8
------ ------ ------- ------ ------ ------- -------
Gross profit....................................... 6.0 9.1 16.9 33.5 26.1 21.9 6.2
------ ------ ------- ------ ------ ------- -------
Operating expenses:
Research and development......................... 4.8 9.4 8.9 5.6 4.9 4.2 9.1
Sales and marketing.............................. 10.3 9.8 9.3 7.5 7.0 7.1 6.4
General and administrative....................... 9.9 8.7 10.2 8.3 16.2 9.0 9.9
Amortization of deferred compensation............ 0.0 0.0 93.0 30.0 12.0 18.6 31.3
------ ------ ------- ------ ------ ------- -------
Total operating expenses....................... 25.0 27.9 121.4 51.4 40.1 38.9 56.7
------ ------ ------- ------ ------ ------- -------
Loss from operations............................... (19.0) (18.8) (104.5) (17.9) (14.0) (17.0) (50.5)
Interest and other income (expense), net........... (0.1) (0.8) 0.8 (1.5) 0.8 0.3 2.8
------ ------ ------- ------ ------ ------- -------
Net Loss........................................... (19.1)% (19.6)% (103.7)% (19.4)% (13.2)% (16.7)% (47.7)%
====== ====== ======= ====== ====== ======= =======
</TABLE>
Revenues increased in each of the seven quarters ended March 31, 2000. These
quarterly increases were primarily due to the increased volume shipments of our
wavelength expansion products to new and existing customers. These increases
were offset by a decrease in the average selling price of some of our products
and, in particular, by a decrease in the price of a product sold to Lucent
during the quarters ended September 30, 1999 and December 31, 1999.
Both gross profit and gross margins increased in each of the four quarters
ended June 30, 1999 primarily as a result of higher unit shipment volumes and
the economies of scale associated with the higher production levels. Gross
profit and gross margins decreased in the quarter ended September 30, 1999 from
the prior quarter due to a significant drop in the average selling price of a
product sold to Lucent. Gross profits increased in the quarter ended
December 31, 1999 compared to the quarter ended September 30, 1999 primarily due
to higher unit shipments partially offset by a further decrease in the average
selling price of a product sold to Lucent. Gross margin decreased in this
quarter primarily due to the lower average selling price of a product sold to
Lucent. Gross profit and gross margins for the quarter ended March 31, 2000
decreased from the prior quarter primarily as a result of
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a significant increase in the provision for excess obsolete inventory. We expect
gross margins to fluctuate in the future as average selling prices decline in
our current products, as we incur higher manufacturing costs, as production
yields fluctuate, as the mix of products changes, as we introduce new products
which may have higher margins, and as we increase our production capacity.
Research and development, sales and marketing and general and administrative
expenses have increased over the seven quarters ended March 31, 2000 primarily
due to the addition of personnel, costs incurred for the development of new
products, increases in sales commissions, promotional expenses, professional
fees and bad debt reserves.
Due to the factors noted above and other factors noted under "Risk Factors,"
we believe that quarter-to-quarter comparisons of our operating results will not
be meaningful. You should not rely on our results for any one quarter as an
indication of our future performance.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through
venture capital and private issuances of our convertible preferred stock, which
totaled approximately $58.4 million in aggregate net proceeds through March 31,
2000. In February 2000, we raised $44.0 million from venture capital and private
investors through the issuance of convertible preferred stock. As of March 31,
2000, we had cash and cash equivalents of $37.4 million and working capital of
$45.1 million.
Our operating activities used cash of $2.8 million in fiscal 1997,
$2.1 million in fiscal 1998, $537,000 in fiscal 1999, and $9.2 million during
the nine months ended March 31, 2000. Cash used in operating activities was
primarily attributable to net losses incurred during fiscal 1997, 1998, 1999 and
the nine months ended March 31, 2000 of $1.4 million, $2.1 million,
$3.5 million, and $6.2 million. In fiscal 1997, cash used in operating
activities was also attributable to increases in accounts receivable,
inventories, and prepaid expenses of $184,000, $215,000, and $200,000, and
decreases in accrued liabilities of $922,000, partially offset by depreciation
and amortization expense of $162,000. In fiscal 1998, cash used in operating
activities was also attributable to increases in accounts receivable and prepaid
expenses of $509,000 and $174,000, partially offset by increases in accounts
payable and accrued liabilities of $280,000 and $210,000, and depreciation
expense of $179,000. In fiscal 1999, cash used in operating activities was also
attributable to increases in accounts receivable, inventories and prepaid
expenses of $1.2 million, $2.0 million and $480,000, partially offset by
increases in accounts payable and accrued liabilities of $2.8 million and
$574,000, and depreciation expense and amortization of stock compensation of
$267,000 and $3.0 million. During the nine months ended March 31, 2000, cash
used in operating activities was also attributable to increases in accounts
receivable, inventories and prepaid expenses of $2.7 million, $7.1 million, and
$2.4 million, and increases in accounts payable of $3.3 million, accrued
liabilities of $1.7 million, depreciation and amortization of $501,000, and
amortization of deferred stock compensation of $4.7 million.
Our investing activities used cash of $199,000 in fiscal 1997, $411,000 in
fiscal 1998, $1.4 million in fiscal 1999 and $4.9 million during the nine months
ended March 31, 2000. Our investing activities primarily reflect the purchase of
property and equipment. During the next 12 months we expect to expense
approximately $60 million related primarily to the expansion of our
manufacturing facilities. We expect to use cash generated from the offering for
these expenditures.
Our financing activities provided cash of $2.4 million in fiscal 1997,
$3.3 million in fiscal 1998, $5.7 million in fiscal 1999, and $46.8 million
during the nine months ended March 31, 2000. The increase in cash in each of
these periods was primarily from the net proceeds from the issuances of our
convertible preferred stock.
Our principal source of liquidity at March 31, 2000 consisted of
$37.4 million in cash and cash equivalents. We believe that the proceeds from
this offering, together with our current cash and cash
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equivalent balances, and any cash generated from operations will be sufficient
to meet our operating and capital requirements for at least the next 12 months.
However, it is possible that we may require additional financing within this
period. We have no current plans, and we are not currently negotiating, to
obtain additional financing following the completion of this offering. The
factors described above will affect our future capital requirements and the
adequacy of our available funds. In addition, even if we raise sufficient funds
to meet our anticipated cash needs during the next 12 months, we may need to
raise additional funds beyond this time. We may be required to raise those funds
through public or private financings, strategic relationships or other
arrangements. We cannot assure you that such funding, if needed, will be
available on terms attractive to us, or at all. Furthermore, any additional
equity financing may be dilutive to stockholders, and debt financing, if
available, may involve restrictive covenants. If we fail to raise capital when
needed, our failure could have a negative impact on our ability to pursue our
business strategy and achieve and maintain profitability.
QUALITATIVE AND QUANTITATIVE MARKET RISK
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we may invest
in may be subject to market risk. To minimize this risk in the future, we intend
to maintain our portfolio of cash equivalents and short-term investments in a
variety of securities, including commercial paper, money market funds,
government and non-government debt securities and certificates of deposit. As of
March 31, 2000, all of our investments were in money market funds, certificates
of deposits or high quality commercial paper.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS
No. 133 establishes new standards of accounting and reporting for derivative
instruments and hedging activities. SFAS No. 133 requires that all derivatives
be recognized at fair value in the statement of financial position, and that the
corresponding gains or losses be reported either in the statement of operations
or as a component of comprehensive income (loss), depending on the type of
hedging relationship that exists.
In July 1999, the FASB issued SFAS No. 137 "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133." SFAS No. 137 deferred the effective of SFAS No. 133 until
fiscal years beginning after June 15, 2000. We do not believe that the adoption
of SFAS No. 137 will have a material impact on our operations or financial
position.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin, or 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 to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. We believe
that we have complied with the guidance of SAB 101.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, or FIN 44, "Accounting for Certain Transactions Involving
Stock Compensation, an Interpretation of Opinion No. 25 for (a) the definition
of employee for purposes of applying Opinion No. 25, (b) the criteria for
determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequences of various modifications to the terms of a previously
fixed stock option or award, 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 cover specific events that occur after either
December 15, 1998, or January 12, 2000. We believe that the impact of FIN 44
will not have a material effect on our financial position or results of
operations.
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In various areas, including revenue recognition, accounting standards and
practices continue to evolve. Additionally, the SEC is preparing to issue
interpretative guidance relating to SAB 101, and the FASB's Emerging Issues Task
Force continues to address revenue related accounting issues. We believe we are
in compliance with all of the rules and related guidance as they currently
exist. However, any changes to generally accepted accounting principles in these
areas could impact our future accounting for our operations.
32
<PAGE>
BUSINESS
OVERVIEW
We provide a broad line of high performance fiber optic components and
integrated optical modules worldwide to communication equipment suppliers. Our
bandwidth creation products substantially increase the capacity of fiber optic
networks. Our bandwidth management products provide communication service
providers with network intelligence, or the ability to manage optical signals to
enhance network performance. By combining our technical expertise with our
extensive micro-optic manufacturing capability and capacity in the United States
and China, we produce large volumes of components as well as customize
integrated products to meet the specific design needs of our customers. Our
customers include: ADVA, Alcatel, Cisco, Corning, JDS Uniphase, Lucent, NEC,
Nortel and Sycamore.
INDUSTRY BACKGROUND
INCREASE IN BANDWIDTH DEMAND
The rapid growth of Internet activities such as conducting electronic
commerce and transmitting large data and video files has caused a significant
increase in data traffic across communication networks. According to Ryan,
Hankin & Kent, or RHK, a leading market research and consulting firm, Internet
traffic will increase from 0.4 million terabytes, or trillions of bytes, per
month at the end of 1999, to over 15 million terabytes per month in 2003, a
compound annual growth rate of 156%. The growth in Internet usage has created
significant demand for improved network capacity, or bandwidth. To accommodate
this increase in demand, communication service providers are upgrading their
network systems by incorporating the latest technologies.
EVOLUTION OF THE OPTICAL NETWORK
Communication networks were originally designed to handle voice rather than
high-speed data traffic. These networks were based on the transmission of
electronic signals over copper wires and are limited in their ability to handle
large quantities of data. As a result, communication service providers are
increasingly adopting fiber optic technology. Fiber optic technology can more
effectively handle large quantities of data by transmitting signals using pulses
of light rather than electric signals. Fiber optic equipment consists of both
passive and active components. Passive optical components guide, mix, filter,
route, adjust and stabilize optical signals transmitted through an optical
network and generally do not require power to operate. Active components, in
contrast, require power and use electrical signals to create, modulate or
amplify the original optical signal. While fiber optic technology has existed
for decades, recent technological advances in design and production of both
passive and active components have enabled communications equipment suppliers to
introduce next-generation fiber optic systems to communication networks. These
components increase the capacity of existing optical networks and enable the
management of optical signals within the network.
BANDWIDTH CREATION. Communication equipment suppliers may increase the
capacity of their customers' networks and transmit optical signals over greater
distances through the use of bandwidth creation technologies.
- OPTICAL AMPLIFICATION. Prior to the development of fiber amplifiers,
signal attenuation, or loss, limited the distance to approximately 60
miles over which an optical signal could be transmitted without
regeneration. As a result, amplification equipment was installed in
numerous physical locations throughout the network to provide regeneration
of optical signals. This equipment, known as opto-electrical regenerators,
essentially converts optical signals into electrical signals which are
then amplified and converted back to optical signals allowing them to
travel longer distances. This technology is expensive to deploy, difficult
to maintain and inefficient. Advances
33
<PAGE>
in optical amplification component technology now make it possible to
transmit an optical signal over a longer distance without opto-electrical
conversion by using modules known as erbium-doped fiber amplifiers, or
EDFAs, and Raman amplifiers. EDFAs combine a section of fiber with traces
of an element which excites light signals as they pass through, resulting
in the amplification of the signal. Unlike the EDFA, Raman amplifiers use
the transmission fiber itself for amplification and do not require any
specialty fiber.
- DENSE WAVELENGTH DIVISION MULTIPLEXING. Due to the increased demand for
bandwidth capacity, communication equipment suppliers are developing
optical systems that allow more data to be transmitted over an existing
fiber without the addition of new fiber. This is being accomplished
through components that utilize wavelength division multiplexing
technology, or WDM, which simultaneously transmits multiple wavelengths
instead of just one wavelength over a single fiber. Optical signals
traveling over different wavelengths are consolidated using multiplexing
devices at one end, then transmitted over a single fiber. At the other end
of the fiber the optical signal is demultiplexed, or separated, much like
a prism separating different colors of light. This technology has been
further enhanced by the introduction of dense wavelength division
multiplexing, or DWDM, which permits wavelengths to be more closely
spaced, thereby allowing more wavelengths to be transmitted
simultaneously.
BANDWIDTH MANAGEMENT. Bandwidth management technologies enable
communication equipment suppliers to add intelligence to their systems, which
allows communication service providers to monitor the performance, and control
the direction, of light signals throughout the optical network.
- WAVELENGTH MONITORING. As fiber optic networks become more complex,
wavelength monitoring is critical to maintaining a high quality of
service. Currently, optical signals are transmitted over a limited number
of wavelengths. While adding more wavelengths in a single optical fiber
can significantly increase the network capacity, managing a large and
increasing number of wavelengths on optical fibers poses a constant
challenge to the communication service providers. These monitoring issues
can be resolved by integrating optical components with electronics,
providing intelligence to fiber optic systems. The added intelligence to
the network enables communication service providers to make decisions that
improve traffic flow and network efficiency.
- OPTICAL SWITCHING. Today's optical networks are simple point-to-point
transmission systems in which switching, or changing the direction of an
optical signal, is performed electronically rather than optically. As
networks grow more complex towards all optical systems, there is a growing
demand for fiber optic components that can switch without an
opto-electrical conversion.
SEGMENTATION OF THE COMMUNICATIONS NETWORK
Communication service providers rely upon communication equipment suppliers
to provide systems that address the specific technical, pricing and performance
requirements of their networks. Network requirements will differ throughout the
various segments of a network, therefore systems from different equipment
suppliers are often installed. Optical component manufacturers provide the
underlying technologies for these systems. The four segments of the network
include:
- ultra-long haul, for cross-country connections;
- long haul, for long distance connections between cities;
- metropolitan, for connections within urban areas; and
- access, for connections to individual homes and businesses.
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The ultra-long haul and long haul network segments currently represent the
largest markets today for optical equipment. Optical technologies in the
metropolitan and access network segments are becoming increasingly prevalent.
CHALLENGES FACED BY FIBER OPTIC COMPONENT MANUFACTURERS
Communication equipment suppliers rely upon fiber optic component
manufacturers to quickly design, manufacture and supply advanced optical
technologies. Even large communication equipment suppliers that manufacture
their own components are finding that demand for components exceeds their own
supply capabilities and are increasingly seeking third-party providers to
supplement their supply. Component manufacturers face the following issues in
trying to meet this demand.
- NEED FOR OPTICAL COMPONENT INTEGRATION. Communication equipment suppliers
strive to reduce the overall cost, size, amount and manufacturing
complexity of equipment used to build optical networks. The number of
components that they must utilize to improve system performance has
substantially increased due to the growing complexity of optical network
systems. Thus, component manufacturers need to integrate more optical
components into single compact modules. Such integrated components may
often provide higher performance and functionality than individual
products that are linked together, however, integration often adds more
design complexity.
- NEED FOR OPTICAL COMPONENT MANUFACTURING CAPACITY. Rapid technological
advances coupled with high demand for the latest optical components and
integrated optical modules has reduced product lifecycles and shortened
the time for deployment within networks. Optical component manufacturers
are increasingly compelled to achieve a significant ramp-up in
manufacturing capacity and reduce time-to-market for new component design
in order to meet the demand of equipment suppliers.
- NEED FOR OPTICAL COMPONENT QUALITY AND RELIABILITY. While end users are
demanding more bandwidth for voice and data services, they are typically
unwilling to accept service levels that are below that which they have
grown accustomed to with traditional voice service. Managing high volumes
of voice and data traffic utilizing early-stage optical technology poses a
unique problem to communication service providers that face the threat of
significant revenue loss and customer churn if they do not provide a high
level of service quality. Component manufacturers are increasingly
expected to enhance and grow their technical expertise to achieve product
quality and reliability that meets or exceeds technical standards.
- NEED FOR A BROAD LINE OF COMPONENTS AND EXPERTISE. As the complexity of
optical networks increases, their performance can be enhanced by
integrating more optical components into network equipment. Equipment
suppliers prefer to rely on optical component manufacturers that possess
technical expertise and knowledge across a broad range of components, and
are able to efficiently integrate multiple component types into a custom
solution. In addition, equipment suppliers that seek to streamline vendor
qualification procedures and concentrate volume purchases may choose to
use fewer component providers.
SOLUTIONS
We provide a broad line of high performance fiber optic components and
integrated optical modules worldwide to communication equipment suppliers.
Through internal research and development and selective acquisitions we have
developed over 20 types of primary components which can be integrated through
various combinations to create over 100 custom solutions. For all segments of
the network we provide our customers with high quality passive components and
integrated optical modules that are used for bandwidth creation and management.
In situations where a customer requires a combination of multiple components
within a module, our highly trained engineering and marketing
35
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staff works closely with them to design a reliable integrated solution. We work
with our customers early in their development cycle and design our products to
meet their particular requirements. This provides us with the ability to capture
the volume production requirements of our customers when their systems are ready
for commercial deployment. We support our customers' volume and time-to-market
requirements with advanced micro-optic manufacturing and packaging facilities in
both the United States and China.
THE OPLINK STRATEGY
Our objective is to be a leading supplier of high performance fiber optic
components and integrated optical modules. The key elements of this strategy
include:
EXPAND OUR MANUFACTURING CAPACITY AND ENHANCE MANUFACTURING CAPABILITIES
THROUGH AUTOMATION. We plan to aggressively increase our manufacturing capacity
in San Jose, California and Zhuhai, China. In addition, we intend to continue to
invest in our manufacturing process and introduce automation techniques. We
believe this will increase process yield, throughput and quality.
BUILD NEW AND EXPAND EXISTING CUSTOMER RELATIONSHIPS. Because of our early
interaction with our customers during their product development stages, our
experienced staff of engineers, have built relationships with premier
communication equipment suppliers, including: ADVA, Alcatel, Cisco, Corning, JDS
Uniphase, Lucent, NEC, Nortel and Sycamore. To better serve our existing
customer base and attract new customers, we intend to significantly increase our
technical marketing and support teams.
EXPAND AND ENHANCE OUR EXISTING LINE OF PRODUCTS FOR ALL SEGMENTS OF THE
OPTICAL NETWORK. Our innovative fiber optic products enable both bandwidth
creation and management. Through internal research and development and selective
acquisitions we have built, and plan to continue to build, a broad product line
of passive fiber optic components and integrated optical modules to meet the
requirements of our customers. By offering a broad array of products we are able
to serve numerous equipment providers across all segments of the network.
CONTINUE TO DEVELOP OPTICAL PRODUCTS WITH INTELLIGENCE FEATURES. We believe
that some our products, including our wavelength performance monitors and
wavelength protection modules, are differentiated by their intelligence
features. The intelligence of an optical product is created by adding an
electronic interface which provides monitoring and controlling capabilities to
optical networks. We are currently adding this capability to other products
including our reconfigurable wavelength add/drop and wavelength switching
families of products. We plan to continue to enhance existing and introduce new
intelligent optical modules to our product line within the bandwidth management
segment of our business. We believe that this will allow us to capitalize on the
industry trend towards all-optical networks and enhanced network functionality.
CONTINUE TO ATTRACT TALENTED PERSONNEL. The market for experienced
photonics and optics design and application engineers is highly competitive. We
have design and manufacturing centers in San Jose, California and several
locations in China. These areas have significant numbers of locally available
experienced optics design engineers. We plan to continue recruiting high quality
talent at our existing locations. We believe that the combination of our local
knowledge and the availability of experienced talent in China is a competitive
advantage that will enable us to meet the expected growth of our business and
respond more quickly to large volume orders.
PURSUE SELECTIVE ACQUISITIONS OF BUSINESSES AND TECHNOLOGIES. We intend to
continue to leverage our reputation to aggressively pursue strategic
acquisitions that can provide us with key intellectual property, strategic
products and highly-qualified engineering personnel to rapidly increase our
technological expertise and expand the breadth of our product portfolio.
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PRODUCTS AND TECHNOLOGIES
We provide a broad line of fiber optic components and integrated optical
modules designed to satisfy the needs of communication equipment suppliers. We
categorize our products by the functionalities provided within a network, from
bandwidth creation to bandwidth management. Some of our products have attributes
which combine both of these functions. While all of our bandwidth creation
components can be categorized as passive optical components, some of our
bandwidth management components utilize electronic interfaces to provide
intelligence and to enhance their function in a network.
BANDWIDTH CREATION PRODUCTS
Communication equipment suppliers use our bandwidth creation products to
expand the capacity of their customers' networks and enable optical signals to
travel over greater distances.
WAVELENGTH EXPANSION PRODUCTS. In fiber optic communications, different
signals are transmitted over multiple wavelengths. With increases in the number
of wavelengths and data rates, spacing between the wavelengths narrows and it
becomes increasingly important to separate and direct them into their respective
receivers. We offer wavelength expansion products that function as highly
sensitive filters that enable combination and separation of a particular
wavelength. Wavelength expansion products include wavelength multiplexing
(combining), de-multiplexing (separating), wavelength interleaving and locking.
We offer the following products to handle these tasks.
- DENSE WAVELENGTH DIVISION MULTIPLEXERS. A dense wavelength division
multiplexer, or DWDM, is an integrated optical module that combines two or
more wavelengths for transmission over a single fiber (multiplexing) or
separates these wavelengths (demultiplexing) at the receiving end. Our
DWDM technology uses thin film filter technology to separate optical
signals.
- DWDM INTERLEAVERS. A DWDM interleaver is an optical component that
combines and separates signals into complementary adjacent wavelengths,
effectively doubling the capacity of the optical network system.
- WAVELENGTH LOCKERS. A wavelength locker is an opto-electrical component
that is used to stabilize the wavelengths of lasers used in DWDM
transmission systems. Wavelength lockers ensure that the wavelength of a
source laser does not interfere with an adjacent wavelength signal.
- NOISE REDUCTION FILTERS. A noise reduction filter is a filter array
module used in conjunction with a particular DWDM module to reduce optical
signal noise.
- CHROMATIC DISPERSION COMPENSATORS. A chromatic dispersion compensator is
a module that reduces the negative effect of different wavelengths
reaching their destinations at different times.
- DISPERSION SLOPE COMPENSATORS. A dispersion slope compensator is a module
that reduces the negative effect of different wavelengths reaching their
destinations at different times in an irregular fashion.
OPTICAL AMPLIFICATION PRODUCTS. Optical fiber amplifiers are widely
deployed in optical communication networks to enhance the optical signal power.
Optical signals typically lose power and eventually are lost after travelling a
long distance along an optical fiber. This power loss is referred to as
attenuation. Through recent advances in technology, the optical signal can be
amplified with EDFAs or with Raman amplifiers, neither of which require
opto-electrical conversion. The amplifiers are arranged along fiber cable lines
at regular intervals to enable the optical signal to reach its destination as a
clear and readable message. While amplifiers range in complexity, a typical
amplifier consists of a fiber and several of the components listed below.
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- ISOLATORS. Isolators are fiber optic devices that transmit light in only
one direction, thus preventing reflected light signals from returning to
its laser source. Reflected light can interfere with a laser's process and
create noise, which can impair system performance in optical networks.
- TAP COUPLERS. Tap couplers transfer optical signals between fibers. They
are widely used for system monitoring purposes and have very low insertion
loss, or the power loss incurred when adding additional components to a
fiber cable.
- WDM PUMP/SIGNAL COMBINERS. Micro-optic WDM pump/signal combiners are
components that provide power for the optical amplifier. They are used to
efficiently combine light signals with pump laser sources that energize
signals in optical amplifiers.
- INTEGRATED HYBRID COMPONENTS. Optical amplifier systems can combine
optical components, including isolators, tap couplers and WDM pump/signal
combiners. The main advantage of hybrid components is that they minimize
the amplifier package size and reduce manufacturing cost.
- GAIN FLATTENING FILTERS. Gain flattening filters are used to ensure
signals are amplified by equal amounts. Our thin film technology employs
multiple layers of optical materials on glass to adjust optical output at
different wavelengths to meet the needs of next-generation high power
amplifiers.
- WDM PUMP COMBINERS. WDM pump combiners are used to increase the power of
an optical amplifier by combining multiple pump lasers into one common
pump source for amplification.
- POLARIZATION BEAM COMBINERS. Polarization beam combiners are optical
components that combine two of the same or different wavelengths with
opposing polarization to increase the power output of the optical
amplifier.
- VARIABLE OPTICAL ATTENUATORS. Variable optical attenuators, or VOAs, are
optical devices that reduce the power of the optical signal in DWDM
networks to ensure that all optical signals within a network have equal
power. The amount of power reduction of a particular optical signal can be
adjusted to match the power of other optical signals in the network.
BANDWIDTH MANAGEMENT PRODUCTS
Communication equipment suppliers use our bandwidth management products to
add intelligence to their systems which allows communication service providers
to monitor the performance, and control the direction, of light signals
throughout the optical network.
WAVELENGTH PERFORMANCE MONITORING AND PROTECTION PRODUCTS. The ability to
monitor wavelengths within an optical network enables service providers to
maintain quality of service even in the event of an interruption in the signal
path, such as a cut in the fiber. It is significantly more difficult to monitor
signal flow in optical systems as compared to electrical systems. Monitoring
requires that optical signals be extracted from the fiber without interfering
with the optical signal travelling through the same fiber. We offer products
that enable service providers to monitor network performance and make necessary
decisions for traffic flow and network efficiency.
- SUPERVISORY CHANNEL MONITORS. Our supervisory channel monitors are
integrated solutions that combine multiple network performance monitoring
functions in a single package and integrate our WDMs and couplers. These
modules enable communication service providers to identify line
connectivity.
- WAVELENGTH PERFORMANCE MONITORS. Our multi-channel wavelength performance
monitors are integrated solutions that combine tap couplers, splitters and
third-party photodetectors that
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convert light signals into electrical signals. These modules allow
communication service providers to monitor whether or not wavelengths are
being transmitted properly through the network.
- WAVELENGTH PROTECTION MODULES. Our multi-channel wavelength protection
modules are integrated solutions that combine tap couplers, splitters,
switches and third-party photodetectors. These modules integrate network
protection functions and monitor the optical signal quality, such as
optical power, wavelength and signal-to-noise ratio. In addition, these
modules can provide fast routing and switching capabilities in response to
unexpected errors in the optical network. They also enable communication
service providers to instantly monitor the network performance at each
individual optical wavelength, allowing increased management of traffic
flow and network efficiency.
OPTICAL SWITCHING PRODUCTS. As optical networks become more complex, there
is an increasing demand to provide switching capability to direct optical
signals across multiple points in the network. We supply optical fiber switching
products that provide all-optical signal switching between fibers with up to
eight different end destinations.
- SWITCHES. Optical switches are devices that can direct optical signals to
different end destinations.
- OPTICAL ADD/DROP MULTIPLEXERS. Optical add/drop multiplexers, or OADMs,
are used when part of the information from an optical signal carried on
the network is demultiplexed, or dropped, at an intermediate point and
different information is multiplexed, or added, for subsequent
transmission. The remaining traffic passes through the multiplexer without
additional processing. The OADM is typically used for rerouting a number
of specific optical wavelengths with different end destinations.
- RECONFIGURABLE OADMS. Reconfigurable OADMs combine OADM functionality
with optical switches and add flexibility to the network by allowing the
dynamic add/drop of variable optical wavelengths with different end
destinations.
- CIRCULATORS. Circulators consist of sophisticated micro-optic components
that are used to direct optical signals between different fibers.
Circulators are also used in optical amplifying applications.
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The following is a representative sample of some of our products. We are
currently shipping all of these products except for those denoted as "in
development."
<TABLE>
<S> <C> <C> <C>
PRODUCTS FUNCTION BENEFIT MARKET
<S> <C> <C> <C>
WAVELENGTH EXPANSION PRODUCTS
-----------------------
200GHz DWDM - Provide up to 40 DWDM channels - Low cost - Ultra-long haul
- High performance - Long haul
- High reliability - Metro
- Access
100GHz DWDM - Provide up to 80 DWDM channels - High reliability - Ultra-long haul
(in development) - Advanced performance - Long haul
characteristics - Metro
Noise Reduction Filters - Noise reduction used in conjunction - Low insertion loss - Long haul
with a particular DWDM - Compact package
- Low cost
100GHz Interleavers - Enable DWDM with high number of - Compact size - Long haul
(in development) channels - No electrical cooling - Metro
- Double bandwidth capacity - Low insertion loss
Wavelength Lockers - Ensure optical signal wavelength - High flexibility - Long haul
(in development) accuracy and stability for DWDM - Compact size - Metro
Chromatic Dispersion - Compensate light signal shape in high - Wide dynamic range - Ultra-long haul
and Dispersion Slope speed transmission - Compact size - Long haul
Compensators
(in development)
OPTICAL AMPLIFICATION PRODUCTS
-----------------------
Isolators - Reduce noise and improve system - Low cost - Ultra-long haul
performance - Compact size - Long haul
- Metro
Tap Couplers - Enable signal monitoring - Very low cost - Ultra-long haul
- Wide bandwidth - Long haul
- Low insertion loss - Metro
- Access
Integrated Hybrid - Improve EDFA performance - Compact size - Ultra-long haul
Component: - High reliability - Long haul
Isolator+WDM+Tap - Metro
Gain Flattening Filters - Improve amplifier performance across - Temperature insensitive - Long haul
(GFF) large number of channels - Low error level
- High reliability
Polarization Beam - Increase amplifier power by combining - Sustain high laser beam - Ultra-long haul
Combiners beams of the same wavelength power - Long haul
- Low insertion loss
Variable Optical - Balance optical power in fibers - Low cost - Long haul
Attenuator - Compact size - Metro
(in development) - Access
WAVELENGTH PERFORMANCE MONITORING AND PROTECTION PRODUCTS
-----------------------
Supervisory Channel - Monitor transmission line integrity - Compact size - Long haul
Monitors - Integrated functions - Metro
- Low cost
Wavelength Monitoring - Monitor optical signal quality - Compact package - Long haul
and Wavelength - Provide protection switching when - Fast response - Metro
Protection Modules needed - High performance
OPTICAL SWITCHING PRODUCTS
-----------------------
Switches 1X2, 2X2 and - Direct optical signals between fibers - Compact size - Long haul
1X8 - Provide reliable network protection - Low insertion loss - Metro
- Low cost
- Fast switching time
Optical Add/Drop - Enable signal add/drop function at - Wide wavelength range - Long haul
Multiplexers (OADMs) multiple points - Low insertion loss - Metro
Reconfigurable OADMs - Dynamic signal add/drop function - Flexible add/drop - Long haul
(in development) wavelength - Metro
- Low insertion loss
Circulators - Direct signals between fibers - Compact size - Ultra-long haul
- Perform optical add/drop - High reliability - Long haul
- Low insertion loss - Metro
</TABLE>
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CUSTOMERS
We sell our products worldwide to communication equipment suppliers. In
certain cases, we sell our products to other component manufacturers for resale.
During the nine months ended March 31, 2000, we sold our products to over 100
companies worldwide.
During the nine months ended March 31, 2000, sales to Lucent, JDS Uniphase,
Sycamore Networks and Marubun accounted for 36.0%, 15.8%, 12.6% and 10.6% of
revenue. We expect that the majority of our revenues will continue to depend on
sales to a small number of customers. In addition, some of our customers are
companies with which we presently compete or in the future may compete.
CUSTOMER CASE STUDIES
We work closely with our customers to meet their unique needs. The following
are examples of successful collaborations with our customers to develop
innovative products.
- We worked closely with one of our major customers to quickly develop a
solution enabling them to monitor and protect signals in their DWDM
systems. The customer required a module that could tap into the network
with minimal intrusion, monitor wavelengths in an optical signal and, in
the case of signal loss, perform fiber switching to reroute the signal.
All of these functions had to be packed in a very small box. We quickly
developed a custom solution by integrating numerous components into a
module which met the customer's specifications. This integrated product
provides on-time signal monitoring by contemporaneously analyzing
wavelength, power level and signal-to-noise ratio information. It also
performs network protection functions in less than 15 milliseconds, which
exceeds the industry standard of 50 milliseconds.
- A global communication equipment supplier planned to increase the speed of
their networking systems by migrating from copper to optical technology.
Because they did not have the optical expertise to achieve this migration,
they relied upon our technical experts to design and consult on the
technology. We worked closely with the customer to create a product that
could seamlessly be integrated with the customer's existing system. The
customer was among the first few companies to launch next-generation metro
DWDM systems. Our contributions help to shorten their time-to-market. As a
result, we have become one of their major suppliers of DWDM and other
fiber optic components.
CUSTOMER AGREEMENTS
In July 1999, we entered into an agreement with Corning providing that we
will purchase all of our external requirements for various materials from
Corning as long as Corning offers the materials to us on terms at least as
favorable as those offered to us by another supplier. Corning has agreed to
purchase various components from us and we will offer to supply Corning any
quantity of various components that is within our manufacturing capacity so long
as Corning purchases a minimum value of components from us each year. In
addition, if, prior to April 1, 2002, Corning requests a license to one or more
of our patents that were applied for or granted before April 1, 1999, we have
agreed to negotiate in good faith with Corning to enter into this license. The
agreement terminates on January 1, 2004, unless we and Corning agree to extend
it.
In July 1999 and November 1999, we entered into three consignment supply
agreements with Lucent Technologies pursuant to which we agreed to sell Lucent
various modules on a blanket order consignment basis. The agreements provide
that Lucent will notify us periodically of the number of modules it will require
us to ship on consignment. Lucent has agreed to purchase any modules it
withdraws from the consigned inventory at an agreed price. To the extent we
offer to sell modules that are similar in quality and volume to any other
customer at a lower price, we have agreed to offer
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Lucent the lower price. Lucent may terminate any or all consignment orders, in
whole or in part, at any time and without cause.
BACKLOG
We define backlog to include orders for which we expect to recognize revenue
within the succeeding twelve months. As of March 31, 2000, our backlog was
$54.2 million. Sales are made pursuant to purchase orders, which are frequently
subject to revision or cancellation. Our backlog includes products that have
been shipped or scheduled for shipment to Lucent but not yet accepted for use.
Because of the possibility of changes in delivery or acceptance schedules,
cancellations of orders, distributor returns or price reductions, our backlog,
as of any particular date, may not be representative of actual sales for any
succeeding period.
MARKETING, SALES AND CUSTOMER SUPPORT
We market and sell our products through both direct sales and distribution
channels, including three domestic and 13 international sales representatives
and distributors. Our sales representatives and distributors are independent
organizations that generally have exclusive geographic territories within North
America, Europe and Asia. We also employ 18 people in sales, marketing and
customer service and support who manage key customer accounts and support our
direct sales force, representatives and distributors.
Our marketing team promotes our products within the communications industry
as well as gathers and analyzes market research. Our marketing professionals
help us to identify and define next-generation products by working closely with
our customers and our research and development engineers. They also coordinate
our participation in trade shows and design and implement our advertising
effort.
PRODUCT DEVELOPMENT
As of June 30, 2000, we had 38 engineers, 12 of whom hold Ph.D. degrees, and
98 technicians and operators, involved in research and development of our
products. Our engineering team has extensive design, package, processing and
software experience in the fields of fiber optic components, integrated optic
interfaces and systems. To date, we have been granted 10 patents by, and have 22
patent applications pending with, the U.S. Patent and Trademark Office for
various technologies and products, including DWDM interleavers, DWDM modules,
multi-channel optic filter arrays, high reliability fused couplers, circulators,
compact optical switches and polarization beam combiners.
Our primary product development center is located in San Jose, California.
We also maintain product development centers in Zhuhai and Fuzhou, China. Our
research and development expense was $1.4 million, $626,000, $455,000 and
$524,000 for the nine months ended March 31, 2000 and fiscal years ended
June 30, 1999, 1998 and 1997. We have increased, and intend to continue to
increase, our research and development budget and staff to enhance our current
fiber optic components and modules, and to develop new technologies and products
to serve the next-generation communication markets.
MANUFACTURING
We currently manufacture the majority of our components and modules at our
headquarters in San Jose, California. We also manufacture our products at our
manufacturing facilities in Zhuhai and Fuzhou, China.
Each of our facilities maintain complete in-house manufacturing capabilities
including component and module design, integration, production and testing. We
plan to continue to invest resources in
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manufacturing management, engineering and quality control. We also plan to
continue to develop automated manufacturing systems to provide higher
throughput, improve yields and reduce our manufacturing costs.
We have recently increased our manufacturing capacity by expanding the size
of our San Jose facility from approximately 25,000 square feet to approximately
100,000 square feet. In addition, we are expanding our manufacturing facilities
in Zhuhai from approximately 30,000 square feet to approximately 110,000 square
feet. The component and module designs, assembly procedures, manufacturing
processes and quality standards from our U.S. headquarters are substantially
replicated at our China facilities, and all of the tests are specified to meet
strict industry quality standards.
A number of critical raw materials used in manufacturing our products are
acquired from single or limited source suppliers. The inability to obtain
sufficient quantities of those materials may result in delays, increased costs
and reductions in our product shipments. Between January 1997 and August 1999,
we entered into several development agreements with Barr Associates, Inc.
pursuant to which Barr agreed to design, develop and build multiple vacuum
deposition systems for us at an agreed upon price. These systems are used to
produce bandpass filters, an integral component of our DWDMs. Under the terms of
these agreements, we are entitled to purchase 100% of the bandpass filters
produced by Barr on these systems at a discount. Our discount will continue
until our accumulated total discount on filters produced in all systems equals
the total amount of our investment in the systems.
QUALITY
We have established a quality management system to assure that the products
we provide to our customers meet or exceed industry standards. This system is
based on the international standard ISO 9001. Our U.S. headquarters have been
ISO 9001 certified in research and manufacturing since July 1998. Our Zhuhai
facility has been ISO 9002 certified in manufacturing since January 2000.
COMPETITION
The markets in which we sell our products are highly competitive. Our
overall competitive position depends upon a number of factors, including:
- price;
- availability, performance and reliability of our products;
- the breadth of our product line;
- the ability to win designs through prototyping;
- manufacturing capacity;
- the quality of our manufacturing processes;
- the compatibility of our products with existing communications networks;
and
- our ability to participate in the growth of emerging technologies.
We believe that our principal competitors are the major manufacturers of
optical components and modules, including both vendors selling to third parties
and business divisions within communication equipment suppliers. Our principal
competitors in the components market include Avanex Corporation, Ciena
Corporation, Corning, DiCon Fiberoptics, Furukawa Electrical, JDS Uniphase,
which recently acquired E-TEK Dynamics and announced its intended acquisition of
SDL, Lucent, New Focus, Nortel, Sumitomo and Tyco Electronics. We believe that
we primarily compete with diversified suppliers, such
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<PAGE>
as Corning, JDS Uniphase, Lucent and Nortel, for the majority of our product
line and to a lesser extent with niche players that offer a more limited product
line.
Many of these companies have substantially greater financial, engineering
and manufacturing resources as well as greater name recognition and stronger
customer relationships. Some of our customers are companies with which we
presently compete or in the future may compete. In addition, some of our
customers have been or could be acquired by, or enter into strategic relations
with, our competitors. We anticipate that further consolidation will occur in
our industry, thereby possibly increasing competition in our target markets.
INTELLECTUAL PROPERTY
To date, we have been granted 10 patents by, and have 22 patent applications
pending with, the U.S. Patent and Trademark Office covering various technologies
and products. While we rely on patent, copyright, trade secret and trademark law
and restrictions on disclosure to protect our technology, we believe that
factors such as the technological and creative skills of our personnel, new
product developments, frequent product enhancements and reliable product
maintenance are essential to establishing and maintaining a technology
leadership position. We cannot assure you that others will not develop
technologies that are similar or superior to our technology.
Protecting our intellectual property is critical to the success of our
business. Despite our efforts to protect our proprietary rights, various
unauthorized parties may attempt to copy or otherwise obtain and use our
products or technology. Policing unauthorized use of our products is difficult,
and there can be no assurance that the steps taken by us will prevent
misappropriation of our technology. Moreover, the laws of some foreign
countries, including China, do not protect our proprietary rights as fully as in
the United States.
Substantial litigation regarding intellectual property rights exists in the
optical communications industry. We expect that fiber optic components and
modules may be increasingly subject to third-party infringement claims as the
number of competitors in our industry segments grows and the functionality of
products in different industry segments overlaps. In addition, we believe that
many of our competitors in the optical communications industry have filed or
intend to file patent applications covering aspects of their technology on which
they may claim our technology infringes. We are currently involved in patent
infringement actions with E-TEK Dynamics and Chorum Technologies. For a
description of these actions, see "--Legal and Regulatory Matters." We cannot
make any assurances that other third parties will not claim infringement by us
with respect to our technology. Any such claims, with or without merit, could be
time-consuming to defend, result in costly litigation, divert management's
attention and resources, cause product shipment delays or require us to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to us, if at all. A
successful claim of product infringement against us and failure or inability by
us to license the infringed or similar technology could seriously harm our
financial condition.
EMPLOYEES
As of June 30, 2000, we had 570 full-time employees located in the United
States, 133 of whom were engaged in product development, 358 in manufacturing,
26 in quality, 18 in sales, marketing, application support and customer service,
and 35 in general and administration. As of June 30, 2000, we had 717 full-time
employees located in China, four of whom were engaged in product development,
658 in manufacturing, 21 in quality, and 34 in general and administration. None
of our employees are represented by a labor union. We have not experienced any
work stoppages and we consider our relations with our employees to be good.
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FACILITIES
In the United States, we lease a total of approximately 116,000 square feet
in three buildings located in San Jose, California. Of the 116,000 square feet:
- we lease a 62,000 square foot manufacturing facility and 16,000 square
feet of administrative, sales and marketing space pursuant to a lease that
expires in February 2005; and
- we lease a 38,000 square foot research and development facility pursuant
to a lease that expires in October 2002.
In China, we lease a total of approximately 140,000 square feet in two
facilities located in Zhuhai and Fuzhou, China. Our Zhuhai facilities total
approximately 130,000 square feet, with the manufacturing facility totaling
approximately 110,000 square feet and 20,000 square feet of office and dormitory
space. The lease for these facilities expires in March 2005. In Fuzhou we
maintain an approximately 10,000 square foot research and development and
manufacturing facility pursuant to a lease expiring on August 2007. In addition,
in May 2000, we acquired rights to a parcel of land in China which we intend to
use for future expansion of our manufacturing facilities. We have the right to
use this land until May 2050.
LEGAL PROCEEDINGS AND REGULATORY MATTERS
LEGAL PROCEEDINGS
On November 12, 1999, E-TEK Dynamics, Inc., recently acquired by JDS
Uniphase, filed a lawsuit against us, in the United States District Court for
the Northern District of California (Case No. C99-04921 CRB) alleging that we
have infringed E-TEK's U.S. Patent No. 5,652,814 relating to fiber optic
couplers based on our manufacture and sale of our DWDM products. E-TEK is
seeking an award for unspecified damages, including treble damages, for
intentional and willful infringement, contributory infringement, inducement to
infringe, and injunctive relief. Our DWDM products generated a majority of our
revenues for the nine months ended March 31, 2000. An adverse ruling in this
matter would materially adversely affect our financial condition. We are
defending ourselves vigorously in this lawsuit.
On June 16, 2000, Chorum Technologies, Inc. filed a complaint, C.A.
No. 3-00CV0458-M, against us and our subsidiary, Telelight Communications Inc.,
in the U.S. District Court for the Northern District of Texas (Dallas Division).
In the complaint Chorum alleges that we have infringed two U.S. patents
allegedly owned by Chorum relating to fiber optical interleaving, based on our
manufacture of and offer to sell various products including the CFOI-100 series
of fiber optical interleavers. Chorum also alleges that our use of the name
"TrueSlicer" in connection with the public announcement of the CFOI-100 products
is confusingly similar to Chorum's alleged "Slicer" and "Optical Slicer" marks,
and therefore violates section 43(a) of the Lanham Act and various unspecified
Texas state laws. Chorum seeks actual and enhanced damages, injunctive relief,
costs and attorney fees, and other relief. We have not yet responded to the
complaint, but intend to defend ourselves vigorously.
The outcomes of the foregoing lawsuits are inherently uncertain. Our defense
of these lawsuits, regardless of their eventual outcomes, will likely be costly
and time consuming and will divert the efforts and attention of our management
and technical personnel. Patent litigation is highly complex and can extend for
a protracted period of time, which can substantially increase the cost of
litigation. Accordingly, the expenses and diversion of resources associated with
either of these matters could seriously harm our business and financial
condition. In the event of an adverse ruling in either matter:
- we may be liable for significant monetary damages;
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- we may be enjoined from manufacturing, selling or offering to sell certain
of our products, including, in respect of the E-TEK litigation, products
that are currently generating a majority of our revenues, and products we
are developing; and
- we may have to engage in a redesign of these products and products we are
developing.
If an injunction were granted that prevents us from selling these products,
we may have to seek a license to continue to sell and offer these products and
products we are developing. We may not be able to secure any license on
commercially reasonable terms, if at all. If we were to settle any of the
foregoing matters and secure a license to continue to sell and offer our
products and those we are developing, the licensing fees could be substantial. A
redesign of our products would result in an interruption in sales that could
extend for some time. We do not have insurance that would indemnify us for any
liability that may be imposed in connection with the legal actions described
above. Accordingly, if any of the foregoing events occur, it could result in a
substantial reduction in our revenue and could result in losses over an extended
period of time, which would have a material adverse effect on our results of
operations.
REGULATORY MATTERS
Our products are subject to U.S. export control laws and regulations that
regulate the export of products and disclosure of technical information to
foreign countries. These laws and regulations may require licenses for export to
some of our products and disclosure of technology to some countries, including
China, where a substantial portion of our manufacturing operations occur, and
foreign citizens, including a number of our employees. We plan to file an
application shortly to obtain a commodity classification confirming that we may
export our products and disclose our technology to foreign countries, including
China, and citizens, including Chinese nationals, without export licenses. In
the event this classification is not obtained, we have alternatively filed
applications to obtain licenses permitting us to disclose our technology to
specified employees. However, we cannot assure you that we will obtain these
classification and licenses. Furthermore, the Department of Commerce has
initiated an inquiry as to whether one of our employees received information in
violation of licensing requirements. We may be found to have violated export
restrictions with respect to this individual and in the past, which could result
in criminal, civil and administrative penalties, including the denial of export
privileges.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors as of July 12, 2000, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------- --------
<S> <C> <C>
Joseph Y. Liu................................. 50 Chief Executive Officer and Director
Alex Hsu...................................... 51 President, Global Manufacturing Operations
Bruce Horn.................................... 49 Chief Financial Officer and Treasurer
Wei-Zhong Li.................................. 40 Chief Technology Officer
Jingyu Xu..................................... 57 Senior Vice President, Engineering
Haiguang Lu................................... 39 Vice President, Manufacturing
Qin Zhang..................................... 36 Vice President, Marketing
Ian Jenks(1).................................. 46 Chairman of the Board of Directors
Chieh Chang................................... 48 Director
Herbert Chang(1)(2)........................... 38 Director
Edward Labuda(2).............................. 63 Director
Leonard J. LeBlanc(2)......................... 59 Director
David Spreng(1)............................... 38 Director
</TABLE>
------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
JOSEPH Y. LIU is one of our founders and has served as our Chief Executive
Officer since September 1999. Mr. Liu was our Chairman of the Board from our
inception in 1995 through May 2000 and currently serves as a member of our Board
of Directors. From 1994 to 1995, Mr. Liu was the General Partner of Techlink
Technology Ventures. Prior to 1994, Mr. Liu spent ten years as Chairman and
Chief Executive Officer of Techlink Semiconductor and Equipment Corp., a
semiconductor equipment and technology company. Mr. Liu also serves as a
director of several privately held companies involved in semiconductor
integrated circuit design and manufacturing. Mr. Liu received his B.S. from
Chinese Cultural University, Taiwan and his M.S. from California State
University, Chico.
ALEX HSU has served as our President, Global Manufacturing Operations since
August 1999. Prior to joining Oplink, Mr. Hsu held several executive officer
positions with UMAX Technologies, Inc., an imaging and computer products
company, from 1993 to 1999. His positions included Executive Vice President,
General Manager of the Imaging Product Division and Networking Communication
Division and Vice President of Operations. From 1989 to 1993, Mr. Hsu held
various executive positions at the Acer Group, including the Vice President of
Operations and General Manager of the New Micro Marketing International, a
computer manufacturing and distribution company from, 1992 to 1993, President of
Acer Technologies in Malaysia from 1990 to 1993, and Vice President of Acer,
Inc. from 1989 to 1990.
BRUCE HORN has served as our Chief Financial Officer and Treasurer since
April 2000. Prior to joining Oplink, Mr. Horn was a consultant at The Brenner
Group, a consulting firm, from February 2000 to April 2000. From January 1993 to
April 2000, Mr. Horn was the Vice President of Finance and Chief Financial
Officer and from March 1991 to January 1993 he was Director of Finance and Chief
Financial Officer of Larscom Incorporated, a telecommunications company.
Mr. Horn received his B.A. in Accounting from the University of Northern Iowa,
and his M.B.A. in Finance from California State University at Hayward.
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WEI-ZHONG LI has served as our Chief Technical Officer since December 1997.
Prior to joining Oplink, from May 1995 to December 1997, Mr. Li held technical
positions with various companies in the fiber optical field, including
Synchronous Communication, Inc., a communications equipment manufacturing
company, Kaifa Technology, Inc., a fiber optics company, MP Inc., a fiber optics
company, and E-TEK Dynamics, Inc, a fiber optics company. Mr. Li received his
B.S. and M.S. degrees in Electrical Engineering from Beijing Institute of
Technology, China. Mr. Li was the inventor for three approved patents and has
filed seven patents that are pending in the U.S. Patent and Trademark Office. He
is also the author of nine technical papers in the fiber optic and microwave
communications fields.
JINGYU XU has served as our Senior Vice President of Engineering since
November 1999. Prior to joining Oplink, Mr. Xu was the Director of Component
Technology of Chorum Technologies, a fiber optics company, from February 1998 to
October 1999. From February 1990 to January 1998, Mr. Xu held various research
and development and engineering positions at E-TEK Dynamics, Inc., including the
positions of Director of Engineering Research and Development. Mr. Xu received
his B.S. from Ferdeon University, and his M.S. from Shanghai Jiaotung
University, in China.
HAIGUANG LU has served as our Vice President of Manufacturing since
February 1998. Prior to joining Oplink, Mr. Lu was a Production Manager at E-TEK
Dynamics, Inc. from February 1993 to February 1998. Mr. Lu received his B.S. in
Applied Physics and his M.S. in Fiber Optics at Shanghai Jiaotong University.
Mr. Lu received his M.S. in Electrical Engineering at City College of New York.
QIN ZHANG has served as our Vice President of Marketing since February 1998.
Prior to joining Oplink, Mr. Zhang was the President of Advanced Photon
Technologies, a fiber optics company, from June 1997 to February 1998. From
November 1995 to May 1997, Mr. Zhang was an Account Manager at E-TEK Dynamics,
Inc. Mr. Zhang received his B.S. and his M.S. in Electrical Engineering from
Huazhong University of Science & Technology, and his Ph.D. in Electrical
Engineering from Brown University.
IAN JENKS has been a member of our board of directors since April 2000 and
the Chairman of the Board since May 2000. From 1995 to 1998, Mr. Jenks was the
President of the Lasers and Fiber Optics groups of Uniphase Corporation, a fiber
optics company. Mr. Jenks also serves on the board of directors of several
privately-held companies. Mr. Jenks received his B.S. in Aeronautical
Engineering from Bristol University in the United Kingdom.
CHIEH CHANG has been a member of our board of directors since September
1995. Mr. Chang currently serves as Chief Executive Officer of Programmable
Microelectronics Company, Inc., a fabless semiconductor design company. From
April 1992 to August 1996, Mr. Chang was the Director of Technology at Cirrus
Logic, Inc., a semiconductor company. Mr. Chang received his B.S. in Electrical
Engineering from the National Taiwan University and his M.S. in Electrical
Engineering from UCLA.
HERBERT CHANG has been a member of our board of directors since January
1997. Since April 1996, Mr. Chang has been President of InveStar Capital, Inc.,
a technology venture capital management firm based in Taiwan. From 1994 to 1996,
Mr. Chang was Senior Vice President at WK Technology Fund, a venture capital
fund. Mr. Chang serves on the boards of directors of Silicon Image, Inc., a
manufacturer of semiconductors for high-speed communications applications, and
Marvell Technology Group Ltd., a manufacturer of integrated circuits for
communications-related markets. Mr. Chang received his B.S. from National Taiwan
University and his M.B.A. from National Chiao-Tung University in Taiwan.
EDWARD LABUDA has been a member of our board of directors since July 2000.
Since 1994, Mr. Labuda has been the Executive Director of the Lasers and
Electro-Optics Society of the Institute of Electrical and Electronics
Engineering. From 1990 to 1994, Mr. Labuda was the Vice President and Chief
Operating Officer of the Lightwave Strategic Business Unit at AT&T
Microelectronics, a
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communications company. Mr. Labuda received his B.S. in Physics from
Case-Western University, his M.S. in Electrical Engineering from New York
University and his Ph.D. in Electrical Engineering from Polytechnic Institute of
New York.
LEONARD J. LEBLANC has been a member of our board of directors since July
2000. Mr. LeBlanc was the Executive Vice President and Chief Financial Officer
of Vantive Corporation, a customer relationship management software and solution
company, from August 1998 to January 2000. From March 1996 to July 1997,
Mr. LeBlanc was the Executive Vice President of Finance and Administration and
Chief Financial Officer at Infoseek Corporation, an Internet search and
navigation company. From September 1993 to December 1994, Mr. LeBlanc served as
Senior Vice President, Finance and Administration of GTECH Corporation, a
manufacturer of lottery equipment and systems. From May 1987 to December 1992,
Mr. LeBlanc served as Executive Vice President, Finance and Administration and
Chief Financial Officer of Cadence Design Systems, Inc., an electronic design
automation software company. Mr. LeBlanc received his B.S. and M.S. from the
College of Holy Cross, and his masters degree in finance from George Washington
University.
DAVID SPRENG has been a member of our board of directors since
February 2000. Mr. Spreng was President of IAI Ventures, Inc., a venture capital
company, from March 1996 until September 1998. He has also served in various
capacities at Investment Advisers, Inc. from 1989 to 1998. Since
September 1998, Mr. Spreng has served as the managing member for Crescendo
Venture Management, LLC. Mr. Spreng is also a director of Tut Systems, a
telecommunications equipment company, and Allied Riser Communications, a fiber
optics-based telecommunications company. Mr. Spreng also serves on the board of
several privately-held companies. Mr. Spreng received his B.S. in Finance and
Accounting from the University of Minnesota.
BOARD OF DIRECTORS
Our board of directors currently consists of seven members. Upon the closing
of this offering, the terms of office of the board of directors will be divided
into three classes. As a result, a portion of our board of directors will be
elected each year. The division of the three classes, the initial directors and
their respective election dates will be as follows:
- the class I directors will be Ian Jenks and David Spreng, and their term
will expire at the annual meeting of stockholders to be held in 2001;
- the class II directors will be Chieh Chang and Herbert Chang, and their
term will expire at the annual meeting of stockholders to be held in 2002;
and
- the class III directors will be Joseph Y. Liu, Edward Labuda and
Leonard J. LeBlanc, and their term will expire at the annual meeting of
stockholders to be held in 2003.
At each annual meeting of stockholders after the initial classification, the
successors to directors whose terms will then expire, will be elected to serve
from the time of election and qualification until the third annual meeting
following their election. In addition, our certificate of incorporation will
provide that the authorized number of directors may be changed only by
resolution of the board of directors. Any additional directorships resulting
from an increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of one-third of
the directors. This classification of the board of directors may have the effect
of delaying or preventing changes in our control or management.
BOARD COMMITTEES
COMPENSATION COMMITTEE. We established a compensation committee in July
1999. The compensation committee currently consists of Messrs. Ian Jenks,
Herbert Chang and David Spreng. The compensation committee reviews and
recommends to the board of directors the compensation of
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all of our officers and directors, including stock compensation and loans, and
establishes and reviews general policies relating to the compensation and
benefits of our employees.
AUDIT COMMITTEE. We established an audit committee in July 1999. The audit
committee currently consists of Messrs. Herbert Chang, Edward Labuda, and
Leonard LeBlanc. The audit committee reviews our internal accounting procedures
and consults with and reviews the services provided by our independent
accountants.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the current members of our compensation committee is now or has ever
been one of our officers or employees. None of our executive officers currently
serves, or in the past has served, as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving on our board or compensation committee. Prior to the formation of the
compensation committee, compensation decisions were made by our entire board of
directors.
DIRECTOR COMPENSATION
We do not currently compensate our directors in cash for their service as
members of the board of directors, although directors are eligible to be
reimbursed for expenses incurred in connection with attending board of directors
and committee meetings. During fiscal 2000, we granted options to purchase
50,000 shares of our common stock at an exercise price of $5.00 per share to
each of Ian Jenks and David Spreng. Each of these options vests 25% of the
shares after one year and the remainder of the shares on a monthly basis over
the next three years. Our 2000 Equity Incentive Plan also provides for the
automatic grant of non-statutory stock options to nonemployee directors. For
further information regarding the provisions of the 2000 Equity Incentive Plan,
see "--Benefit Plans."
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
Our certificate of incorporation and bylaws provide that we will indemnify
our directors and officers and may indemnify our employees and other agents to
the fullest extent permitted by law. Delaware law provides that directors of a
corporation will not be personally liable for monetary damages for breach of
their fiduciary duties as directors, except liability for:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
The limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
We believe that indemnification under our bylaws covers at least negligence
on the part of indemnified parties. Our bylaws also permit us to secure
insurance on behalf of any officer, director, employee or other agent for any
liability arising out of his or her actions in their capacity as an officer,
director, employee or other agent, regardless of whether the bylaws would permit
indemnification.
We intend to enter into agreements to indemnify our directors and executive
officers prior to completing this offering, in addition to the indemnification
provided for in our bylaws. These agreements, among other things, will provide
for indemnification for judgments, fines, settlement amounts and expenses,
including attorneys' fees incurred by the director, or executive officer in any
action or proceeding, including any action by or in our right, arising out of
the person's services as a
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director or executive officer, any of our subsidiaries or any other company or
enterprise to which the person provides services at our request. We believe that
these provisions and agreements are necessary to attract and retain qualified
persons as directors and executive officers.
The limitation on liability and indemnification provisions in our
certificate of incorporation and bylaws may discourage stockholders from
bringing a lawsuit against our directors for breach of their fiduciary duty and
may reduce the likelihood of derivative litigation against our directors and
officers, even though a derivative action, if successful, might otherwise
benefit us and our stockholders. A stockholder's investment in us may be
adversely affected to the extent we pay the costs of settlement or damage awards
against our directors and officers under these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees in which indemnification is sought, nor are
we aware of any threatened litigation that may result in claims for
indemnification.
EXECUTIVE COMPENSATION
The following table presents the compensation earned, awarded or paid for
services rendered to us in all capacities for the fiscal year ended June 30,
2000 by:
- our Chief Executive Officer;
- those persons who were, at June 30, 2000, our five other most highly
compensated executive officers; and
- our former Chief Executive Officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION
--------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Joseph Y. Liu................................... $129,846 -- 2,800,000 --
Chief Executive Officer(1)
Alex Hsu........................................ $136,993 -- 920,000 --
President, Global Manufacturing Operations(2)
Haiguang Lu..................................... $129,404 -- -- $ 2,308(4)
Vice President, Manufacturing
Wei-Zhong Li.................................... $124,635 -- -- --
Chief Technology Officer
Qin Zhang....................................... $124,635 -- -- --
Vice President, Marketing
Jingyu Xu....................................... $ 91,539 $13,500 500,000 $ 20,000(5)
Senior Vice President, Engineering
Derek Statham................................... $ 37,500 -- -- $ 80,000(6)
Former Chief Executive Officer(3)
</TABLE>
------------------------
(1) Joseph Y. Liu was hired in September 1999.
(2) Alex Hsu was hired in August 1999.
(3) Derek Statham served as Chief Executive Officer of Oplink during fiscal 2000
until September 1999.
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(4) Represents a cash payment in exchange for the cancellation of certain
personal vacation plans on behalf of Oplink.
(5) Represents a relocation allowance.
(6) Represents severance payments in connection with his termination of
employment with Oplink.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information regarding the number and value of
stock options granted during the fiscal year ended June 30, 2000 to our Chief
Executive Officer and two of the other most highly compensated executive
officers set forth in the Summary Compensation Table above. The other three most
highly compensated executive officers and our former chief executive officer
were not granted stock options during fiscal year 2000.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------------------------------------------- ANNUAL RATES OF STOCK
NUMBER OF % OF TOTAL APPRECIATION FOR
SECURITIES OPTIONS GRANTED EXERCISE OPTION TERM(3)
UNDERLYING TO EMPLOYEES PRICE PER EXPIRATION ---------------------
NAME OPTIONS GRANTED DURING PERIOD(1) SHARE(2) DATE 5% 10%
---- --------------- ---------------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Joseph Y. Liu........... 2,800,000 33.0% $3.00 01/14/10
Alex Hsu................ 800,000 9.4% $0.30 09/02/09
120,000 1.4% $3.00 01/14/10
Jingyu Xu............... 400,000 4.7% $0.30 12/07/09
100,000 1.2% $3.00 02/11/10
</TABLE>
------------------------
(1) The percentage of total options granted is based on an aggregate of
8,475,400 options granted by us during the fiscal year ended June 30, 2000,
to our employees.
(2) Options were granted with an exercise price per share equal to the fair
market value of our common stock on the date of grant, as determined by our
board of directors.
(3) The potential realizable value is based on the assumption that our common
stock appreciates at specified annual rates, compounded annually, from the
date of grant until the expiration of the ten-year term. These numbers are
calculated based on Securities and Exchange Commission requirements and do
not reflect our projections or estimates of future stock price growth.
Potential realizable values are computed by:
- multiplying the number of shares of common stock underlying each option
by the assumed initial public offering price of $ per share;
- assuming that the aggregate stock value derived from that calculation
compounds at the annual specified rate shown in the table until the
expiration of the options; and
- subtracting from that result the aggregate option exercise price.
Actual gains, if any, on stock option exercises and common stock holdings
are dependent on the time of such exercise and the future performance of our
common stock.
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AGGREGATE OPTION EXERCISES DURING LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table presents information concerning option exercises by our
current and former Chief Executive Officer and five other most highly
compensated executive officers for the fiscal year ended June 30, 2000.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT
SHARES OPTIONS AT JUNE 30, 2000 JUNE 30, 2000(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joseph Y. Liu............. 240,000 $ 85,000 2,715,000
Alex Hsu.................. 50,000 $ 50,000 820,000
Wei-Zhong Li.............. 615,000 $ 277,313 747,687
Haiguang Lu............... 600,000 $ 106,717 653,283
Qin Zhang................. 480,000 $ 226,717 653,283
Jingyu Xu................. 58,331 $ 7,963 433,706
Derek Statham............. 400,000 $ -- --
</TABLE>
------------------------
(1) There was no public trading market for our common stock as of June 30, 2000.
Accordingly, these values have been calculated on the basis of an assumed
initial public offering price of $ per share, less the applicable
exercise price.
CHANGE OF CONTROL ARRANGEMENTS
We have entered into change of control arrangements with four of our
directors, Ian Jenks, Ed Labuda, Leonard J. LeBlanc and David Spreng, that
provide for full acceleration of all unvested options in the event of a change
of control. We have also entered into an agreement with Bruce Horn, our Chief
Financial Officer, that provides for acceleration of 25% of the unvested options
in the event of a change of control prior to April 24, 2001. The form of option
grant notice for automatic grants to non-employee directors under our 2000
Equity Incentive Plan also provides for full acceleration of all unvested
options in the event of a change of control for all such grants following the
closing of this offering.
EMPLOYEE AND DIRECTOR BENEFIT PLANS
1995 STOCK PLAN
Our 1995 Stock Plan provides for the grant of incentive stock options to
employees, including officers and employee directors, and for the grant of
nonstatutory stock options and stock purchase rights to employees, directors and
consultants. The 1995 Stock Plan was adopted by our board of directors and
approved by our stockholders in September 1995.
As of June 30, 2000, a total of 38,416 shares of our common stock were
available for future grant under the 1995 Stock Plan. This amount includes
amounts returned to the 1995 Stock Plan. The 1995 Stock Plan has 3 million
shares of our common stock reserved for issuance, of which options to acquire
695,390 shares have been issued and are outstanding as of June 30, 2000 and a
total of 2,266,194 shares have been issued and are outstanding pursuant to the
exercise of options and stock purchase rights granted under the 1995 Stock Plan.
ADMINISTRATION. The 1995 Stock Plan is administered by our board of
directors or a committee consisting of our board of directors. The administrator
of our 1995 Stock Plan has the power to determine, among other things:
- the fair market value of the common stock;
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- the selection of the officers, consultants and employees to whom the
option and the stock purchase rights may from time to time be granted;
- whether and to what extent options and stock repurchase rights or any
combination thereof, are granted under such plan;
- the number of shares to be covered by each such award granted under such
plan;
- the form of agreement for use;
- the terms and conditions, not inconsistent with the terms of such plan,
including but not limited to the share price;
- the terms and restrictions applicable to stock purchase rights and the
restricted stock purchased by exercising such stock purchase rights; and
- any other determinations with respect to awards under such plan as the
administrator deems appropriate.
OPTIONS. The exercise price of all incentive stock options granted under
the 1995 Stock Plan must be at least equal to the fair market value of our
common stock on the date of grant. The exercise price of nonstatutory stock
options and stock purchase rights granted under the 1995 Stock Plan must be at
least equal to 85% of the fair market value of our common stock on the date of
grant. With respect to any participant who owns stock representing more than 10%
of the voting power of all classes of our outstanding capital stock, the
exercise price of any incentive stock option granted must be at least equal 110%
of the fair market value on the grant date and the term of the incentive stock
option may not exceed five years. The term of all other options granted under
the 1995 Stock Plan may not exceed 10 years.
During any fiscal year, incentive stock options exercised by each optionee
may not exceed $100,000, and any excess of such value shall be treated as
nonstatutory stock option.
Options granted under the 1995 Stock Plan must generally be exercised within
ninety (90) days after the end of the optionee's status as an employee, director
or consultant of ours, within 12 months after the optionee's termination by
death or within 6 months after the optionee's termination by disability, but in
no event later than the expiration of the option's term.
TRANSFERABILITY OF OPTIONS. Options and stock purchase rights granted under
the 1995 Stock Plan are generally not transferable by the optionee, and each
option and stock purchase right is exercisable during the lifetime of the
optionee only by the optionee.
STOCK PURCHASE RIGHTS. In the case of stock purchase rights, unless the
administrator determines otherwise, the restricted stock purchase agreement
shall grant us a repurchase option exercisable upon the voluntary or involuntary
termination of the purchaser's employment or consulting relationship with us for
any reason, including death or disability. The purchase price for shares
repurchased under the restricted stock purchase agreement shall be the original
price paid by the purchaser and may be paid by cancellation of any indebtedness
of the purchaser to us. The repurchase option shall lapse at a rate determined
by the administrator.
CHANGES OF CONTROL. The 1995 Stock Plan provides that in the event of a
change of control of our company, including our merger with or into another
corporation, each outstanding option and stock purchase right shall be assumed
or an equivalent option shall be substituted for by the successor corporation.
If the outstanding options and stock purchase rights are not assumed or
substituted for by the successor corporation, the option will terminate
immediately prior to the consummation of the transaction.
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<PAGE>
AMENDMENT AND TERMINATION OF THE 1995 STOCK PLAN. The board of directors
will have the authority to amend, suspend or terminate the 1995 Stock Plan, as
long as this action does not affect any shares of common stock previously issued
and sold or any option previously granted under the 1995 Stock Plan. Unless
earlier terminated, the 1995 Stock Plan will terminate automatically 10 years
from the date of obtaining stockholder approval of the amended plan in
September 1995. The board has agreed not to make any further grants under the
1995 Stock Option Plan upon the closing of this offering.
1998 STOCK PLAN
Our 1998 Stock Plan provides for the grant of incentive stock options to
employees, including officers and employee directors, and for the grant of
nonstatutory stock options and stock purchase rights to employees, directors and
consultants. The 1998 Stock Plan was adopted by our board of directors and
approved by our stockholders in January 1998.
As of June 30, 2000, a total of 5,375,201 shares of our common stock were
available for future grant under the 1998 Stock Plan. This amount includes
amounts returned to the 1998 Stock Plan, and the increases approved by the Board
of Directors. The 1998 Stock Plan has 16.9 million shares of our common stock
reserved for issuance, of which options to acquire 7,802,054 shares have been
issued and are outstanding as of June 30, 2000 and a total of 3,722,745 shares
have been issued and are outstanding pursuant to the exercise of options and
stock purchase rights granted under the 1998 Stock Plan.
ADMINISTRATION. The 1998 Stock Plan is administered by our board of
directors or a committee consisting of our board of directors. The administrator
of our 1995 Stock Plan has the power to determine, among other things:
- the fair market value of the common stock;
- the selection of the officers, consultants and employees to whom the
option and the stock purchase rights may from time to time be granted;
- whether and to what extent options and stock repurchase rights or any
combination thereof, are granted under such plan;
- the number of shares to be covered by each such award granted under such
plan;
- the form of agreement for use;
- the terms and conditions, that are not inconsistent with the terms of such
plan, including but not limited to the share price;
- the terms and restrictions applicable to stock purchase rights and the
restricted stock purchased by exercising such stock purchase rights; and
- any other determinations with respect to awards under such plan as the
administrator deems appropriate.
OPTIONS. The exercise price of all incentive stock options granted under
the 1998 Stock Plan must be at least equal to the fair market value of our
common stock on the date of grant. The exercise price of nonstatutory stock
options and stock purchase rights granted under the 1998 Stock Plan must be at
least equal to 85% of the fair market value of our common stock on the date of
grant. With respect to any participant who owns stock representing more than 10%
of the voting power of all classes of our outstanding capital stock, the
exercise price of any incentive stock option granted must be at least equal 110%
of the fair market value on the grant date and the term of the incentive stock
option may not exceed five years. The term of all other options granted under
the 1998 Stock Plan may not exceed 10 years.
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<PAGE>
During any fiscal year, incentive stock options exercised by each optionee
may not exceed $100,000, and any excess of such value shall be treated as
nonstatutory stock option.
Options granted under the 1998 Stock Plan must generally be exercised within
ninety (90) days after the end of the optionee's status as an employee, director
or consultant of ours, within 12 months after the optionee's termination by
death or within 6 months after the optionee's termination by disability, but in
no event later than the expiration of the option's term.
TRANSFERABILITY OF OPTIONS. Options and stock purchase rights granted under
the 1998 Stock Plan are generally not transferable by the optionee, and each
option and stock purchase right is exercisable during the lifetime of the
optionee only by the optionee.
STOCK PURCHASE RIGHTS. In the case of stock purchase rights, unless the
administrator determines otherwise, the restricted stock purchase agreement
shall grant us a repurchase option exercisable upon the voluntary or involuntary
termination of the purchaser's employment or consulting relationship with us for
any reason, including death or disability. The purchase price for shares
repurchased under the restricted stock purchase agreement shall be the original
price paid by the purchaser and may be paid by cancellation of any indebtedness
of the purchaser to us. The repurchase option shall lapse at a rate determined
by the administrator.
CHANGES OF CONTROL. The 1998 Stock Plan provides that in the event of a
change of control of our company, including our merger with or into another
corporation, each option and stock purchase right shall be assumed or an
equivalent option shall be substituted for by the successor corporation. If the
outstanding options and stock purchase rights are not assumed or substituted for
by the successor corporation, the option will terminate immediately prior to the
consummation of the transaction.
AMENDMENT AND TERMINATION OF THE 1998 STOCK PLAN. The board of directors
will have the authority to amend, suspend or terminate the 1998 Stock Plan,. as
long as this action does not affect any shares of common stock previously issued
and sold or any option previously granted under the 1998 Stock Plan. Unless
earlier terminated, the 1998 Stock Plan will terminate automatically 10 years
from the date of obtaining stockholder approval of the amended plan in
August 1999. The board has agreed not to make any further grants under the 1998
Stock Plan upon completion of this offering.
2000 EQUITY INCENTIVE PLAN
Our 2000 Equity Incentive Plan provides for the grant of stock awards to
employees, directors and consultants. These stock awards include incentive stock
options to employees, including officers and employee directors, and
nonstatutory stock options, stock bonuses and stock purchase rights to
employees, directors and consultants. The 2000 Equity Incentive Plan was adopted
by our board of directors in July 2000 and is expected to be approved by our
stockholders prior to completing this offering. The 2000 Equity Incentive Plan
will take effect on the effective date of the initial public offering.
ADMINISTRATION. The 2000 Equity Incentive Plan will be administered by our
board of directors or a committee consisting of members of our board of
directors. The administrator of our 2000 Equity Incentive Plan will have the
power to determine with respect to stock awards granted under the plan, among
other things:
- the selection of the officers, consultants, employees and directors to
whom the stock awards may from time to time be granted;
- whether and to what extent options and stock repurchase rights or any
combination thereof, are granted under such plan;
- the number of shares to be covered by each such award granted under such
plan;
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- the form of agreement for use;
- the terms and conditions of stock awards that are not inconsistent with
the terms of such plan, including but not limited to the exercise price
for options granted under the plan;
- the terms and restrictions applicable to stock purchase rights and the
restricted stock purchased by exercising such stock purchase rights; and
- any other determinations with respect to stock awards under such plan as
the administrator deems appropriate.
OPTIONS. The exercise price of all incentive stock options granted under
the 2000 Equity Incentive Plan must be at least equal to the fair market value
of the common stock on the date of grant. The exercise price of nonstatutory
stock options and stock purchase rights granted under the 2000 Equity Incentive
Plan will be determined by the administrator, but must be at least equal to 85%
of the fair market value of our common stock on the date of grant. With respect
to any participant who owns stock representing more than 10% of the voting power
of all classes of our outstanding capital stock, the exercise price of any
incentive stock option granted must be at least equal 110% of the fair market
value on the grant date and the term of the incentive stock option must not
exceed five years. The term of all other options granted under the 2000 Equity
Incentive Plan may not exceed 10 years.
During any fiscal year, incentive stock options exercised by each optionee
may not exceed $100,000, any excess of such value shall be treated as
nonstatutory stock option.
Options granted under the 2000 Equity Incentive Plan must generally be
exercised within ninety (90) days after the end of the optionee's status as an
employee, director or consultant of ours, or within 12 months after the
optionee's termination by reason of his or her disability or within 18 months
after the optionee's termination by reason of his or her death, but in no event
later than the expiration of the option's term.
Acceptable consideration for the purchase of common stock issued under the
2000 plan will be determined by the board of directors and may include cash,
common stock previously owned by the optionee, a deferred payment arrangement
and other legal consideration approved by the board.
SECTION 162(M) LIMIT. Section 162(m) of the Internal Revenue Code of 1986
denies an income tax deduction to publicly held corporations for certain
compensation paid to specified employees in a taxable year to the extent that
the compensation exceeds $1 million, unless the compensation constitutes
"performance-based compensation." In order to ensure that option grants under
the 2000 Equity Incentive Plan constitute "performance-based compensation," no
person may be granted options under the 2000 Equity Incentive Plan covering more
than 2,500,000 shares of common stock in any calendar year. Under its general
authority to grant options, the board of directors has the implicit authority to
reprice outstanding options or to offer optionees the opportunity to replace
outstanding options with new options for the same or a different number of
shares. Both the original and new options will count toward the Section 162(m)
limitation.
STOCK PURCHASE RIGHTS. In the case of stock purchase rights, unless the
administrator determines otherwise, the restricted stock purchase agreement
shall grant us a repurchase option exercisable upon the voluntary or involuntary
termination of the purchaser's employment or consulting relationship with us for
any reason, including death or disability. The purchase price for shares
repurchased under the restricted stock purchase agreement will be the original
price paid by the purchaser and may be paid by cancellation of any indebtedness
of the purchaser to us. The repurchase option shall lapse at a rate determined
by the administrator.
RESTRICTIONS ON TRANSFERABILITY OF STOCK AWARDS. Except as otherwise
provided in a stock award, options and stock purchase rights granted under the
2000 Equity Incentive Plan are generally not
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transferable by the optionee, and each option and stock purchase right is
exercisable during the lifetime of the optionee only by the optionee.
CHANGES OF CONTROL. The 2000 Equity Incentive Plan provides that in the
event of a change in control of the Company including our merger with or into
another corporation, or a sale of substantially all of our assets, each stock
award shall be assumed or an equivalent stock award substituted for by the
successor corporation. If the outstanding stock awards are not assumed or
substituted for by the successor corporation, then the vesting of such stock
awards shall accelerate immediately prior to the consummation of the transaction
and will terminate with the consummation of the transaction.
AUTHORIZED SHARES. When the 2000 Equity Incentive Plan takes effect, it
will have a total of 10,000,000 shares of our common stock reserved for issuance
under the plan. No options, stock bonuses or stock purchase rights have been
granted under the plan. On each January 1 beginning on January 1, 2001, and
ending January 1, 2010, this reserve will automatically be increased by the
greater of the total number of shares of common stock for which stock options,
stock bonuses and stock purchase rights were granted in the preceding calendar
year, or 5.0% of the total outstanding common stock on that date on a fully
diluted basis; provided, that the board may designate a smaller number of shares
by which the reserve will increase on a particular date. Shares of common stock
which are covered by a stock option granted under the plan which has expired or
terminated without having been exercised will be added to the above reserve of
the plan. Over the ten-year term of the 2000 Equity Incentive Plan, no more than
25,000,000 shares may be reserved for issuance pursuant to the exercise of
incentive stock options.
AMENDMENT AND TERMINATION OF THE 2000 EQUITY INCENTIVE PLAN. The board will
have the authority to amend, suspend or terminate the 2000 Equity Incentive
Plan, as long as this action does not affect any shares of common stock
previously issued and sold or any option previously granted under the 2000
Equity Incentive Plan. Unless earlier terminated, the 2000 Equity Incentive Plan
will terminate automatically one day prior to the tenth anniversary of the date
of the adoption of the plan by the board.
2000 NON-EMPLOYEE DIRECTOR STOCK OPTION GRANTS
The 2000 Equity Incentive Plan provides for the automatic grant of
nonstatutory stock options to purchase shares of common stock to our
non-employee directors.
AUTOMATIC GRANTS. Upon the completion of this offering, beginning 2001, on
the day after our annual stockholders' meeting, any person who is then a
non-employee director and who is elected at such annual meeting will
automatically be granted an option to purchase 36,000 shares of common stock.
These grants will vest over a three-year period and will vest on a monthly
basis. Any non-employee director who is elected or appointed to the board during
a three-year term will automatically be granted an option to purchase a pro rata
portion of shares based on the number of months remaining in the term.
ADMINISTRATION. The board of directors will administer automatic option
grants to non-employee directors, unless and until it delegates administration
to a committee.
TERMS OF OPTIONS. Options granted to non-employee directors will generally
be subject to the following terms:
- the exercise price of options granted will be equal to the fair market
value of our common stock on the date of grant;
- no option granted may be exercised after the expiration of I0 years from
the date it was granted;
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- options granted will not be transferable other than by will or by the laws
of descent and distribution and will be exercisable during the life of the
optionee only by the optionee;
- an optionee may designate a beneficiary, who may exercise the option
following the optionee's death; and
- an optionee whose service relationship with us or any of our affiliates,
whether as a non-employee director of the company or subsequently as an
employee, director or consultant of either the company or one of our
affiliates, ceases for any reason may exercise vested options for the term
provided in the option agreement, which is generally 12 months, or 18
months in the event of the optionee's death. However, an option may not be
exercised after the expiration of its term.
CHANGES OF CONTROL. The 2000 Equity Incentive Plan will provide that in the
event of a change of control of our company, including our merger with or into
another corporation, or a sale of substantially all of our assets, each option
held by a non-employee director granted under the automatic grant provisions of
the 2000 Equity Incentive Plan shall immediately vest in full.
2000 EMPLOYEE STOCK PURCHASE PLAN
In July 2000, our board of directors adopted the 2000 Employee Stock
Purchase Plan which authorizes the issuance of shares of our common stock
pursuant to purchase rights granted to our employees or to employees of any of
our affiliates. We expect that the 2000 purchase plan will be approved by our
stockholders prior to completing this offering. The purchase plan is intended to
qualify as an employee stock purchase plan within the meaning of Section 423 of
the Code. The purchase plan provides a means by which employees may purchase our
common stock through payroll deductions. As of the date hereof, no shares of
common stock have been purchased under the purchase plan.
ADMINISTRATION. The purchase plan is administered by the board of
directors. The board of directors may delegate authority to administer the
purchase plan to a committee. Subject to the terms of the plan, the board of
directors or its authorized committee, determines when and how rights to
purchase shares will be granted and the provisions of each offering of rights.
Under the plan, we may specify offerings with a duration of not more than 27
months, and may specify shorter purchase periods within each offering. The first
offering will begin on the effective date of this offering and be approximately
months in duration, with purchases occurring every six months. Unless
otherwise determined by the board of directors, common stock is purchased for
accounts of employees participating in the purchase plan at a price per share
equal to the lower of:
- 85% of the fair market value of a share of our common stock on the date of
commencement of participation in the offering; or
- 85% of the fair market value of a share of our common stock on the date of
purchase.
ELIGIBILITY. The purchase plan is implemented by offerings of rights to
eligible employees. Generally, all regular employees, including executive
officers, who work at least 20 hours per week and are customarily employed by us
or by one of our affiliates for at least five months per calendar year may
participate in the purchase plan and may authorize payroll deductions of up to
15% of their earnings for the purchase of stock under the purchase plan.
Eligible employees may be granted rights only if the rights, together with any
other rights granted under all employee stock purchase plans, do not permit such
employee's rights to purchase our stock to accrue at a rate which exceeds
$25,000 of the fair market value of such stock for each calendar year in which
such rights are outstanding. No employee shall be eligible for the grant of any
rights under the purchase plan if immediately after such
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rights are granted, such employee has voting power over 5% or more of our
outstanding capital stock measured by vote or value.
CHANGES OF CONTROL. The purchase plan provides that in the event of a
change of control of our company, including our merger with or into another
corporation, or a sale of substantially all of our assets as described in the
plan, the surviving entity may assume or substitute for rights outstanding under
the purchase plan. If the surviving entity does not assume or substitute for
outstanding rights, then the board of directors has discretion to cause:
- the rights to continue in full force and effect; or
- a participant's accumulated payroll deductions to be used to purchase
shares, immediately prior to the change in control, and their outstanding
rights thereafter to be terminated.
AUTHORIZED SHARES. The purchase plan initially authorizes the issuance of
two million shares of common stock under the purchase plan which amount will be
increased each January 1, beginning January 1, 2001, and ending January 1, 2010,
by the greater of the total number of shares issued under the plan during the
preceding calendar year or 1.5% of the number of shares of common stock
outstanding on that date. However, the board of directors has the authority to
designate a smaller number of shares by which the authorized number of shares of
common stock will be increased on that date. A maximum of 10,000,000 shares may
be issued during the term of the purchase plan.
AMENDMENT AND TERMINATION OF THE PLAN. The board has the authority to
amend, suspend or terminate the purchase plan. Unless earlier terminated, the
purchase plan will terminate automatically one day prior to the tenth
anniversary of the date of the adoption of the plan by the Board.
401(k) PLAN
In January 1997, we adopted the Oplink Communications, Inc. 401(k) Profit
Sharing Plan, which covers all of our eligible employees who have completed one
month of service and are at least 21 years old. The 401(k) Plan excludes from
participation all collectively bargained and non-resident alien employees. The
401(k) Plan is intended to qualify under Section 401(a) of the Internal Revenue
Code of 1986 and the 401(k) Plan trust is intended to qualify under Section
501(a) of the Internal Revenue Code. All contributions to the 401(k) Plan by
eligible employees or by us, and the investment earnings thereon are not taxable
to such employees until withdrawn, and any contributions we may make are
expected to be deductible by us when made. Our eligible employees may elect to
reduce their eligible compensation by up to 15%, subject to statutorily
prescribed limits, and to have such compensation reductions contributed on their
behalf to the 401(k) Plan. The 401(k) Plan permits, but does not require, us to
make matching contributions to the 401(k) Plan. To date, we have not made any
matching contributions.
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RELATED PARTY TRANSACTIONS
Other than compensation agreements and other arrangements, which are
described as required in "Management," and the transactions described below,
since July 1, 1997, there has not been, nor is there currently proposed, any
transaction or series of similar transactions to which we were or will be a
party:
- in which the amount involved exceeded or will exceed $60,000; and
- in which any director, executive officer, holder of more than 5% of our
common stock on an as-converted basis or any member of their immediate
family had or will have a direct or indirect material interest.
INVESTOR RIGHTS AGREEMENT
We have entered into an agreement with the holders of our preferred stock,
including entities with which our directors are affiliated, that provides these
stockholders certain rights relating to the registration of their shares of
common stock issuable upon conversion of the preferred stock. These rights have
been waived as to this offering by the holders of preferred stock, but will
survive this offering and will terminate no later than eight years after the
closing date of this offering. This agreement also entitles the holders of our
preferred stock to rights to receive financial information regarding us and a
right of first refusal to purchase shares of our stock we issue, both of which
rights terminate at the close of this offering.
INDEMNIFICATION AGREEMENTS
We expect to enter into indemnification agreements with each of our
directors and officers prior to completing this offering. These indemnification
agreements and our certificate of incorporation and bylaws require us to
indemnify our directors and officers to the fullest extent permitted by Delaware
law. Please see "Management--Limitations on Directors' Liability and
Indemnification."
STOCK SALES
The following executive officers, directors and holders of more than 5%
percent of our securities purchased shares of our stock in the amounts set forth
below during the last three fiscal years.
<TABLE>
<CAPTION>
PREFERRED STOCK
COMMON ---------------------------------------------
STOCK SERIES B SERIES C SERIES D SERIES E
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Joseph Y. Liu........................... 240,000 -- -- -- --
Alex Hsu................................ 50,000 -- -- -- --
Wei-Zhong Li............................ 615,000 -- -- -- --
Haiguang Lu............................. 600,000 -- -- -- --
Qin Zhang............................... 480,000 -- -- -- --
Jingyu Xu............................... 58,331 -- -- -- --
Chieh Chang (1)......................... -- 406,368 -- 183,332 --
Herbert Chang (2)....................... -- 7,222,224 1,500,000 1,986,680 1,250,000
David Spreng (3)........................ -- -- -- -- 3,750,000
5% STOCKHOLDERS
The InveStar Entities (2)............... -- 7,222,224 1,500,000 1,986,680 1,250,000
Hui Chuan and H.S. Liu (4).............. -- 3,516,668 500,000 -- --
Chao-Long and Chen Hwa Chang............ -- -- -- 260,000 30,500
Yi Hou and Zhimin Liu................... 4,112,640 -- -- -- --
The Crescendo Entities (3).............. -- -- -- -- 3,750,000
</TABLE>
------------------------
(1) Consists entirely of shares held in the Chieh and Lily Chang Trust, for
which Mr. Chang is a trustee.
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(2) Consists of 7,222,224 shares of Series B Preferred Stock and 500,000 shares
of Series E Preferred Stock held by InveStar Burgeon Venture Capital, Inc.;
500,000 shares of Series C Preferred Stock, 1,324,448 shares of Series D
Preferred Stock and 500,00 shares of Series E Preferred Stock held by
InveStar Excelsus Venture Capital (Int'l), Inc., LDC; 500,000 shares of
Series C Preferred Stock and 125,000 shares of Series E Preferred Stock held
by InveStar Dayspring Venture Capital, Inc.; and 500,000 shares of Series C
Preferred Stock, 662,232 shares of Series D Preferred Stock and 125,000
shares of Series E Preferred Stock held by Forefront Venture Partners, L.P.
Mr. Herbert Chang, one of our directors, is the Managing Partner of
Forefront Venture Partners, L.P. and the President of InveStar Burgeon
Venture Capital, Inc., InveStar Dayspring Venture Capital, Inc. and InveStar
Excelsus Venture Capital (Int'l), Inc., LDC. Mr. Chang disclaims beneficial
ownership of these shares except to the extent of his pecuniary or
partnership interests.
(3) Consists of 3,570,345 shares held by Crescendo III, L.P., 106,039 shares
held by Crescendo III Executive Fund, L.P., and 73,616 shares held by
Crescendo III, GbR. Mr. Spreng, one of our directors, is the managing member
of Crescendo Venture Management, LLC. Mr. Spreng disclaims beneficial
ownership of the shares held by the Crescendo Entities.
(4) Hui Chuan and H.S. Liu are the parents of Joseph Y. Liu, our Chief Executive
Officer and director.
RECENT OPTION GRANTS
On July 12, 2000, we granted options to purchase 50,000 shares of common
stock to each of Edward Labuda and Leonard LeBlanc upon their election to the
board of directors.
We believe that all transactions with affiliates described above were made
on terms no less favorable to us than could have been obtained from unaffiliated
third parties. Our policy is to require that a majority of the independent and
disinterested outside directors on our board of directors approve all future
transactions between us and our officers, directors, principal stockholders and
their affiliates. These transactions will continue to be on terms no less
favorable to us than we could obtain from unaffiliated third parties.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of June 30, 2000, and as adjusted to reflect
the sale of common stock offered by this prospectus, by:
- each of the individuals listed in the "Summary Compensation Table;"
- each of our directors;
- each person, or group of affiliated persons, who is known by us to own
beneficially 5% or more of our common stock; and
- all current directors and officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Except as indicated in the footnotes to this
table and pursuant to applicable community property laws, each stockholder named
in the table has sole voting and investment power with respect to the shares
shown as beneficially owned by them. This table assumes conversion of all of our
outstanding preferred stock upon completion of this offering and also includes
shares owned by a spouse as community property. Percentage of ownership is based
on 67,280,611 shares of common stock outstanding on June 30, 2000 and
shares of common stock outstanding after completion of this offering, without
giving effect to the exercise of the underwriters' over-allotment option. Unless
otherwise indicated, the address of each of the individuals named below is: c/o
Oplink Communications, Inc., 3469 North First Street, San Jose, California
95134.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES
BENEFICIALLY OWNED
-------------------
NUMBER OF SHARES BEFORE AFTER
NAME BENEFICIALLY OWNED OFFERING OFFERING
---- ------------------ -------- --------
<S> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Wei-Zhong Li (1)........................................... 959,702 1.4% %
Haiguang Lu (2)............................................ 762,602 1.1
Qin Zhang (3).............................................. 762,602 1.1
Derek Statham.............................................. 400,000 * *
Joseph Y. Liu (4).......................................... 325,000 * *
Alex Hsu (5)............................................... 211,484 * *
Jingyu Xu (6).............................................. 82,731 *
Herbert Chang (7).......................................... 12,198,713 18.1
David Spreng (8)........................................... 3,750,000 5.6 *
Chieh Chang (9)............................................ 2,989,700 4.4 *
Ian Jenks.................................................. -- * *
All directors and officers as a group (11 persons)(10)..... 22,442,534 32.5
5% STOCKHOLDERS
The InveStar Entities (11)................................. 11,958,904 17.8
Chao-Rang and Chen Hwa Chang............................... 7,040,500 10.5
Hui-Chuan and H.S. Liu..................................... 6,266,668 9.3
Yi Hou and Zhimin Liu...................................... 4,112,640 6.1
The Crescendo Entities (8)................................. 3,750,000 5.6
</TABLE>
------------------------
* Represents less than 1%.
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(1) Includes 344,702 shares issuable upon the exercise of options that will be
exercisable within 60 days of June 30, 2000.
(2) Includes 162,602 shares issuable upon the exercise of options that will be
exercisable within 60 days of June 30, 2000.
(3) Includes 282,602 shares issuable upon the exercise of options that will be
exercisable within 60 days of June 30, 2000.
(4) Includes 85,000 shares issuable upon the exercise of options that will be
exercisable within 60 days of June 30, 2000 subject to our right to
repurchase such shares based on the vesting schedule.
(5) Includes 161,484 shares issuable upon the exercise of options that will be
exercisable within 60 days of June 30, 2000.
(6) Includes 24,400 shares issuable upon the exercise of options that will be
exercisable within 60 days of June 30, 2000.
(7) Consists entirely of 239,809 shares issuable upon the exercise of options
that will become exercisable within 60 days of June 30, 2000 and 11,958,904
shares held by the InveStar Entities. Mr. Herbert Chang, one of our
directors, is the Managing Partner of Forefront Venture Partners, L.P. and
the President of InveStar Burgeon Venture Capital, Inc., InveStar Dayspring
Venture Capital, Inc. and InveStar Excelsus Venture Capital (Int'l), Inc.,
LDC. Mr. Chang disclaims beneficial ownership of the shares held by the
InveStar Entities except to the extent of his pecuniary or partnership
interests.
(8) Consists of 3,570,345 shares held by Crescendo III, L.P., 106,039 shares
held by Crescendo III Executive Fund, L.P., and 73,616 shares held by
Crescendo III, GbR. Mr. Spreng, one of our directors, is the managing member
of Crescendo Venture Management, LLC. Mr. Spreng disclaims beneficial
ownership of the shares held by the Crescendo Entities. The address for the
Crescendo Entities is 480 Copper Street, Suite 300, Palo Alto, CA 94301.
(9) Includes 400,000 shares issuable upon exercise of options that will be
exercisable within 60 days of June 30, 2000 and 2,589,700 shares issuable
upon conversion of preferred stock and which are held in the Chieh and Lily
Chang Trust, for which Mr. and Mrs. Chang serve as trustees.
(10) Includes 1,700,599 shares issuable upon the exercise of options that will
be exercisable within 60 days of June 30, 2000.
(11) Consists of 7,722,224 shares held by InveStar Burgeon Venture Capital,
Inc., 2,324,448 shares held by InveStar Excelsus Venture Capital
(Int'l), Inc., LDC, 625,000 shares held by InveStar Dayspring Venture
Capital, Inc. and 1,287,232 shares held by Forefront Venture Partners, L.P.
The address for the InveStar Entities is 3600 Pruneridge Avenue, Suite 300
Santa Clara, CA 95051.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, our authorized capital stock will consist
of 200 million shares of common stock, $0.001 par value, and 10 million shares
of undesignated preferred stock, $0.001 par value. The following description of
our capital stock does not purport to be complete and is subject to, and
qualified in its entirety by, our certificate of incorporation and bylaws, which
we have included as exhibits to the registration statement of which this
prospectus forms a part.
COMMON STOCK
As of June 30, 2000, there were 67,280,611 shares of common stock
outstanding, held of record by 154 stockholders. This amount assumes the
conversion of all outstanding shares of preferred stock into common stock, which
is to occur upon the closing of this offering. In addition, as of June 30, 2000,
there were 12,541,444 shares of common stock subject to outstanding options and
warrants to purchase 134,452 shares of common stock and 40,000 shares of
series C preferred stock. Upon completion of this offering, there will be
shares of common stock outstanding, assuming no exercise of outstanding
stock options or warrants or the underwriters' over-allotment option.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably dividends, if any, as may be declared from time to
time by the board of directors out of funds legally available for that purpose.
See "Dividend Policy." In the event of our liquidation, dissolution or winding
up, the holders of common stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior distribution rights of
preferred stock, if any, then outstanding. The common stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock are fully paid and nonassessable, and the shares of common stock
to be issued upon the closing of this offering will be fully paid and
nonassessable.
PREFERRED STOCK
Our board of directors has the authority, without any further action by our
stockholders, to designate and issue up to 10 million shares of preferred stock
in one or more series and to designate the rights, preferences and privileges of
each series, any or all of which may be greater than the rights of the common
stock. The effect of the issuance of any shares of preferred stock upon the
rights of holders of the common stock might include, among other things,
restricting dividends on the common stock, diluting the voting power of the
common stock, impairing the liquidation rights of the common stock and delaying
or preventing a change in control of Oplink without further action by the
stockholders. We have no present plans to issue any shares of preferred stock.
WARRANTS
At June 30, 2000, there were outstanding warrants to purchase a total of
134,452 shares of common stock and 40,000 shares of series C preferred stock.
The warrants to purchase common stock and series C preferred stock will expire
in January 2002 and March 2003, respectively, unless earlier exercised. Upon
completion of this offering, the series C preferred stock warrant will become
exercisable for shares of common stock.
REGISTRATION RIGHTS
The holders of 55,051,672 shares of common stock, as converted, and the
holder of a warrant to purchase 40,000 shares of common stock, as converted, or
their permitted transferees are entitled to certain rights with respect to
registration of the shares under the Securities Act at any time after
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180 days following the closing of this offering. Under the terms of the
agreements between us and the holders of the registrable securities, upon the
written request from holders of of at least 30% of the registrable securities
then outstanding, the holders may require on two occasions that we, at our
expense, file a registration statement under the Securities Act, with respect to
the registrable securities, provided that at least 30% of the registrable
securities then outstanding would be included in the proposed registration or
the anticipated public offering price of the proposed registration would be at
least $10 million. In addition, any holder of the registrable securities then
outstanding, may at our expense require that we register their shares for public
resale on Form S-3 or similar short-form registration, provided that we are
eligible to use Form S-3 or similar short-form registration, and provided
further that the value of the securities to be registered is at least $500,000.
Furthermore, in the event we elect to register any of our shares of common stock
after this offering for purposes of effecting any public offering, the holders
of registrable securities are entitled, at our expense, to include their shares
of common stock in the registration, subject to the right of the underwriter to
reduce the number of shares proposed to be registered in view of market
conditions.
ANTI-TAKEOVER PROVISIONS
Certain provisions of Delaware law and our certificate of incorporation and
bylaws could make it more difficult to acquire us by means of a tender offer, a
proxy contest or otherwise and the removal of incumbent directors. These
provisions, summarized below, are expected to discourage certain types of
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of us to first negotiate with us. We believe
that the benefits of increased protection of our potential ability to negotiate
with the proponent of an unfriendly or unsolicited proposal to acquire or
restructure us outweigh the disadvantages of discouraging takeover or
acquisition proposals because, among other things, negotiation of these
proposals could result in an improvement of their terms.
DELAWARE LAW. We are subject to Section 203 of the Delaware General
Corporation Law, an anti-takeover law. In general, Section 203 prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years following the date
the person became an interested stockholder, unless, with exceptions, the
business combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a business
combination includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the interested stockholder, and an
interested stockholder is a person who, together with affiliates and associates,
owns, or within three years prior to the determination of interested stockholder
status, did own, 15% or more of a corporation's voting stock. The existence of
this provision would be expected to have an anti-takeover effect with respect to
transactions not approved in advance by the board of directors, including
discouraging attempts that might result in a premium over the market price for
the shares of common stock held by stockholders.
CERTIFICATE OF INCORPORATION AND BYLAWS PROVISIONS. Our certificate of
incorporation and bylaws require that any action required or permitted to be
taken by our stockholders must be effected at a duly called annual or special
meeting of the stockholders and may not be effected by a consent in writing. In
addition, special meetings of our stockholders may be called only by the board
of directors or certain of our officers. Our certificate of incorporation and
bylaws also provide that, beginning upon the closing of this offering, our board
of directors will be divided into three classes, with each class serving
staggered three-year terms, and that certain amendments of the certificate of
incorporation and of the bylaws require the approval of holders of at least
66.7% of the voting power of all outstanding stock. These provisions may have
the effect of deterring hostile takeovers or delaying changes in control or
management of Oplink.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Bank of New York.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market could
reduce market prices prevailing from time to time. Furthermore, since only a
limited number of shares will be available for sale shortly after this offering
because of contractual and legal restrictions on resale described below, sales
of substantial amounts of common stock in the public market after the
restrictions lapse could reduce the market price of our stock and our ability to
raise equity capital in the future.
Upon completion of the offering, we will have shares of common stock
outstanding, assuming no exercise of the underwriters' over-allotment option and
no exercise of outstanding options and warrants and based upon the number of
shares outstanding as of June 30, 2000. Of these shares, the shares sold
in this offering will be freely tradable without restriction or further
registration under the Securities Act, unless such shares are purchased by our
"affiliates," as that term is defined in Rule 144 under the Securities Act. The
remaining shares held by existing stockholders, and any shares purchased by
affiliates in this offering, will be "restricted securities" as that term is
defined in Rule 144 under the Securities Act. Our executive officers, directors
and stockholders holding at least five percent of our outstanding securiteis
will hold 25,576,103 of the restricted shares. Restricted shares may be sold in
the public market only if registered or if they qualify for an exemption from
registration under Rules 144, 144(k) or 701 under the Securities Act, which are
summarized below.
Subject to the operation of lock-up agreements described below, upon
completion of this offering, the holders of shares of common stock, or
their transferees, will be entitled to rights to require the registration of
such shares under the Securities Act. Registration of such shares under the
Securities Act would result in such shares becoming freely tradable without
restriction under the Securities Act, except for shares purchased by our
affiliates, immediately upon the effectiveness of such registration. See
"Description of Capital Stock--Registration Rights."
LOCK-UP AGREEMENTS
We, our officers, directors and stockholders holding approximately
shares of common stock have agreed that, for a period of 180 days from the
date of the final prospectus, we and they will not, subject to some exceptions,
transfer or otherwise dispose of any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock. As a result of
these contractual restrictions, notwithstanding possible earlier eligibility for
sale under the provisions of Rules 144 and 701 of the Securities Act discussed
below, shares subject to these lock-up agreements may not be sold until the
shares are released from the agreements or the agreements expire or unless prior
written consent is received from FleetBoston Robertson Stephens Inc. Any early
waiver of the lock-up agreements by the underwriters, which, if granted, could
permit sales of a substantial number of shares and could adversely affect the
trading price of our shares, may not be accompanied by an advance public
announcement by us.
RULE 144
In general, under Rule 144, beginning 90 days after the date of the final
prospectus, a person or persons whose shares are aggregated, who has
beneficially owned restricted shares for at least one year, including a person
who may be deemed our Rule 144 affiliate, would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- one percent of the number of shares of our common stock then outstanding;
or
- the average weekly trading volume of our common stock during the four
calendar weeks preceding the filing of a notice on Form 144 with respect
to the proposed sale.
67
<PAGE>
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us. We are unable to estimate accurately the number of restricted shares that
will be sold under Rule 144 because this will depend in part on the market price
of our common stock, the personal circumstances of the seller and other factors.
Under Rule 144(k), a person who is not deemed to have been our Rule 144
affiliate at any time during the 90 days preceding a sale, and who has
beneficially owned for at least two years the shares proposed to be sold, would
be entitled to sell those shares under Rule 144(k) without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144. Therefore, subject to the lock-up agreements, these shares may be sold
upon completion of this offering.
RULE 701
Beginning 90 days after the date of this prospectus, 12,201,092 shares of
common stock issuable upon exercise of the options granted by us prior to the
effective date of the registration statement will be eligible for sale in the
public market pursuant to Rule 701 under the Securities Act, subject to the
lock-up agreements. In general, Rule 701 permits resales of shares issued under
specified compensatory benefit plans and contracts commencing 90 days after the
issuer becomes subject to the reporting requirements of the Securities Exchange
Act in reliance upon Rule 144, but without compliance with restrictions,
including the holding period requirements, contained in Rule 144.
REGISTRATION STATEMENTS ON FORM S-8
Following this offering, we intend to file under the Securities Act one or
more registration statements on Form S-8 to register all of the shares of our
common stock eligible for this form of registration statement:
- issuable upon exercise of outstanding options granted pursuant to our
stock option and equity incentive plans;
- reserved for future option grants pursuant to individual option agreements
or these plans; and
- that we intend to offer for sale to our employees pursuant to our employee
stock purchase plan.
These registration statements are expected to become effective upon filing.
Shares covered by these registration statements will be subject to vesting
provisions and subject to expiration of the lock-up agreements. In the case of
Rule 144 affiliates only, these shares will also remain subject to the
restrictions of Rule 144 other than the holding period requirement.
68
<PAGE>
UNITED STATES FEDERAL TAX CONSIDERATIONS FOR NON-UNITED STATES HOLDERS
The following is a summary of certain United States federal income and
estate tax consequences of the ownership and disposition of our common stock by
non-U.S. holders. As used herein, "non-U.S. holder" means any person or entity
that holds our common stock, other than:
- an individual citizen or resident of the U.S.;
- a corporation or partnership created or organized in or under the laws of
the U.S., or of any state of the U.S. or the District of Columbia, other
than any partnership treated as foreign under U.S. Treasury Regulations;
- an estate the income of which is includable in gross income for U.S.
federal income tax purposes regardless of its source; or
- in general, a trust if a court within the U.S. may exercise primary
supervision over the administration of the trust and if one or more U.S.
persons have the authority to control all substantial decisions of the
trust.
This summary is based on provisions of the U.S. Internal Revenue Code of
1986, as amended, existing, temporary and proposed U.S. Treasury Regulations
promulgated thereunder and administrative and judicial interpretations of each,
all as of the date hereof and all of which are subject to change, possibly on a
retroactive basis. This summary is for general information only. It does not
address aspects of U.S. federal taxation other than income and estate taxation,
and does not address all aspects of U.S. federal income and estate taxation.
This summary does not discuss all the tax consequences that may be relevant to a
non-U.S. holder in light of the holder's particular circumstances, for instance,
insurance companies, tax-exempt organizations, broker-dealers, and financial
institutions. In addition, this summary does not address any state, local, or
foreign tax considerations that may be relevant to a non-U.S. holder's decision
to purchase shares of our common stock.
PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE
PARTICULAR U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES, AS WELL AS OTHER
U.S. FEDERAL, STATE, AND LOCAL TAX CONSEQUENCES, AND THE NON-U.S. TAX
CONSEQUENCES, TO THEM OF OWNING AND DISPOSING OF SHARES OF OUR COMMON STOCK.
INCOME TAX
DIVIDENDS
Subject to the discussion below, dividends paid to a non-U.S. holder
generally will be subject to withholding of U.S. income tax at the rate of 30%
of the amount of the dividend, or such lower rate as may be prescribed by an
applicable income tax treaty.
However, if dividends we pay are effectively connected with a non-U.S.
holder's conduct of a trade or business in the U.S. and, if a tax treaty
applies, are attributable to a U.S. permanent establishment, or, if the holder
is an individual, a "fixed base" of the non-U.S. holder, the 30% withholding tax
generally will not apply, and the non-U.S. holder generally will be subject to
tax on such dividends on a net basis in the same manner as holders that are U.S.
persons, provided the non-U.S. holder files appropriate IRS forms with us. An
additional branch profits tax of 30%, or such lower rate as may be prescribed by
an applicable income tax treaty, may apply if the non-U.S. holder is a
corporation.
Under current U.S. Treasury Regulations, in determining whether a holder is
eligible for the benefits of an income tax treaty, dividends paid to an address
in a foreign country are presumed to be paid to a resident of that country,
absent knowledge to the contrary. However, under new U.S. Treasury Regulations
generally effective for dividend payments made after December 31, 2000, a non-
69
<PAGE>
U.S. holder desiring to claim the benefits of an applicable tax treaty must
satisfy certification and other requirements and must provide us with a taxpayer
identification number unless an exception applies. In addition, under these new
Treasury Regulations, in the case of common stock held by a foreign partnership,
this certification requirement may be applied to the partners, and not the
partnership, and the partnership must provide certain information, including a
U.S. taxpayer identification number. These new regulations also provide
look-through rules for tiered partnerships. A non-U.S. holder that is eligible
for a reduced rate of U.S. withholding tax pursuant to a tax treaty may obtain a
refund of any excess amounts withheld by filing an appropriate claim for refund
with the IRS.
DISPOSITION OF OUR COMMON STOCK
Generally, non-U.S. holders will not be subject to U.S. federal income tax,
or withholding thereof, in respect of gain recognized on a disposition of our
common stock unless:
- the gain is effectively connected with the holder's conduct of a trade or
business within the U.S., or, if a tax treaty applies, is attributable to
a permanent establishment or fixed base of the holder in the U.S.; in any
such case such gain will be subject to regular graduated U.S. income tax
rates and the branch profits tax described above may also apply if the
non-U.S. holder is a corporation;
- in the case of a non-U.S. holder who is a non-resident alien individual
and holds our common stock as a capital asset, the holder is present in
the U.S. for 183 or more days in the taxable year of the sale and other
conditions are met;
- we are or have been a "United States real property holding corporation"
for U.S. federal income tax purposes and certain other conditions are met;
we do not believe we are or have been a United States real property
holding corporation and do not expect to become one in the future; or
- the holder is subject to tax pursuant to U.S. federal income tax
provisions applicable to certain U.S. expatriates.
ESTATE TAX
If an individual non-U.S. holder owns, or is treated as owning, our common
stock at the time of his or her death, such stock would be includable in the
individual's gross estate for U.S. federal estate tax purposes and may be
subject to U.S. federal estate tax imposed on the estates of nonresident aliens,
in the absence of a contrary provision contained in an applicable tax treaty.
BACKUP WITHHOLDING AND INFORMATION REPORTING
DIVIDENDS
Generally, we must report annually to the IRS and to each non-U.S. holder
the amount of dividends that we paid to a holder, and the amount of tax that we
withheld on those dividends. This information may also be made available to the
tax authorities of a country in which the non-U.S. holder resides or is
established.
Under current law, dividends paid on our common stock to a non-U.S. holder
at an address outside the U.S. are generally exempt from backup withholding tax,
imposed at a 31% rate, and U.S. information reporting requirements, but not from
regular withholding tax as discussed above. Backup withholding tax and
information reporting generally will apply to dividends paid to a non-U.S.
holder at an address in the U.S. if the holder fails to establish an exemption
or to furnish other information. Under the Treasury Regulations that are
applicable to dividends paid after December 31, 2000, a non-
70
<PAGE>
U.S. person must generally provide proper documentation establishing the
person's non-U.S. status to a withholding agent in order to avoid backup
withholding tax.
BROKER SALES
Payments of proceeds from the sale of our common stock by a non-U.S. holder
made to or through a U.S. office of a broker are generally subject to both
information reporting and backup withholding tax unless the holder certifies its
non-U.S. status under penalties of perjury or otherwise establishes entitlement
to an exemption. Payments of proceeds from the sale of our common stock by a
non-U.S. holder made to or through a non-U.S. office of a broker generally will
not be subject to information reporting or backup withholding. However, payments
made to or through certain non-U.S. offices, including the non-U.S. offices of a
U.S. broker and foreign brokers with certain types of relationships to the U.S.,
are generally subject to information reporting, but not backup withholding,
unless the holder certifies its non-U.S. status under penalties of perjury or
otherwise establishes entitlement to an exemption.
Backup withholding is not an additional tax. A non-U.S. holder may obtain a
refund of any excess amounts withheld under the backup withholding rules by
filing an appropriate claim for refund with the IRS.
Non-U.S. holders should consult their tax advisors regarding the application
of information reporting and backup withholding in their particular situation,
including the availability of an exemption from such requirements and the
procedures for obtaining such an exemption, as well as the effect of the new
Treasury Regulations generally effective for payments made after December 31,
2000.
71
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., CIBC World Markets Corp., J.P.
Morgan Securities Inc. and UBS Warburg LLC, have severally agreed with us,
subject to the terms and conditions of the underwriting agreement, to purchase
from us the number of shares of common stock set forth below opposite their
respective names. The underwriters are committed to purchase and pay for all
shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
FleetBoston Robertson Stephens Inc..........................
CIBC World Markets Corp.....................................
J.P. Morgan Securities Inc..................................
UBS Warburg LLC.............................................
-------
Total...................................................
=======
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the public offering price set forth
on the cover page of this prospectus and to certain dealers at that price less a
concession of not in excess of $ per share, of which $ may be
reallowed to other dealers. After this offering, the public offering price,
concession and reallowance to dealers may be reduced by the representatives. No
such reduction shall change the amount of proceeds to be received by us as set
forth on the cover page of this prospectus. The common stock is offered by the
underwriters as stated herein, subject to receipt and acceptance by them and
subject to their right to reject any offer in whole or in part.
Prior to this offering, there has been no public market for the common
stock. Consequently, the public offering price for the common stock offered by
this prospectus has been determined through negotiations among the
representatives and us. Among the factors considered in such negotiations were
prevailing market conditions, certain of our financial information, market
valuations of other companies that we and the representatives believe to be
comparable to us, estimates of our business potential, the present state of our
development and other factors deemed relevant.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
OVER-ALLOTMENT OPTION
We have granted to the underwriters an option, exercisable during the 30-day
period after the date of this prospectus, to purchase up to additional
shares of common stock to cover over-allotments, if any, at the public offering
price less the underwriting discount set forth on the cover page of this
prospectus. If the underwriters exercise their over-allotment option to purchase
any of the additional shares of common stock, the underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof as the number of shares to be purchased by each of them
bears to the total number of shares of common stock offered in this offering. If
purchased, these additional shares will be sold by the underwriters on the same
terms as those on which the shares offered hereby are being sold. We will be
obligated, pursuant to the over-allotment option, to sell shares to the
underwriters to the extent the over-allotment option is exercised. The
underwriters may exercise the over-allotment option only to cover
over-allotments made in connection with the sale of the shares of common stock
offered in this offering.
72
<PAGE>
The following table shows the per share and total underwriting discounts and
commissions to be paid by us to the underwriters. This information is presented
assuming either no exercise or full exercise by the underwriters of their
over-allotment option.
<TABLE>
<CAPTION>
NO EXERCISE OF
OVER- FULL EXERCISE OF
ALLOTMENT OVER-ALLOTMENT
-------------- ----------------
<S> <C> <C>
Per Share......................................... $ $
Total............................................. $ $
</TABLE>
We estimate expenses payable by us in connection with this offering, other
than the underwriting discounts and commissions referred to above, will be
approximately $ .
INDEMNITY
The underwriting agreement contains covenants of indemnity among the
underwriters and us against certain civil liabilities, including liabilities
under the Securities Act of 1933, and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
LOCK-UP AGREEMENTS
Each of our executive officers and directors and stockholders holding
approximately % of our common stock have agreed, subject to specified
exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to any shares of common stock
or any options or warrants to purchase any shares of common stock, or any
securities convertible into or exchangeable for shares of common stock owned as
of the date of this prospectus or thereafter acquired directly by those holders
or with respect to which they have the power of disposition, without the prior
written consent of FleetBoston Robertson Stephens Inc. This restriction
terminates after the close of trading of the shares on the 180th day of (and
including) the day the shares commenced trading on the Nasdaq National Market.
However, FleetBoston Robertson Stephens Inc. may, in its sole discretion and at
any time or from time to time before the termination of the 180-day period,
without notice, release all or any portion of the securities subject to lock-up
agreements. There are no existing agreements between the representatives and any
of our shareholders or optionholders who have executed a lock-up agreement
providing consent to the sale of shares prior to the expiration of the lock-up
period.
In addition, we have agreed that during the lock-up period we will not,
without the prior written consent of FleetBoston Robertson Stephens Inc.,
subject to certain exceptions, consent to the disposition of any shares held by
shareholders subject to lock-up agreements prior to the expiration of the
lock-up period, or issue, sell, contract to sell, or otherwise dispose of, any
shares of common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable for or exchangeable for
shares of common stock other than our sale of shares in this offering, the
issuance of our common stock upon the exercise of outstanding options or
warrants, and the issuance of options under existing stock option and incentive
plans provided that those options do not vest prior to the expiration of the
lock-up period. See "Shares Eligible for Future Sale."
LISTING
We have applied for the approval to list our common stock on the Nasdaq
National Market under the symbol "OPLK."
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<PAGE>
STABILIZATION
The representatives have advised us that, pursuant to Regulation M under the
Securities Act of 1933, some persons participating in the offering may engage in
transactions, including stabilizing bids, syndicate covering transactions or the
imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of the shares of common stock at a level above that
which might otherwise prevail in the open market. A "stabilizing bid" is a bid
for or the purchase of shares of common stock on behalf of the underwriters for
the purpose of fixing or maintaining the price of the common stock. A "syndicate
covering transaction" is the bid for or purchase of common stock on behalf of
the underwriters to reduce a short position incurred by the underwriters in
connection with the offering. A "penalty bid" is an arrangement permitting the
representatives to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with the offering if the common
stock originally sold by said underwriter or syndicate member is purchased by
the representatives in a syndicate covering transaction and has therefore not
been effectively placed by such underwriter or syndicate member. The
representatives have advised us that such transactions may be effected on the
Nasdaq National Market or otherwise, and if commenced, may be discontinued at
any time.
DIRECTED SHARE PROGRAM
At our request, certain of the underwriters have reserved up to
five percent of the shares of common stock for sale in this offering at the
initial public offering price to our directors, officers and employees and
persons who are otherwise associated with us. The number of shares of common
stock available for sale to the general public will be reduced to the extent
these individuals purchase reserved shares. Any reserved shares which are not
purchased will be offered by the underwriters on the same basis as the other
shares of common stock offered in this offering. We have agreed to indemnify
these underwriters against various liabilities and expenses, including
liabilities under the Securities Act of 1933, in connection with the sales of
directed shares.
74
<PAGE>
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for us by Cooley Godward LLP, Palo Alto, California. Certain legal matters
will be passed upon for the underwriters by Latham & Watkins, Los Angeles,
California.
EXPERTS
The consolidated financial statements of Oplink Communications, Inc. as of
June 30, 1999 and 2000 and for each of the three years in the period ended
June 30, 2000 included in this Prospectus have been so included in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.
The financial statements of Telelight Communications Inc. as of
December 31, 1998 and 1999, for the year ended December 31, 1999 and for the
periods from April 20, 1998 (date of inception) to December 31, 1998 and 1999,
included in this Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act for the shares of common stock in
this offering. This prospectus does not contain all of the information in the
registration statement and the exhibits and schedule that were filed with the
registration statement. For further information with respect to us and our
common stock, we refer you to the registration statement and the exhibits and
schedule that were filed with the registration statement. Statements contained
in this prospectus about the contents of any contract or any other document that
is filed as an exhibit to the registration statement are not necessarily
complete, and we refer you to the full text of the contract or other document
filed as an exhibit to the registration statement. A copy of the registration
statement and the exhibits and schedule that were filed with the registration
statement may be inspected without charge at the public reference facilities
maintained by the Securities and Exchange Commission in Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies of all or any part of the
registration statement may be obtained from the SEC upon payment of the
prescribed fee. The Securities and Exchange Commission maintains a web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Securities and Exchange
Commission. The address of the site is http://www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and, in
accordance with the requirements of the Securities Exchange Act will file
periodic reports, proxy statements and other information with the Securities and
Exchange Commission. These periodic reports, proxy statements and other
information will be available for inspection and copying at the regional
offices, public reference facilities and web site of the Securities and Exchange
Commission referred to above.
75
<PAGE>
OPLINK COMMUNICATIONS, INC.
INDEX TO CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Oplink Communications, Inc.
Report of Independent Accountants......................... F-2
Consolidated Balance Sheets............................... F-3
Consolidated Statement of Operations...................... F-4
Consolidated Statement of Convertible Preferred Stock and
Stockholders' Deficit................................... F-5
Consolidated Statement of Cash Flows...................... F-6
Notes to Consolidated Financial Statements................ F-7
Unaudited Pro Forma Combined Financial Information
Overview.................................................. F-24
Unaudited Pro Forma Combined Balance Sheet................ F-25
Unaudited Pro Forma Combined Statement of Operations for
the Nine Months Ended March 31, 2000.................... F-26
Unaudited Pro Forma Combined Statement of Operations for
the Year Ended June 30, 1999............................ F-27
Notes to Unaudited Pro Forma Combined Financial
Information............................................. F-28
Telelight Communications, Inc.
Report of Independent Accountants......................... F-29
Balance Sheet............................................. F-30
Statement of Operations................................... F-31
Statement of Shareholders' Equity......................... F-32
Statement of Cash Flows................................... F-33
Notes to Financial Statements............................. F-34
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Oplink Communications, Inc.
The reincorporation described in Note 1 to the consolidated financial
statements has not been consummated as of July 14. When it has been consummated,
we will be in a position to issue the following report:
"In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, of convertible preferred
stock and stockholders' deficit and of cash flows present fairly, in all
material respects, the financial position of Oplink Communications, Inc. and
its subsidiary at June 30, 1998 and 1999, and the results of their
operations and their cash flows for each of the three years in the period
ended June 30, 1999, in conformity with accounting principles generally
accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these statements in accordance with auditing standards
generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above."
"PricewaterhouseCoopers LLP
San Jose, California
March 31, 2000, except as to the
second paragraph of Note 1 which
is as of July 12, 2000"
F-2
<PAGE>
OPLINK COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
JUNE 30, MARCH 31,
------------------- MARCH 31, 2000
1998 1999 2000 (SEE NOTE 11)
-------- -------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 933 $ 4,757 $ 37,444
Accounts receivable, net................................. 697 1,904 4,590
Inventories.............................................. 284 2,274 9,377
Prepaid expenses......................................... 375 855 3,272
------- ------- --------
Total current assets................................... 2,289 9,790 54,683
Property and equipment, net................................ 740 1,828 7,670
Other assets............................................... 32 93 1,090
------- ------- --------
Total assets........................................... $ 3,061 $11,711 $ 63,443
======= ======= ========
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS'
(DEFICIT) EQUITY
Current liabilities:
Accounts payable......................................... $ 475 $ 3,277 $ 6,554
Accrued liabilities...................................... 302 876 2,599
Current portion of capital lease obligations............. -- -- 326
Borrowings under the line of credit...................... -- -- 135
------- ------- --------
Total current liabilities.............................. 777 4,153 9,614
Capital lease obligations, non current..................... -- -- 1,021
------- ------- --------
Total liabilities...................................... 777 4,153 10,635
------- ------- --------
Convertible Preferred Stock, $0.001 par value; 44,051,672
shares authorized in 1999 and 55,091,672 (unaudited)
shares authorized in 2000; issued and outstanding:
33,385,008 shares in 1998, 40,998,324 shares in 1999,
55,051,672 shares in 2000 (unaudited), and zero pro forma
(unaudited);
Liquidation value $12,080 in 1999 and $58,370
(unaudited) in 2000.................................. 6,373 12,083 58,373 $ --
------- ------- -------- --------
Commitments and contingencies (Note 8)
Stockholders' (deficit) equity:
Common Stock, $0.001 par value, 80,000,000 shares
authorized; issued and outstanding: 560,000 shares in
1998, 1,140,000 shares in 1999, 4,469,259 shares
(unaudited) in 2000 and 59,520,931 shares (unaudited)
pro forma.............................................. -- 1 4 59
Additional paid-in capital............................... -- 6,542 15,170 73,488
Deferred stock compensation.............................. -- (3,493) (6,965) (6,965)
Accumulated deficit...................................... (4,089) (7,575) (13,774) (13,774)
------- ------- -------- --------
Total stockholders' (deficit) equity................... (4,089) (4,525) (5,565) $ 52,808
------- ------- -------- ========
Total liabilities, convertible preferred stock and
stockholders' (deficit) equity..................... $ 3,061 $11,711 $ 63,443
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
OPLINK COMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
--------------------------------- ----------------------
1997 1998 1999 1999 2000
-------- -------- ----------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.............................. $ 426 $ 2,493 $ 9,094 $ 5,276 $ 20,661
Cost of revenues...................... 877 2,964 7,225 4,686 17,420
------- -------- ----------- -------- -----------
Gross profit (loss)................. (451) (471) 1,869 590 3,241
------- -------- ----------- -------- -----------
Operating expenses:
Research and development............ 524 455 626 412 1,362
Sales and marketing................. 238 527 802 515 1,392
General and administrative.......... 193 683 826 509 2,259
Amortization of deferred
compensation*..................... -- -- 3,044 1,899 4,747
------- -------- ----------- -------- -----------
Total operating expenses.......... 955 1,665 5,298 3,335 9,760
------- -------- ----------- -------- -----------
Loss from operations.................. (1,406) (2,136) (3,429) (2,745) (6,519)
Interest income (expense)............. 27 14 75 (7) 352
Other (expense) income, net........... (18) (26) (132) 8 (32)
------- -------- ----------- -------- -----------
Net loss.............................. $(1,397) $ (2,148) $ (3,486) $ (2,744) $ (6,199)
======= ======== =========== ======== ===========
Net loss per share: Basic and
diluted............................. $ -- $ (9.35) $ (4.76) $ (4.48) $ (3.91)
======= ======== =========== ======== ===========
Weighted average shares............. -- 229,808 731,671 612,847 1,586,534
======= ======== =========== ======== ===========
Pro forma net loss per share: Basic
and diluted (unaudited)............. $ (0.10) $ (0.13)
=========== ===========
Weighted average shares (unaudited)... 36,426,738 47,717,720
=========== ===========
* Allocation of amortization of
deferred compensation:
Cost of revenues.................... $ -- $ -- $ 705 $ 522 $ 1,621
Research and development............ -- -- 646 553 837
Sales and marketing................. -- -- 526 427 707
General and administrative.......... -- -- 1,167 397 1,582
------- -------- ----------- -------- -----------
$ -- $ -- $ 3,044 $ 1,899 $ 4,747
======= ======== =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
OPLINK COMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED
--------------------- -------------------- PAID-IN STOCK ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT
---------- -------- --------- -------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of June 30, 1996.... 12,000,000 $ 600 -- $ -- $ -- $ -- $ (534)
Issuance of Series B Preferred
Stock at $0.18 per share..... 11,363,104 2,046 -- -- -- -- --
Issuance of Common Stock
warrant...................... -- -- -- -- 7 -- --
Net loss....................... -- -- -- -- -- -- (1,397)
---------- ------- --------- ---- ------- ------- --------
Balance as of June 30, 1997.... 23,363,104 2,646 -- -- 7 -- (1,931)
Exercise of stock options...... -- -- 1,040,000 1 2 -- --
Stock options issued to
consultants.................. -- -- -- -- 10 -- --
Repurchase of Common Stock..... -- -- (480,000) (1) (19) -- (10)
Issuance of Series B Preferred
Stock at $0.18 per share..... 4,021,904 724 -- -- -- -- --
Issuance of Series C Preferred
Stock for at $.50 per
share........................ 6,000,000 3,000 -- -- -- -- --
Issuance of Series C
warrants..................... -- 3 -- -- -- -- --
Net loss....................... -- -- -- -- -- -- (2,148)
---------- ------- --------- ---- ------- ------- --------
Balance at June 30, 1998....... 33,385,008 6,373 560,000 -- -- -- (4,089)
Exercise of stock options...... -- -- 580,000 1 5 -- --
Issuance of Series D Preferred
Stock at $0.75 per share..... 7,613,316 5,710 -- -- -- -- --
Deferred stock compensation.... -- -- -- -- 6,537 (6,537) --
Amortization of deferred
compensation................. -- -- -- -- -- 3,044 --
Net loss....................... -- -- -- -- -- -- (3,486)
---------- ------- --------- ---- ------- ------- --------
Balance at June 30, 1999....... 40,998,324 12,083 1,140,000 1 6,542 (3,493) (7,575)
Exercise of stock options
(unaudited).................. -- -- 3,329,259 3 409 -- --
Issuance of Series D Preferred
Stock at $0.75 per share
(unaudited).................. 3,053,348 2,290 -- -- -- -- --
Issuance of Series E Preferred
Stock at $4.00 per share
(unaudited).................. 11,000,000 44,000 -- -- -- -- --
Deferred stock compensation
(unaudited).................. -- -- -- -- 8,219 (8,219) --
Amortization of deferred
compensation (unaudited)..... -- -- -- -- -- 4,747 --
Net loss (unaudited)........... -- -- -- -- -- -- (6,199)
---------- ------- --------- ---- ------- ------- --------
Balance at March 31, 2000
(unaudited).................. 55,051,672 $58,373 4,469,259 $ 4 $15,170 $(6,965) $(13,774)
========== ======= ========= ==== ======= ======= ========
<CAPTION>
TOTAL
STOCKHOLDERS'
DEFICIT
-------------
<S> <C>
Balance as of June 30, 1996.... $ (534)
Issuance of Series B Preferred
Stock at $0.18 per share..... --
Issuance of Common Stock
warrant...................... 7
Net loss....................... (1,397)
-------
Balance as of June 30, 1997.... (1,924)
Exercise of stock options...... 3
Stock options issued to
consultants.................. 10
Repurchase of Common Stock..... (30)
Issuance of Series B Preferred
Stock at $0.18 per share..... --
Issuance of Series C Preferred
Stock for at $.50 per
share........................ --
Issuance of Series C
warrants..................... --
Net loss....................... (2,148)
-------
Balance at June 30, 1998....... (4,089)
Exercise of stock options...... 6
Issuance of Series D Preferred
Stock at $0.75 per share..... --
Deferred stock compensation.... --
Amortization of deferred
compensation................. 3,044
Net loss....................... (3,486)
-------
Balance at June 30, 1999....... (4,525)
Exercise of stock options
(unaudited).................. 412
Issuance of Series D Preferred
Stock at $0.75 per share
(unaudited).................. --
Issuance of Series E Preferred
Stock at $4.00 per share
(unaudited).................. --
Deferred stock compensation
(unaudited).................. --
Amortization of deferred
compensation (unaudited)..... 4,747
Net loss (unaudited)........... (6,199)
-------
Balance at March 31, 2000
(unaudited).................. $(5,565)
=======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
OPLINK COMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ $(1,397) $(2,148) $(3,486) $(2,744) $(6,199)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................. 162 179 267 186 501
Amortization of deferred compensation......... -- -- 3,044 1,899 4,747
Issuance of warrants.......................... 7 3 -- -- --
Stock options issued in exchange for
services.................................... -- 10 -- -- --
Change in assets and liabilities:
Accounts receivable......................... (184) (509) (1,207) (268) (2,686)
Inventories................................. (215) 40 (1,990) (634) (7,103)
Prepaid expenses............................ (200) (174) (480) (462) (2,417)
Other assets................................ (25) -- (61) 5 (997)
Accounts payable............................ (28) 280 2,802 567 3,277
Accrued liabilities......................... (922) 210 574 269 1,723
------- ------- ------- ------- -------
Net cash used in operating activities..... (2,802) (2,109) (537) (1,182) (9,154)
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.............. (199) (411) (1,355) (303) (4,923)
------- ------- ------- ------- -------
Net cash used in investing activities..... (199) (411) (1,355) (303) (4,923)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Convertible Preferred
Stock......................................... 2,046 3,724 5,710 5,500 46,290
Proceeds from issuance of Common Stock upon the
exercise of options, net of repurchases....... -- (27) 6 6 412
Proceeds from borrowings under line of credit... 350 -- -- -- 135
Repayment of line of credit..................... -- (350) -- -- --
Repayment of capital lease obligations.......... -- -- -- -- (73)
------- ------- ------- ------- -------
Net cash provided by financing
activities.............................. 2,396 3,347 5,716 5,506 46,764
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents..................................... (605) 827 3,824 4,021 32,687
Cash and cash equivalents, beginning of year...... 711 106 933 933 4,757
------- ------- ------- ------- -------
Cash and cash equivalents, end of year............ $ 106 $ 933 $ 4,757 $ 4,954 $37,444
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest
expense....................................... $ 11 $ 33 $ 29 $ 29 $ 7
======= ======= ======= ======= =======
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Property and equipment acquired under capital
lease......................................... $ -- $ -- $ -- $ -- $ 1,420
======= ======= ======= ======= =======
Deferred compensation related to common stock
option grants to employees.................... $ -- $ -- $ 6,537 $ 3,168 $ 8,219
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
OPLINK COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--THE COMPANY:
THE COMPANY
Oplink Communications, Inc. (the "Company") designs, manufactures and
supplies fiber optic components and integrated optical modules that increase the
performance of optical networks. The Company provides a broad line of products
to communication equipment suppliers to enable bandwidth creation and management
within an optical network. The Company was incorporated in September 1995 and
began shipping its product for sale in 1996. In April 1999, the Company
established manufacturing operations in Zhuhai, China. In April 2000, the
Company acquired Telelight Communications, Inc., a designer and manufacturer of
passive fiber optic components in Sunnyvale, California and Fuzhou China. The
Company conducts its business within one business segment and has no
organizational structure dictated by product, service lines, geography or
customer type.
REINCORPORATION
On July 12, the Company's Board of Directors authorized the reincorporation
of the Company in the State of Delaware. As a result of the reincorporation, the
Company is authorized to issue 200,000,000 shares of $0.001 par value Common
Stock and 10,000,000 shares of $0.001 par value Convertible Preferred Stock. The
Board of Directors has the authority to issue the undesignated Convertible
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof. The par value and shares of Common Stock
and Convertible Preferred Stock authorized, issued and outstanding at each
balance sheet date presented, and for each period presented in the consolidated
statement of stockholders' deficit have been retroactively adjusted to reflect
the reincorporation.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries Zhuhai Oplink Communications, Inc. ("Zhuhai")
and Fuzhou Oplink Communications, Inc. ("Fuzhou"). Zhuhai and Fuzhou were formed
in April 1999 and March 2000, respectively, and thus only the financial
statements for the fiscal year ended June 30, 1999 and the nine months ended
March 31, 2000 (unaudited) are presented on a consolidated basis. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The interim consolidated financial statements at March 31, 2000 and for the
nine months ended March 31, 1999 and 2000 are unaudited but, in the opinion of
management, have been prepared on the same basis as the annual consolidated
financial statements and include all adjustments (consisting only
F-7
<PAGE>
OPLINK COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
of normal recurring adjustments) considered necessary for a fair presentation of
its financial position at such date and its operating results and cash flows for
those periods. Results for the interim period are not necessarily indicative of
the results to be expected for the entire year, or any future period.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. The Company's cash
equivalents consist of money market funds and short-term deposits.
REVENUE RECOGNITION
The Company derives its revenue from the sale of fiber optic components and
integrated optical modules. Revenue from product sales is recognized at the
later of shipment of the product or customer acceptance, if applicable, and only
if collectibility is probable. Sales to distributors do not include the right to
return or exchange products. Revenue from sales to one customer for which the
terms of the sale includes an acceptance period is not recognized until after
receipt of written customer acceptance. Provisions for return allowances and
warranties are recorded based on historical experience at the time revenue is
recognized based on the Company's historical experience.
FOREIGN CURRENCY TRANSLATIONS
The functional currency of the Company's foreign subsidiaries is the local
currency. In consolidation, assets and liabilities are translated at year-end
currency exchange rates and revenue and expense items are translated at average
currency exchange rates prevailing during the period. Gains and losses from
foreign currency translation are accumulated as a separate component of
stockholders' deficit. At June 30, 1999 and March 31, 2000, such amounts were
not material. Realized gains and losses resulting from foreign currency
transactions are included in the consolidated statement of operations.
FAIR VALUE
The Company's financial instruments, which include cash and cash
equivalents, accounts receivable, accounts payable, accrued liabilities,
borrowings under lines of credit and capital lease obligations are reported at
cost, which approximates their fair values due to their relatively short
maturity.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents, and accounts
receivable. Substantially all of the Company's cash and cash equivalents are
managed or held by two financial institutions. At times, such deposits may be in
excess of the amount of the insurance provided on such deposits. To date, the
Company has not experienced any losses on such deposits. The Company's accounts
receivable are derived from revenue earned from customers located in the United
States and Asia. The Company performs ongoing credit evaluations of its
customers' financial condition and generally requires no collateral from its
customers. The Company maintains an allowance for doubtful accounts based upon
the expected collection of its outstanding receivable balance.
F-8
<PAGE>
OPLINK COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
The following table summarizes the revenues from customers in excess of 10%
of total revenues:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED JUNE 30, MARCH 31,
------------------------------------ ----------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Customer A............................ -- -- 39% 31% 36%
Customer B............................ -- 11% 14% -- 11%
Customer C............................ -- 16% -- -- --
Customer D............................ -- 15% -- -- --
Customer E............................ 22% -- -- -- --
Customer F............................ -- -- -- -- 16%
Customer G............................ -- -- -- -- 11%
</TABLE>
At June 30, 1999, two customers accounted for 46% and 10% of total accounts
receivable, respectively. At March 31, 2000, two customers accounted for 36%,
(unaudited) and 16% (unaudited) of total accounts receivable, respectively.
The Company operates in a highly competitive environment subject to rapid
technological change and emergence of new technology. Although management
believes its products and services are transferable to emerging technologies,
rapid changes in technology could have an adverse financial impact on the
Company.
INVENTORIES
Inventories are stated at the lower of cost or market, cost being determined
on a first-in, first-out basis. The inventory of the Company is subject to rapid
technological changes that could have an adverse affect on its realization in
future periods.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based upon the useful lives of the assets ranging from
three to five years. Leasehold improvements are amortized using the
straight-line method based upon the shorter of the estimated useful lives or the
lease term of the respective assets.
LONG-LIVED ASSETS
The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." SFAS No. 121 requires recognition of impairment of long-lived
assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets.
F-9
<PAGE>
OPLINK COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES
The Company accounts for income taxes under the liability method, which
recognizes deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the tax bases of assets and
liabilities and their financial statement reported amounts, and for net
operating loss and tax credit carryforwards. The Company records a valuation
allowance against deferred tax assets when it is more likely than not that such
assets will not be realized.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation issued to employees using
the intrinsic value method of Accounting Principles Board opinion No. 25,
"Accounting for Stock issued to Employees," and, accordingly, presents
disclosure of pro forma information required under No. 123, "Accounting for
Stock-Based Compensation." Stock and other equity instruments issued to-non
employees are accounted for in accordance with SFAS No. 123 and Emerging Issues
Task Force Issue No. 96-18 and valued using the Black-Scholes option-pricing
model.
COMPREHENSIVE INCOME
The Company's comprehensive loss approximated net losses for all periods
presented.
NET LOSS PER COMMON SHARE
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings Per Share," and SEC Staff Accounting Bulletin ("SAB") No. 98. Under
the provisions of SFAS No. 128 and SAB No. 98, basic net loss per share is
computed by dividing the net loss attributable to holders of Common Stock by the
weighted average number of shares of Common Stock outstanding during the period.
On August 17, 1999, the Company's Board of Directors declared a stock split.
Under the terms of the stock split, each outstanding share of both the Company's
no par Common Stock and all outstanding shares of Series A, B, C and D
Convertible Preferred Stock were exchanged for four shares of like kind stock.
All share and per share data presented in these consolidated financial
statements have been retroactively restated to give effect for this stock split.
F-10
<PAGE>
OPLINK COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Following is a reconciliation of the numerators and denominators of the
Basic and Diluted net loss per share computations for the periods presented (in
thousands, except share and per share data):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
------------------------------ ---------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NUMERATOR:
Net loss attributable to holders of
Common Stock......................... $ (1,397) $ (2,148) $ (3,486) $ (2,744) $ (6,199)
======== ======== ======== ======== ==========
DENOMINATOR:
Weighted average shares outstanding.... -- 229,808 731,671 612,847 1,586,534
======== ======== ======== ======== ==========
Denominator for basic and diluted
calculations......................... -- 229,808 731,671 612,847 1,586,534
======== ======== ======== ======== ==========
Net loss per share:
Basic and diluted...................... $ -- $ (9.35) $ (4.76) $ (4.48) $ (3.91)
======== ======== ======== ======== ==========
</TABLE>
The following tables sets forth potential shares of Common Stock that are
not included in the diluted net loss per share calculation above because to do
so would be anti-dilutive for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
------------------------------------ -----------------------
1997 1998 1999 1999 2000
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Series A Preferred Stock........... 12,000,000 12,000,000 12,000,000 12,000,000 12,000,000
Series B Preferred Stock........... 11,363,104 15,385,008 15,385,008 15,385,008 15,385,008
Series C Preferred Stock........... -- 6,000,000 6,000,000 6,000,000 6,000,000
Series D Preferred Stock........... -- -- 7,613,316 7,333,316 10,666,664
Series E Preferred Stock........... -- -- -- -- 11,000,000
Warrants to purchase Common Stock.. 134,452 134,452 134,452 134,452 134,452
Warrants to purchase Series C...... -- 40,000 40,000 40,000 40,000
Options to purchase Common Stock... 5,548,000 1,960,000 11,555,916 11,555,916 12,462,924
---------- ---------- ---------- ---------- ----------
29,045,556 35,519,460 52,728,692 52,448,692 67,689,048
========== ========== ========== ========== ==========
</TABLE>
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS
No. 133 establishes new standards of accounting and reporting for derivative
instruments and hedging activities. SFAS No. 133 requires that all derivatives
be recognized at fair value in the statement of financial position, and that the
corresponding gains or losses be reported either in the statement of operations
or as a component of comprehensive income (loss), depending on the type of
hedging relationship that exists.
F-11
<PAGE>
OPLINK COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
In July 1999, the FASB issued SFAS No. 137 "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133." SFAS No. 137 deferred the effective of SFAS No. 133 until
fiscal years beginning after June 15, 2000. Management does not believe that the
adoption of SFAS No. 137 will have a material impact on its operations of
financial position.
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 to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. Management
believes that the Company has complied with the guidance of SAB 101.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN 44") "Accounting for Certain Transactions Involving
Stock Compensation, an Interpretation of Opinion No. 25 for (a) the definition
of employee for purposes of applying Opinion No. 25, (b) the criteria for
determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequences of various modifications to the terms of a previously
fixed stock option or award, 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 cover specific events that occur after either
December 15, 1998, or January 12, 2000. Management believes that the impact of
FIN 44 will not have a material effect on the financial position or results of
operations of the Company.
In various areas, including revenue recognition, accounting standards and
practices continue to evolve. Additionally, the SEC is preparing to issue
interpretative guidance relating to SAB 101, and the FASB's Emerging Issues Task
Force continues to address revenue related accounting issues. The management of
the Company believes it is in compliance with all of the rules and related
guidance as they currently exist. However, any changes to generally accepted
accounting principles in these areas could impact the Company's future
accounting for its operations.
F-12
<PAGE>
OPLINK COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--BALANCE SHEET COMPONENTS (IN THOUSANDS):
<TABLE>
<CAPTION>
JUNE 30,
------------------- MARCH 31,
1998 1999 2000
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ACCOUNTS RECEIVABLE:
Accounts receivable............................ $ 757 $2,088 $ 4,978
Less: Allowance for doubtful accounts.......... (60) (184) (388)
------ ------ -------
$ 697 $1,904 $ 4,590
====== ====== =======
INVENTORIES:
Raw materials.................................. $ 284 $1,709 $ 5,449
Work-in-process................................ -- 267 2,325
Finished goods................................. -- 298 1,603
------ ------ -------
$ 284 $2,274 $ 9,377
====== ====== =======
PROPERTY AND EQUIPMENT:
Equipment...................................... $1,059 $2,338 $ 8,121
Leasehold improvements......................... 46 122 614
------ ------ -------
1,105 2,460 8,735
Less: Accumulated depreciation and
amortization................................. (365) (632) (1,065)
------ ------ -------
$ 740 $1,828 $ 7,670
====== ====== =======
</TABLE>
Property and equipment includes $1,420,000 (unaudited) of computer equipment
and internal-use software under capital leases at March 31, 2000. Depreciation
of the assets under capital leases will begin from April 1, 2000.
<TABLE>
<CAPTION>
JUNE 30,
------------------- MARCH 31,
1998 1999 2000
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ACCRUED LIABILITIES:
Payroll and related expenses...................... $160 $393 $1,096
Other............................................. 142 483 1,503
---- ---- ------
$302 $876 $2,599
==== ==== ======
</TABLE>
NOTE 4--INCOME TAXES:
Consolidated loss before income taxes includes non-U.S. loss of
approximately $5,000 for the year ended June 30, 1999.
F-13
<PAGE>
OPLINK COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--INCOME TAXES: (CONTINUED)
Deferred tax assets (liabilities) consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets
Accruals and reserves................................... $ 116 $ 371
Net operating loss carryforwards........................ 1,537 1,494
Research and development credit carryforward............ 63 102
------- -------
1,716 1,967
Deferred tax liability
Depreciation and amortization........................... (32) (72)
------- -------
Gross deferred tax asset................................ 1,685 1,895
Valuation allowance..................................... (1,685) (1,895)
------- -------
Net deferred tax assets................................... $ -- $ --
======= =======
</TABLE>
Reconciliation of the statutory federal income tax to the Company's
effective tax:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1998 1999
-------- --------
<S> <C> <C>
Tax at federal statutory rate............................... (34)% (34)%
State tax, net of federal benefit........................... (6) (1)
Research credit carryforward................................ (1) (1)
Stock compensation.......................................... -- 30
Increase in valuation allowance............................. 41 6
Other....................................................... -- --
--- ---
Provision for taxes......................................... --% --%
=== ===
</TABLE>
Based on the available objective evidence, management believes it is more
likely than not that the net deferred tax assets will not be fully realizable.
Accordingly, the Company has provided a full valuation allowance against its net
deferred tax assets at June 30, 1998 and June 30, 1999.
At June 30, 1999, the company had approximately $3,700,000 of federal and
$3,700,000 of state net operating loss carryforwards available to reduce future
taxable income which will begin to expire in 2012 for federal and 2004 for state
tax purposes, respectively. Because of certain changes in ownership of the
Company in February 1998, there is an annual limitation of approximately
$500,000 on the use of the net operating loss carryforward of approximately
$2,000,000 pursuant to section 382 of the Internal Revenue Code.
NOTE 5--RELATED PARTY TRANSACTIONS:
INVESTOR RIGHTS AGREEMENT
The Company has entered into an agreement with the holders of our preferred
stock, including entities with which our directors are affiliated, that provides
these stockholders certain rights relating to
F-14
<PAGE>
OPLINK COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--RELATED PARTY TRANSACTIONS: (CONTINUED)
the registration of their shares of common stock issuable upon conversion of the
preferred stock. These rights have been waived as to this offering by the
holders of preferred stock, but will survive this offering and will terminate no
later than eight years after the closing date of this offering. This agreement
also entitles the holders of our preferred stock to rights to receive financial
information regarding us and a right of first refusal to purchase shares of our
stock we issue, both of which rights terminate at the close of this offering.
INDEMNIFICATION AGREEMENTS
The Company expects to enter into indemnification agreements with each of
our directors and officers prior to completing this offering. These
indemnification agreements and our certificate of incorporation and bylaws
require the Company to indemnify our directors and officers to the fullest
extent permitted by Delaware law.
NOTE 6--CONVERTIBLE PREFERRED STOCK:
At March 31, 2000, the Company is authorized to issue 55,091,672 (unaudited)
shares of Convertible Preferred Stock ("Preferred Stock"), as follows (in
thousands):
<TABLE>
<CAPTION>
SHARES LIQUIDATION
------------------------ PREFERENCE
AUTHORIZED OUTSTANDING AMOUNT
---------- ----------- -----------
<S> <C> <C> <C>
Series A.................................... 12,000 12,000 $ 600
Series B.................................... 15,385 15,385 2,770
Series C.................................... 6,040 6,000 3,000
Series D.................................... 10,667 10,667 8,000
Series E (unaudited)........................ 11,000 11,000 44,000
------ ------ -------
55,092* 55,052* $58,370*
====== ====== =======
</TABLE>
* (unaudited)
The rights, preferences, privileges and restrictions thereof are set forth
in the Company's Amended and Restated Articles of Incorporation, and are
summarized below:
DIVIDENDS
The holders of Convertible Series A, Series B, Series C, Series D and
Series E Preferred Stock are entitled to receive noncumulative dividends at the
annual rate of $0.004, $0.0144, $0.04, $0.06 and $0.32 (unaudited) per share,
respectively, if and when declared by the Board of Directors. To date, the Board
of Directors has not declared any dividends.
F-15
<PAGE>
OPLINK COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--CONVERTIBLE PREFERRED STOCK: (CONTINUED)
LIQUIDATION PREFERENCE
In the event of any liquidation or winding up of the Company, including a
merger, sale of substantially all assets, or reorganization of the Company, the
holders of Convertible Preferred Stock shall be entitled to receive in
preference to the holders of Common Stock, an amount equal to $0.05 per share of
Series A, $0.18 per share of Series B, $0.50 per share of Series C Preferred,
$0.75 per share of Series D Preferred Stock and $4.00 (unaudited) per share of
Series E Preferred Stock, plus any declared and unpaid dividends. All remaining
assets, if any, shall be distributed pro rata to the holders of the Common Stock
and Preferred Stock (on an as-if-converted basis).
The Series A, B, C, D and E Preferred Stock shall rank on a parity as to the
receipt of the respective preferential amounts for each such series upon the
occurrence of liquidation. If, upon the occurrence of such an event, the assets
and funds thus distributed among the holders of Series A, B, C, D and E
Preferred Stock are insufficient to permit full payment to such holders, then
the entire assets and funds legally available for distribution shall be
distributed ratably among the holders of Series A, B, C, D and E Preferred Stock
in proportion to the preferential amount each is entitled to receive.
CONVERSION
Each share of Series A, Series B, Series C, Series D and Series E Preferred
Stock is convertible into one share of Common Stock, at the option of the
holder. The conversion ratio is subject to certain adjustments for dilution.
Each share of Convertible Preferred Stock shall be automatically converted
into Common Stock, at the then applicable conversion rate, upon the closing of
an underwritten public offering of shares of the Company which results in a per
share public offering price (prior to underwriter commissions and expenses) of
at least $8.00 per share and aggregate proceeds of $50,000,000.
VOTING RIGHTS
The Series A, B, C, D and E Preferred Stock will be entitled to vote, along
with the holders of Common Stock, on all matters on an as-if-converted basis. In
addition, the Series A, B, C, D and E Preferred Stock will also have class and
series votes as provided by law, provided that Series B, voting together as a
single class, and Series E, voting together as a single class shall be entitled
to elect one member of the Company's Board of Directors, respectively, while the
Common Stock (including the Preferred Stock on an as-converted basis) shall be
entitled to elect the remaining members of the Company's Board of Directors.
COVENANTS
Under the terms of the Preferred Stock agreements, the Company is required
to comply with certain covenants, including the timely submissions of certain
financial data. At June 30, 1999, the Company was in violation of the covenant
regarding the timely submission of financial data. Waivers obtained subsequent
to year end have allowed the Company to remain in compliance with such
covenants.
F-16
<PAGE>
OPLINK COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--CONVERTIBLE PREFERRED STOCK: (CONTINUED)
WARRANTS
In January 1997, the Company obtained a line of credit of $500,000 to fund
the Company's operations. In connection with obtaining this line of credit and
in exchange for the waiver of bank fees, the Company issued to the bank a
warrant to purchase 134,452 shares of Common Stock. Under the terms of the
agreement, the warrant was immediately exercisable with a five year term at an
exercise price of $0.2975 per share. The most reliably determinable value
assigned to this warrant by the Company was the value of the waived bank fee
which amounted to $7,000 and was charged to operations during 1997. In
March 1998, this line of credit was increased to $1,000,000. In connection with
obtaining this increase, the Company issued an additional warrant to purchase
40,000 shares of Series C Convertible Preferred Stock. Under the terms of this
agreement, the warrant was immediately exercisable with a five year term at an
exercise price of $0.50 per share. The most reliably determinable value assigned
to this warrant by the Company was the value of the waived bank fee which
amounted to $3,000 and was charged to operations during 1998. The line of credit
expired in January of 1999. There were no borrowings under the line of credit as
of June 30, 1998 or 1999.
NOTE 7--COMMON STOCK:
AUTHORIZED SHARES
The Company's Articles of Incorporation, as amended, authorizes the Company
to issue 80,000,000 shares of common stock.
STOCK OPTION PLANS
In September 1995, the Board of Directors adopted the 1995 Stock Option Plan
(the "1995 Plan"). In January 1998, the Board of Directors adopted the 1998
Stock Option Plan (the "1998 Plan"). The 1995 Plan and 1998 Plan provide for the
issuance of incentive and nonqualified stock options to employees, directors and
consultants of the Company. Under the 1995 Plan and 1998 Plan, options to
purchase 3,000,000 and 15,000,000 shares of Common Stock, respectively, have
been authorized for grant. Options granted under both plans must be granted with
exercise prices not less than 100% and 85%, for incentive and nonqualified stock
options respectively, of the estimated fair value of the Company's Common Stock
on the date of grant, as determined by the Board of Directors. Options granted
to shareholders who own greater than 10% of the Company's outstanding stock must
be issued with exercise prices not less than 110% of the estimated fair value of
the Company's Common Stock on the date of grant, as determined by the Board of
Directors. Options under the both the 1995 Plan and 1998 Plan generally become
exercisable at a rate of 25% during the first year of the vesting period and
then at a rate of 1/48 per month thereafter. Options will expire, if not
exercised, upon the earlier of 10 years from the date of grant or 90 days after
termination as an employee of the Company.
In April of 1996, the Company granted options to purchase 60,000 shares of
Common Stock to a non-employee in exchange for services with an exercise price
of $0.0125 per share and which vested over a two year term. The value assigned
to these stock options by the Company was not significant during the year ended
June 30, 1996. In accordance with SFAS No. 123, the Company then remeasured the
valuation of these stock options annually over the vesting period. During the
year ended June 30, 1997, the incremental value assigned to these options was
not significant. During the year ended
F-17
<PAGE>
OPLINK COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--COMMON STOCK: (CONTINUED)
June 30, 1998, the incremental value assigned to these stock options was $10,000
and was included as a component of general and administrative expenses.
During the year ended June 30, 1999, in connection with the granting of
stock options to employees and members of the Board of Directors with exercise
prices subsequently determined to be below fair value, the Company recorded
deferred stock compensation aggregating $6,537,000. During the nine months ended
March 31, 2000, the Company recorded additional deferred stock compensation
aggregating $8,219,000 (unaudited). These amounts are being amortized into
expense over the vesting period of the related options, generally four years
using the method set out in FASB Interpretation No. 28 ("FIN 28"). Under the
FIN 28 method, each vested tranche of options is accounted for as a separate
option grant awarded for past services. Accordingly, the compensation expense is
recognized over the period during which the services have been provided. This
results is higher compensation expense in the earlier vesting periods of the
related options. Amortization expense associated with deferred stock
compensation totaled $3,044,000 for the year ended June 30, 1999 and $4,747,000
(unaudited) for the nine months ended March 31, 2000.
Information with respect to 1995 and 1998 stock option plan activity for the
three years ended June 30, 1999 and nine months ended March 31, 2000 is set
forth below:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Balance, June 30, 1996............................ 3,592,000 $0.0048
Options granted................................. 2,066,000 0.0384
Options exercised............................... -- --
Options canceled................................ (110,000) 0.0514
---------- -------
Balance, June 30, 1997............................ 5,548,000 0.0164
Options granted................................. -- --
Options exercised............................... (1,040,000) 0.0048
Options canceled................................ (2,548,000) 0.0177
---------- -------
Balance, June 30, 1998............................ 1,960,000 $0.0208
Options granted................................. 10,262,000 0.10
Options exercised............................... (580,000) 0.0099
Options canceled................................ (86,084) 0.10
---------- -------
Balance, June 30, 1999............................ 11,555,916 $0.0911
Options granted (unaudited)..................... 7,010,100 2.06
Options exercised (unaudited)................... (3,329,259) 0.1661
Options canceled (unaudited).................... (2,773,833) 0.11
---------- -------
Balance, March 31, 2000 (unaudited)............... 12,462,924 $1.1706
========== =======
</TABLE>
As of March 31, 2000, 38,416 (unaudited) and 549,401 (unaudited) options
remain available for grant under the 1995 Plan and 1998 Plan, respectively.
F-18
<PAGE>
OPLINK COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--COMMON STOCK: (CONTINUED)
As of June 30, 1999 and March 31, 2000 (unaudited), the options outstanding
and exercisable under both the 1995 and 1998 Plans are presented below:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED AND EXERCISABLE
AT JUNE 30, 1999 AT JUNE 30, 1999
------------------------------------------------- -------------------------------
WEIGHTED AVERAGE
REMAINING
EXERCISE NUMBER CONTRACTUAL LIFE WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
PRICE OUTSTANDING (IN YEARS) EXERCISE PRICE OUTSTANDING EXERCISE PRICE
-------- ----------- ---------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
$0.0125 602,000 6.8 $0.0125 583,960 $0.0125
0.0250 670,000 7.5 0.0250 470,474 0.0250
0.1000 10,283,916 9.6 0.1000 1,868,396 0.1000
---------- ---------
11,555,916 9.4 $0.0911 2,922,830 $0.0704
========== =========
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED AND EXERCISABLE
AT MARCH 31, 2000 (UNAUDITED) AT MARCH 31, 2000 (UNAUDITED)
------------------------------------------------- -------------------------------
WEIGHTED AVERAGE
REMAINING
EXERCISE NUMBER CONTRACTUAL LIFE WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
PRICE OUTSTANDING (IN YEARS) EXERCISE PRICE OUTSTANDING EXERCISE PRICE
-------- ----------- ---------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
$0.0125 420,000 6.0 $0.0125 420,000 $0.0125
0.0250 510,125 6.8 0.0250 439,514 0.0250
0.1000 4,612,699 8.9 0.1000 809,269 0.1000
0.3000 2,456,500 9.5 0.3000 60,843 0.3000
1.5000 305,000 9.8 1.5000 -- 1.5000
3.0000 3,098,300 9.8 3.0000 1,380 3.0000
3.6000 1,060,300 9.9 3.6000 1,000 3.6000
---------- ---------
12,462,924 9.2 $1.1864 1,732,006 $0.0710
========== =========
</TABLE>
PRO FORMA STOCK-BASED COMPENSATION
The Company calculated the fair value of each option grant on the date of
grant in accordance with SFAS No. 123 using the following weighted average
assumptions:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED JUNE 30, MARCH 31,
------------------------------------ ----------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Risk-free interest rate.............. 6.62% -- 5.00% 4.77% 6.37%
Expected life of option.............. 4 -- 4 4 4
Expected dividends................... --% -- --% --% --%
Volatility........................... 60% -- 60% 60% 60%
</TABLE>
Had compensation cost for the Company's stock-based compensation plan been
determined based on the fair value at the grant dates for the awards as
prescribed by SFAS No. 123, the Company's pro forma net loss would not have been
materially different for the three years ended June 30, 1999 and
F-19
<PAGE>
OPLINK COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--COMMON STOCK: (CONTINUED)
for the nine months ended March 31, 1999 (unaudited). Pro forma net loss and net
loss per share would have been $7,975,000 (unaudited) and $1.54 (unaudited),
respectively for the nine-months ended March 31, 2000.
Such pro forma disclosures may not be representative of future compensation
cost because options vest over several years and additional grants are made each
year.
NOTE 8--COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases its facilities under non-cancelable operating leases. The
leases require the Company to pay taxes, maintenance and repair costs. Future
minimum lease payments under the Company's non-cancelable operating leases,
including operating leases entered into subsequent to March 31, 2000 are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
--------------------
<S> <C>
2000........................................................ $ 1,239
2001........................................................ 2,366
2002........................................................ 2,501
2003........................................................ 2,030
2004........................................................ 2,031
Thereafter.................................................. 1,462
-------
$11,629
=======
</TABLE>
Rent expense for all operating leases was approximately $48,000, $101,000,
and $172,000 in 1997, 1998, and 1999, respectively, and $100,000 (unaudited) and
$471,000 (unaudited) for the nine months ended March 31, 1999 and 2000,
respectively.
LITIGATION
In November 1999, a lawsuit was filed against the Company alleging patent
infringement related to the manufacture and sale of fiber optic products which
generated a majority of the Company's revenues for the nine months ended
March 31, 2000. An unfavorable ruling in this matter would have an adverse
material impact on the Company's financial condition and reported results of
operations.
In June 2000, a lawsuit was filed against the Company and Telelight
Communications Inc., alleging patent infringement relating to the manufacture of
and offer to sell various fiber optic products.
In both lawsuits, the plaintiffs are seeking damages and injunctive relief.
The Company, with the assistance of counsel, intends to vigorously defend its
position in both matters. Management believes that the ultimate outcome of these
matters will not have a material adverse effect on the Company's financial
condition, results of operations and cash flows.
NOTE 9--SEGMENT REPORTING:
In 1998, the Company adopted FAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
reporting information about operating
F-20
<PAGE>
OPLINK COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--SEGMENT REPORTING: (CONTINUED)
segments in annual financial statements and requires selected information about
operating segments in interim financial reports issued to stockholders.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated resources and in
assessing performance.
The Company has determined that it has one reportable segment: Fiber optic
components and module product sales. This segment consists of organizations
located in the United States and the People's Republic of China which develop,
manufacture, and/or market fiber optic networking components.
The breakdown of sales by geographic customer destination and property plant
and equipment, net are as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales:
United States.................... $ 426 $2,493 $7,174 $4,350 $16,461
Asia............................. -- -- 1,279 489 2,230
Other............................ -- -- 641 437 1,970
------ ------ ------ ------ -------
Totals......................... $ 426 $2,493 $9,094 $5,276 $20,661
====== ====== ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
------------------------------ MARCH 31,
1997 1998 1999 2000
-------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Property, plant, and equipment, net:
United States.......................... $ 508 $ 740 $1,456 $ 5,379
People's Republic of China............. -- -- 372 2,291
------ ------ ------ -------
Totals............................... $ 508 $ 740 $1,828 $ 7,670
====== ====== ====== =======
</TABLE>
NOTE 10--401(k) PLAN:
In 1997, the Company adopted a defined contribution retirement savings plan
under Section 401(k) of the Internal Revenue Code. This plan covers
substantially all employees who meet minimum age and service requirements and
allows participants to defer a portion of their annual compensation on a pretax
basis. All employees are eligible to participate three months after employment.
Matching contributions are at the discretion of the Company. The Company made no
matching contribution to the plan during three years ended June 30, 1999 and the
nine months ended March 31, 1999 (unaudited) and 2000(unaudited).
NOTE 11--UNAUDITED PRO FORMA NET LOSS PER COMMON SHARE AND PRO FORMA BALANCE
SHEET:
Upon the closing of the Company's initial public offering, all outstanding
Convertible Preferred Stock will be automatically converted into Common Stock.
The pro forma effect of this conversion has
F-21
<PAGE>
OPLINK COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--UNAUDITED PRO FORMA NET LOSS PER COMMON SHARE AND PRO FORMA BALANCE
SHEET: (CONTINUED)
been presented as a separate column (unaudited) in the Company's consolidated
balance sheet, assuming the conversion had occurred as of March 31, 2000. Pro
forma basic and diluted net loss per common share have been computed as
described in Note 2 and also give effect to common equivalent shares from
preferred stock that will automatically convert upon the closing of the
Company's initial public offering (using the "as--if--converted method") for the
three years ended June 30, 1999 and the nine months ended March 31, 1999 and
2000.
A reconciliation of the numerator and denominator used in the calculation or
pro forma basic and fully diluted net loss per common share follows (in
thousands, except share and per share data):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
------------------------------------ -----------------------
1997 1998 1999 1999 2000
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss........................... $ (1,397) $ (2,148) $ (3,486) $ (2,744) $ (6,199)
========== ========== ========== ========== ==========
Shares used in computing basic and
diluted net loss per share....... -- 229,808 731,671 612,847 1,586,534
Assumed conversion of all
convertible preferred stock from
date of issuance................. 21,831,496 29,063,177 35,695,067 33,947,050 46,131,186
Weighted average shares used in
computing pro forma basic and
diluted net loss per share....... 21,831,496 29,292,985 36,426,738 34,559,897 47,717,720
Pro forma basic and diluted net
loss per share................... $ (0.06) $ (0.07) $ (0.10) $ (0.08) $ (0.13)
========== ========== ========== ========== ==========
</TABLE>
NOTE 12--SUBSEQUENT EVENTS (UNAUDITED):
ACQUISITION
On April 6, 2000, the Company acquired Telelight Communications, Inc.
("Telelight") in a merger transaction to be accounted for as a purchase business
combination. The purchase price comprised 6,720,000 shares of Common Stock
valued at $26,880,000. The Company also anticipates incurring approximately
$200,000 in acquisition expenses, including primarily legal fees and other
direct transaction costs. The total purchase price aggregated $27,080,000.
2000 EQUITY INCENTIVE PLAN
In July, 2000 the Company adopted the 2000 Equity Incentive Plan which
provides for the grant of stock awards to employees, directors and consultants.
These stock awards include incentive stock options to employees, including
officers and employee directors, and nonstatutory stock options, stock bonuses
and stock purchase rights to employees, directors and consultants. The 2000
Equity Incentive Plan was adopted by the Company's board of directors in
July 2000 and is expected to be approved by our stockholders prior to completing
this offering. The 2000 Equity Incentive Plan will take effect on the effective
date of the initial public offering.
F-22
<PAGE>
OPLINK COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--SUBSEQUENT EVENTS (UNAUDITED): (CONTINUED)
2000 NON-EMPLOYEE DIRECTOR STOCK OPTION GRANTS
In July 2000, the Company adopted the 2000 Equity Incentive Plan which
provides for the automatic grant of nonstatutory stock options to purchase
shares of common stock to our non-employee directors.
AUTOMATIC GRANTS. Upon the completion of this offering, beginning 2001, on
the day after our annual stockholders' meeting, any person who is then a
non-employee director and who is elected at such annual meeting will
automatically be granted an option to purchase 36,000 shares of common stock.
These grants will vest over a three-year period and will vest on a monthly
basis. Any non-employee director who is elected or appointed to the board during
a three-year term will automatically be granted an option to purchase a pro rata
portion of shares based on the number of months remaining in the term.
2000 EMPLOYEE STOCK PURCHASE PLAN
In July 2000, our board of directors adopted the 2000 Employee Stock
Purchase Plan which authorizes the issuance of shares of our common stock
pursuant to purchase rights granted to our employees or to employees of any of
our affiliates. We expect that the 2000 purchase plan will be approved by our
stockholders prior to completing this offering. The purchase plan is intended to
qualify as an employee stock purchase plan within the meaning of Section 423 of
the Code. The purchase plan provides a means by which employees may purchase our
common stock through payroll deductions. As of the date hereof, no shares of
common stock have been purchased under the purchase plan.
The purchase price was allocated to the tangible and identifiable intangible
assets acquired and liabilities assumed on the basis of their relative fair
values. The aggregate purchase price was allocated as follows, based on a
preliminary independent appraisal and management estimates (in thousands):
<TABLE>
<S> <C>
Net tangible assets......................................... $ 1,043
In-process research and development......................... 7,020
Technology.................................................. 6,276
Patents..................................................... 1,086
Assembled workforce......................................... 33
Goodwill.................................................... 11,622
-------
$27,080
=======
</TABLE>
This allocation is subject to change pending a final analysis of the total
purchase cost and the fair value of the assets acquired and liabilities assumed.
The net tangible assets of $1,043,000 consist primarily of cash and cash
equivalents, accounts receivable, property and equipment, accounts payable and
other liabilities. In-process research and development has not reached the stage
of technological feasibility and will be charged to expense on the date of
acquisition. Existing technology, patents and assembled workforce will be
amortized over their estimated useful lives of four years. The purchase price in
excess of net tangible liabilities and identifiable intangible assets will be
allocated to goodwill, and amortized over its expected useful life of four
years.
F-23
<PAGE>
OPLINK COMMUNICATIONS, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
OVERVIEW
On April 6, 2000, Oplink Communications, Inc., ("Oplink" or the "Company")
acquired Telelight Communications, Inc. ("Telelight") in a merger transaction to
be accounted for as a purchase business combination. The purchase price
comprised 6,720,000 shares of Common Stock valued at $26,880,000. The Company
also anticipates incurring approximately $200,000 in acquisition expenses,
including primarily legal fees and other direct transaction costs. The total
purchase price aggregated $27,080,000.
The purchase price was allocated to the assets acquired, including tangible
and intangible assets, and liabilities assumed based upon the fair value of such
assets and liabilities on the date of the acquisition. The total estimated
purchase cost of the acquisition has been allocated on a preliminary basis to
assets and liabilities based on management's estimates of their fair value and a
preliminary independent appraisal of certain intangible assets with the excess
costs over the net assets acquired allocated to goodwill. This allocation is
subject to change pending a final analysis of the total purchase cost and the
fair value of the assets acquired and liabilities assumed. The aggregate
purchase price was allocated as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Net tangible assets of Telelight............................ $ 1,043
In-process research and development......................... 7,020
Technology.................................................. 6,276
Patents..................................................... 1,086
Assembled workforce......................................... 33
Goodwill.................................................... 11,622
-------
$27,080
=======
</TABLE>
The net tangible assets consist primarily of cash and cash equivalents,
accounts receivable, inventory property and equipment, accounts payable and
other liabilities. Telelight's net tangible assets as of $1,043,000, were used
for purposes of calculating the pro forma adjustments as these amounts
approximate their fair value at such date. Because the in-process research and
technology had not reached the stage of technological feasibility at the
acquisition date and had no alternative future use, the amount was immediately
charged to operations. The amount allocated to technology, patents and assembled
workforce are being amortized over their estimated useful lives of four years.
The purchase price in excess of tangible and identifiable intangible assets is
allocated to goodwill. As a result of the rapid technological change occurring
in the telecommunications industry, goodwill is being amortized over its
estimated useful life of four years. The valuation for the intangible assets has
been determined using management's assumptions and a preliminary report from an
independent appraiser.
The accompanying unaudited pro forma combined balance sheet gives effect to
the merger of Oplink and Telelight as if such transaction occurred on March 31,
2000. The unaudited pro forma combined balance sheet combines the unaudited
consolidated balance sheet of Oplink as of March 31, 2000 and the unaudited
balance sheet of Telelight as of March 31, 2000.
The accompanying unaudited pro forma combined statements of operations
presents the results of operations of Oplink for the year ended June 30, 1999
and the nine-month period ended March 31, 2000, combined with the statement of
operations of Telelight for the year ended June 30, 1999 and the nine-month
period ended March 31, 2000. The unaudited pro forma combined statement of
operations gives effect to this acquisition as if it had occurred as of July 1,
1998.
The unaudited pro forma condensed combined information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the transaction had
been consummated at the dates indicated, nor is it necessarily indicative of
future operating results or the financial position of the combined companies.
F-24
<PAGE>
OPLINK COMMUNICATIONS, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
OPLINK TELELIGHT
AS OF AS OF PRO FORMA
MARCH 31, MARCH 31, ----------------------------
2000 2000 ADJUSTMENTS COMBINED
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 37,444 $ 437 $ -- $ 37,881
Accounts receivable, net......................... 4,590 109 -- 4,699
Inventories...................................... 9,377 103 -- 9,480
Prepaid expenses................................. 3,272 -- -- 3,272
-------- ------ ------- --------
Total current assets......................... 54,683 649 -- 55,332
Property and equipment, net........................ 7,670 417 -- 8,087
Intangible assets.................................. -- -- 19,017 (A) 19,017
Other assets....................................... 1,090 9 -- 1,099
-------- ------ ------- --------
Total assets................................. $ 63,443 $1,075 $19,017 $ 83,535
======== ====== ======= ========
LIABILITIES, CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable................................. $ 6,554 $ 20 $ -- $ 6,574
Accrued liabilities.............................. 2,599 12 200 (B) 2,811
Current portion of capital lease obligations..... 326 -- -- 326
Borrowings under line of credit.................. 135 -- -- 135
-------- ------ ------- --------
Total current liabilities.................... 9,614 32 200 9,846
Capital lease obligations, noncurrent.............. 1,021 -- -- 1,021
-------- ------ ------- --------
10,635 32 200 10,867
-------- ------ ------- --------
Convertible Preferred Stock........................ 58,373 -- -- 58,373
-------- ------ ------- --------
Stockholders' deficit:
Common Stock..................................... 4 1,729 (1,722)(C)(D) 11
Additional paid-in capital....................... 15,170 -- 26,873 (C) 42,043
Deferred stock compensation...................... (6,965) -- -- (6,965)
Accumulated deficit.............................. (13,774) (686) (6,334)(D)(H) (20,794)
-------- ------ ------- --------
Total stockholders' (deficit) equity......... (5,565) 1,043 18,817 14,295
-------- ------ ------- --------
Total liabilities, convertible preferred
stock and stockholders' (deficit)
equity................................... $ 63,443 $1,075 $19,017 $ 83,535
======== ====== ======= ========
</TABLE>
F-25
<PAGE>
OPLINK COMMUNICATIONS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OPLINK TELELIGHT
---------- ----------
NINE MONTHS ENDED
----------------------- PRO FORMA
MARCH 31, MARCH 31, ---------------------------
2000 2000 ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues........................................ $ 20,661 $ 591 $ -- $ 21,252
Cost of revenues................................ 17,420 434 1,387 (E) 19,241
---------- ----- ------- ----------
Gross profit (loss)............................. 3,241 157 (1,387) 2,011
---------- ----- ------- ----------
Operating expenses:
Research and development...................... 1,362 202 -- 1,564
Sales and marketing........................... 1,392 11 -- 1,403
General and administrative.................... 2,259 276 -- 2,535
Amortization of deferred compensation......... 4,747 -- -- 4,747
Goodwill amortization......................... -- -- 2,179 (F) 2,179
---------- ----- ------- ----------
Total operating expenses.................... 9,760 489 2,179 12,428
---------- ----- ------- ----------
Loss from operations............................ (6,519) (332) (3,566) (10,417)
Interest income (expense)....................... 352 24 -- 376
Other (expense) income, net..................... (32) 1 -- (31)
---------- ----- ------- ----------
Net loss........................................ $ (6,199) $(307) $(3,566) $ (10,072)
========== ===== ======= ==========
Net loss per share:
Basic and diluted............................. $ (3.91) $ (1.21)
========== ==========
Weighted average shares....................... 1,586,534 8,306,534 (G)
========== ==========
</TABLE>
F-26
<PAGE>
OPLINK COMMUNICATIONS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OPLINK TELELIGHT
--------- ---------
YEAR ENDED
--------------------- PRO FORMA
JUNE 30, JUNE 30, -----------------------------
1999 1999 ADJUSTMENTS COMBINED
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues........................................ $ 9,094 $ 40 $ -- $ 9,134
Cost of revenues................................ 7,225 29 1,849 (E) 9,103
-------- ----- ------- -----------
Gross profit (loss)............................. 1,869 11 (1,849) 31
-------- ----- ------- -----------
Operating expenses:
Research and development...................... 626 183 -- 809
Sales and marketing........................... 802 -- -- 802
General and administrative.................... 826 227 -- 1,053
Amortization of deferred compensation......... 3,044 -- -- 3,044
Goodwill amortization......................... -- -- 2,905 (F) 2,905
-------- ----- ------- -----------
Total operating expenses.................... 5,298 410 2,905 8,613
-------- ----- ------- -----------
Loss from operations............................ (3,429) (399) (4,754) (8,582)
Interest income................................. 75 22 -- 97
Other (expense) income, net..................... (132) (2) -- (134)
-------- ----- ------- -----------
Net loss........................................ $ (3,486) $(379) $(4,754) $ (8,619)
======== ===== ======= ===========
Net loss per share:
Basic and diluted............................. $ (4.76) $ (1.16)
======== ===========
Weighted average shares....................... 731,671 7,451,671 (G)
======== ===========
</TABLE>
F-27
<PAGE>
OPLINK COMMUNICATIONS, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION
(UNAUDITED)
The following adjustments were applied to Oplink's historical financial
statements and those of Telelight to arrive at the pro forma combined financial
information.
(A) To record the allocation of the purchase price of Telelight as described in
the overview.
(B) To reflect anticipated acquisition expenses of $200,000.
(C) To reflect the acquisition of Telelight assuming the issuance of 6,720,000
shares of Oplink's Common Stock valued at $26.9 million.
(D) To eliminate the historical equity accounts of Telelight.
(E) To record the amortization of identifiable intangible assets related to the
acquisition of Telelight as if the transaction occurred on July 1, 1998.
Identifiable intangible assets recorded in relation to the acquisition were
approximately $7.4 million and are being amortized on a straight-line basis
over four years.
(F) To record the amortization of goodwill related to the acquisition of
Telelight as if the transaction occurred on July 1, 1998. Goodwill recorded
in relation to the acquisition was approximately $11.6 million and is being
amortized on a straight-line basis over four years.
(G) Weighted average shares used to calculate pro forma basic and diluted net
loss per share for the period presented is computed using the weighted
average number of Common Stock outstanding for the period presented and the
shares to be issued in conjunction with the acquisition of Telelight as if
such shares were outstanding from July 1, 1998.
(H) Pro forma accumulated deficit reflects the write-off of in-process research
and development as if the transaction had occurred on March 31, 2000.
F-28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Telelight Communications Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of Telelight Communications Inc. (a
company in the development stage) at December 31, 1998 and 1999 and the results
of its operations and its cash flows for the year ended December 31, 1999, and
for the periods from April 20, 1998 (date of inception) to December 31, 1998 and
1999, in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, California
May 24, 2000
F-29
<PAGE>
TELELIGHT COMMUNICATIONS INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1999 MARCH 31, 2000
---------- ---------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 746,244 $ 664,050 $ 436,565
Accounts receivable................................... -- 109,712 108,853
Inventory............................................. -- 176,758 102,970
Prepaid expenses and other current assets............. 7,420 10,688 --
---------- ---------- ----------
Total current assets.............................. 753,664 961,208 648,388
Property and equipment, net............................. 98,849 247,960 417,516
Other assets............................................ 4,800 4,500 9,820
---------- ---------- ----------
Total assets...................................... $ 857,313 $1,213,668 $1,075,724
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 6,275 $ 110,810 $ 19,567
Accrued liabilities................................... 834 16,286 12,663
---------- ---------- ----------
Total current liabilities......................... 7,109 127,096 32,230
---------- ---------- ----------
Shareholders' equity:
Common Stock: no par value; 100,000 shares authorized;
issued and outstanding; 91,800 shares at
December 31, 1998 and 100,000 shares at
December 31, 1999 and March 31, 2000................ 1,370,000 1,728,785 1,728,785
Receivable from shareholder........................... (450,000) -- --
Accumulated deficit................................... (69,796) (642,213) (685,291)
---------- ---------- ----------
Total shareholders' equity........................ 850,204 1,086,572 1,043,494
---------- ---------- ----------
Total liabilities and shareholders' equity...... $ 857,313 $1,213,668 $1,075,724
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
TELELIGHT COMMUNICATIONS INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
APRIL 20, 1998 APRIL 20, 1998
(DATE OF (DATE OF THREE MONTHS ENDED
INCEPTION) TO YEAR ENDED INCEPTION) TO MARCH 31,
DECEMBER 31, DECEMBER 31, DECEMBER 31, --------------------
1998 1999 1999 1999 2000
--------------- ------------- --------------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues........................... $ -- $ 358,993 $ 358,993 $ 445 $271,763
Cost of revenues................... -- 262,963 262,963 182 199,359
-------- --------- --------- --------- --------
Gross profit....................... -- 96,030 96,030 263 72,404
-------- --------- --------- --------- --------
Operating expenses:
Research and development......... 21,298 332,935 354,233 78,771 24,387
Sales and marketing.............. -- 668 668 60 9,998
General and administrative....... 55,519 367,371 422,890 80,932 88,318
-------- --------- --------- --------- --------
Total operating expenses....... 76,817 700,974 777,791 159,763 122,703
Loss from operations............... (76,817) (604,944) (681,761) (159,500) (50,299)
Interest and other income.......... 7,021 32,527 39,548 7,913 7,221
-------- --------- --------- --------- --------
Net loss........................... $(69,796) $(572,417) $(642,213) $(151,587) $(43,078)
======== ========= ========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
TELELIGHT COMMUNICATIONS INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK RECEIVABLE DURING THE TOTAL
--------------------- FROM DEVELOPMENT SHAREHOLDERS'
SHARES AMOUNT SHAREHOLDER STAGE EQUITY
-------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock for cash.... 91,800 $1,370,000 $ -- $ -- $1,370,000
Issuance of common stock in exchange
for shareholder receivable......... -- -- (450,000) -- (450,000)
Net loss............................. -- -- -- (69,796) (69,796)
------- ---------- --------- --------- ----------
Balance at December 31, 1998......... 91,800 1,370,000 (450,000) (69,796) 850,204
Issuance of common stock in exchange
of services........................ 8,200 358,785 -- -- 358,785
Repayment of shareholder
receivable......................... -- 450,000 -- 450,000
Net loss............................. -- -- -- (572,417) (572,417)
------- ---------- --------- --------- ----------
Balance at December 31, 1999......... 100,000 1,728,785 -- (642,213) 1,086,572
Net loss (unaudited)................. -- -- -- (43,078) (43,078)
------- ---------- --------- --------- ----------
Balance at March 31, 2000
(unaudited)........................ 100,000 $1,728,785 $ -- $(685,291) $1,043,494
======= ========== ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
TELELIGHT COMMUNICATIONS INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
APRIL 20, 1998 APRIL 20, 1998
(DATE OF (DATE OF THREE MONTHS ENDED
INCEPTION) TO YEAR ENDED INCEPTION) TO MARCH 31,
DECEMBER 31, DECEMBER 31, DECEMBER 31, ---------------------
1998 1999 1999 1999 2000
--------------- ------------- --------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................... $ (69,796) $(572,417) $(642,213) $(151,587) $ (43,078)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization........... 4,407 44,342 48,749 6,341 14,663
Common Stock issued to employees and
consultants for services rendered..... -- 358,785 358,785 89,696 --
Changes in current assets and
liabilities:
Accounts receivable................... -- (109,712) (109,712) (445) 859
Inventory............................. -- (176,758) (176,758) -- 73,788
Prepaid expense and other assets...... (12,220) (2,968) (15,188) -- 5,368
Accounts payable...................... 6,275 104,535 110,810 (2,589) (91,243)
Accrued liabilities................... 834 15,452 16,286 6,730 (3,623)
--------- --------- --------- --------- ---------
Net cash provided by operating
activities........................ (70,500) (338,741) (409,241) (51,854) (43,266)
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.......... (103,256) (193,453) (296,709) (45,929) (184,219)
--------- --------- --------- --------- ---------
Net cash used in investing
activities........................ (103,256) (193,453) (296,709) (45,929) (184,219)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock...... 920,000 450,000 1,370,000 -- --
--------- --------- --------- --------- ---------
Net cash provided by financing
activities........................ 920,000 450,000 1,370,000 -- --
--------- --------- --------- --------- ---------
Net decrease in cash and cash equivalents..... 746,244 (82,194) 664,050 (97,783) (227,485)
Cash and cash equivalents at beginning of
year........................................ -- 746,244 -- 746,244 664,050
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of year...... $ 746,244 $ 664,050 $ 664,050 $ 648,461 $ 436,565
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING:
Common stock issued in exchange for note
receivable from shareholder............... $ 450,000 $ -- $ -- $ -- $ --
========= ========= ========= ========= =========
Common stock issued to employees for
services rendered......................... $ -- $ 358,785 $ 358,785 $ 89,696 $
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
TELELIGHT COMMUNICATIONS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
Telelight Communications Inc. (the "Company") was incorporated in State of
California on April 20, 1998 for the purpose of developing and selling fiber
optic components and subsystems which are designed specifically to increase
capacity and bandwidth of fiber optic communications and data communication
networks. The Company is in the developmental stage and since inception, has
devoted substantially all of its time and efforts to developing products,
raising capital and recruiting personnel. As described in Note 5, the Company
was acquired by Oplink Communications Inc. on April 6, 2000.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The interim consolidated financial statements at March 31, 2000 and for the
three months ended March 31, 1999 and 2000 are unaudited but, in the opinion of
management, has been prepared on the same basis as the annual consolidated
financial statements and include all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation of its
financial position at such date and its operating results and cash flows for
those periods. Results for the interim period are not necessarily indicative of
the results to be expected for the entire year, or any future period.
REVENUE RECOGNITION
Revenue from product sales is recognized upon shipment of the product or
customer acceptance, which ever is later. Provisions for estimated future
product returns are recognized upon product shipment.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORY
Inventory includes principally raw materials and is stated at the lower of
cost or market, cost being determined using the first-in-first-out FIFO
inventory method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets, generally five to seven years.
F-34
<PAGE>
TELELIGHT COMMUNICATIONS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
RESEARCH AND DEVELOPMENT EXPENDITURES
Costs related to research, design, and development of products are charged
to research and development expense as incurred.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB No. 25") and complies with the
disclosure provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"). To date, no
stock-based compensation has been undertaken.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents. The Company's
cash and cash equivalents are deposited with one major financial institution in
the United States. Deposits in this institution may exceed the amount of
insurance provided on such deposits. For financial instruments consisting of
cash and cash equivalents, other current assets, accounts payable, and accrued
liabilities included in the Company's financial statements, the carrying amounts
approximate fair value due to their short maturities.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." SFAS No. 121 requires recognition of impairment of long-lived
assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 establishes new standards of accounting and reporting for derivative
instruments and hedging activities. SFAS No. 133 requires that all derivatives
be recognized at fair value in the statement of financial position, and that the
corresponding gains or losses be reported either in the statement of operations
or as a component of comprehensive income, depending on the type of hedging
relationship that exists. In July 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133." SFAS No. 137 deferred the effective
date of SFAS No. 133 until fiscal years beginning after June 15, 2000.
Currently, the Company does not hold derivative instruments or engage in hedging
activities.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements."
SAB 101 provides guidance for revenue
F-35
<PAGE>
TELELIGHT COMMUNICATIONS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
recognition under certain circumstances. The Company has evaluated the impact of
SAB 101 and believes that it's adoption will not have a material impact on its
results of operations.
NOTE 2--BALANCE SHEET COMPONENTS:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1998 1999 2000
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
PROPERTY AND EQUIPMENT:
Machinery and equipment.................... $102,920 $292,123 $476,342
Furniture and fixtures..................... 336 1,586 1,586
Leasehold improvements..................... -- 3,000 3,000
-------- -------- --------
103,256 296,709 480,928
Less: Accumulated depreciation............. (4,407) (48,749) (63,412)
-------- -------- --------
$ 98,849 $247,960 $417,516
======== ======== ========
ACCRUED LIABILITIES
Payroll.................................... $ -- $ 4,006 $ 4,724
Payroll taxes.............................. -- 11,344 4,065
Other...................................... 834 936 3,874
-------- -------- --------
$ 834 $ 16,286 $ 12,663
======== ======== ========
</TABLE>
NOTE 3--INCOME TAXES:
Deferred tax assets (liabilities) consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carryforwards.......................... $ 25 $ 111
Reserves and other........................................ -- 1
Credit carryforwards...................................... -- 7
---- -----
Total deferred tax assets............................... 25 119
DEFERRED TAX LIABILITY:
Depreciation and amortization............................. (7) (6)
---- -----
Total deferred tax assets............................... 18 113
Valuation allowance......................................... (18) (113)
---- -----
Net deferred tax assets..................................... $ -- $ --
==== =====
</TABLE>
F-36
<PAGE>
TELELIGHT COMMUNICATIONS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--INCOME TAXES: (CONTINUED)
Reconciliation of the statutory federal income tax to the Company's
effective tax:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
-------- --------
<S> <C> <C>
Tax at Federal statutory rate............................... (34) (34)
State, net of Federal benefit............................... (6) (7)
Meals and entertainment..................................... -- --
Change in valuation allowance............................... 41 43
Research and development credit benefit..................... (1) (2)
--- ---
Provision for taxes......................................... -- --
=== ===
</TABLE>
At December 31, 1999, the Company had approximately $278,000 of federal and
$279,000 of state net operating loss carryforwards available to offset future
taxable income which expire in varying amounts beginning in 2018 and 2006,
respectively.
The Company has research credit carryforwards of approximately $3,500 and
$3,000 for Federal and California income tax purposes, respectively. If not
utilized, the federal credit will expire in various amounts beginning in 2018.
The California research credit can be carried forward indefinitely.
Under the Tax Reform Act of 1986, the amounts of and benefits from net
operating loss carryforwards may be impaired or limited in certain
circumstances. Events which cause limitations in the amount of net operating
losses that the Company may utilize in any one year include, but are not limited
to, a cumulative ownership change of more that 50%, as defined, over a three
year period.
NOTE 4--COMMITMENTS:
LEASES
The Company leases office space under a noncancelable operating lease with
an expiration date in 2000. Rent expense for the year ended December 31, 1999
and 1998 was $56,420 and $12,513, respectively.
Future minimum lease payments under the noncancelable operating lease are
$37,240 in 2000.
NOTE 5--SUBSEQUENT EVENTS:
In April 2000, the Company was acquired by Oplink Communications, Inc.
("Oplink"). All of the outstanding shares of common stock of the company were
exchanged for 6,720,000 shares of Oplink.
F-37
<PAGE>
[OPLINK LOGO]
<PAGE>
[Alternative Page for International Prospectus]
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
[ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION, DATED AUGUST 1, 2000
[OPLINK LOGO]
SHARES
COMMON STOCK
Oplink Communications, Inc. is offering shares of its common stock. This
is our initial public offering and no public market currently exists for our
shares. We have applied for approval for quotation of our common stock on the
Nasdaq National Market under the symbol "OPLK." We anticipate that the initial
public offering price will be between $ and $ per share.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE .
---------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to Oplink Communications, Inc...................... $ $
</TABLE>
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Oplink Communications, Inc. has granted the underwriters a 30-day option to
purchase up to an additional shares of common stock to cover over-allotments.
------------------------
ROBERTSON STEPHENS INTERNATIONAL
CIBC WORLD MARKETS
J.P. MORGAN SECURITIES LTD.
UBS WARBURG LLC
THE DATE OF THIS PROSPECTUS IS , 2000
<PAGE>
[Alternative Page for International Prospectus]
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., CIBC World Markets Corp., J.P. Morgan & Co.
and UBS Warburg LLC, have severally agreed with us, subject to the terms and
conditions of the underwriting agreement, to purchase from us the number of
shares of common stock set forth below opposite their respective names. The
underwriters are committed to purchase and pay for all shares if any are
purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
FleetBoston Robertson Stephens Inc. and FleetBoston
Robertson Stephens International Limited..................
CIBC World Markets Corp. and CIBC World Markets plc.........
J.P. Morgan Securities Inc. and J.P. Morgan Securities
Ltd. .....................................................
UBS Warburg LLC.............................................
-------
Total...................................................
=======
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the public offering price set forth
on the cover page of this prospectus and to certain dealers at that price less a
concession of not in excess of $ per share, of which $ may be
reallowed to other dealers. After this offering, the public offering price,
concession and reallowance to dealers may be reduced by the representatives. No
such reduction shall change the amount of proceeds to be received by us as set
forth on the cover page of this prospectus. The common stock is offered by the
underwriters as stated herein, subject to receipt and acceptance by them and
subject to their right to reject any offer in whole or in part.
Prior to this offering, there has been no public market for the common
stock. Consequently, the public offering price for the common stock offered by
this prospectus has been determined through negotiations among the
representatives and us. Among the factors considered in such negotiations were
prevailing market conditions, certain of our financial information, market
valuations of other companies that we and the representatives believe to be
comparable to us, estimates of our business potential, the present state of our
development and other factors deemed relevant.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
OVER-ALLOTMENT OPTION
We have granted to the underwriters an option, exercisable during the 30-day
period after the date of this prospectus, to purchase up to additional
shares of common stock to cover over-allotments, if any, at the public offering
price less the underwriting discount set forth on the cover page of this
prospectus. If the underwriters exercise their over-allotment option to purchase
any of the additional shares of common stock, the underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof as the number of shares to be purchased by each of them
bears to the total number of shares of common stock offered in this offering. If
purchased, these additional shares will be sold by the underwriters on the same
terms as those on which the shares offered hereby are being sold. We will be
obligated, pursuant to the over-allotment option, to sell shares to the
underwriters to the extent the over-allotment option is exercised. The
underwriters may exercise the over-allotment option only to cover
over-allotments made in connection with the sale of the shares of common stock
offered in this offering.
U-1
<PAGE>
[ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS]
The following table shows the per share and total underwriting discounts and
commissions to be paid by us to the underwriters. This information is presented
assuming either no exercise or full exercise by the underwriters of their
over-allotment option.
<TABLE>
<CAPTION>
NO EXERCISE OF
OVER- FULL EXERCISE OF
ALLOTMENT OVER-ALLOTMENT
-------------- ----------------
<S> <C> <C>
Per Share......................................... $ $
Total............................................. $ $
</TABLE>
We estimate expenses payable by us in connection with this offering, other
than the underwriting discounts and commissions referred to above, will be
approximately $ .
INDEMNITY
The underwriting agreement contains covenants of indemnity among the
underwriters and us against certain civil liabilities, including liabilities
under the Securities Act of 1933, and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
LOCK-UP AGREEMENTS
Each of our executive officers and directors and stockholders holding
approximately % of our common stock have agreed, subject to specified
exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to any shares of common stock
or any options or warrants to purchase any shares of common stock, or any
securities convertible into or exchangeable for shares of common stock owned as
of the date of this prospectus or thereafter acquired directly by those holders
or with respect to which they have the power of disposition, without the prior
written consent of FleetBoston Robertson Stephens Inc. This restriction
terminates after the close of trading of the shares on the 180th day of (and
including) the day the shares commenced trading on the Nasdaq National Market.
However, FleetBoston Robertson Stephens Inc. may, in its sole discretion and at
any time or from time to time before the termination of the 180-day period,
without notice, release all or any portion of the securities subject to lock-up
agreements. There are no existing agreements between the representatives and any
of our shareholders or optionholders who have executed a lock-up agreement
providing consent to the sale of shares prior to the expiration of the lock-up
period.
In addition, we have agreed that during the lock-up period we will not,
without the prior written consent of FleetBoston Robertson Stephens Inc.,
subject to certain exceptions, consent to the disposition of any shares held by
shareholders subject to lock-up agreements prior to the expiration of the
lock-up period, or issue, sell, contract to sell, or otherwise dispose of, any
shares of common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable for or exchangeable for
shares of common stock other than our sale of shares in this offering, the
issuance of our common stock upon the exercise of outstanding options or
warrants, and the issuance of options under existing stock option and incentive
plans provided that those options do not vest prior to the expiration of the
lock-up period. See "Shares Eligible for Future Sale."
LISTING
We have applied for the approval to list our common stock on the Nasdaq
National Market under the symbol "OPLK."
U-2
<PAGE>
[ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS]
STABILIZATION
The representatives have advised us that, pursuant to Regulation M under the
Securities Act of 1933, some persons participating in the offering may engage in
transactions, including stabilizing bids, syndicate covering transactions or the
imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of the shares of common stock at a level above that
which might otherwise prevail in the open market. A "stabilizing bid" is a bid
for or the purchase of shares of common stock on behalf of the underwriters for
the purpose of fixing or maintaining the price of the common stock. A "syndicate
covering transaction" is the bid for or purchase of common stock on behalf of
the underwriters to reduce a short position incurred by the underwriters in
connection with the offering. A "penalty bid" is an arrangement permitting the
representatives to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with the offering if the common
stock originally sold by said underwriter or syndicate member is purchased by
the representatives in a syndicate covering transaction and has therefore not
been effectively placed by such underwriter or syndicate member. The
representatives have advised us that such transactions may be effected on the
Nasdaq National Market or otherwise, and if commenced, may be discontinued at
any time.
DIRECTED SHARE PROGRAM
At our request, certain of the underwriters have reserved up to
five percent of the shares of common stock for sale in this offering at the
initial public offering price to our directors, officers and employees and
persons who are otherwise associated with us. The number of shares of common
stock available for sale to the general public will be reduced to the extent
these individuals purchase reserved shares. Any reserved shares which are not
purchased will be offered by the underwriters on the same basis as the other
shares of common stock offered in this offering. We have agreed to indemnify
these underwriters against various liabilities and expenses, including
liabilities under the Securities Act of 1933, in connection with the sales of
directed shares.
U-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by us in connection with the sale of our
common stock being registered. All amounts shown are estimates except for the
registration fee, the NASD filing fee and the Nasdaq National Market fee.
<TABLE>
<S> <C>
Registration fee............................................ $ 45,540
NASD filing fee............................................. 17,750
Nasdaq National Market fee.................................. 17,500
Blue sky qualification fees and expenses.................... *
Printing and engraving expenses............................. 125,000
Legal fees and expenses..................................... *
Accounting fees and expenses................................ 500,000
Transfer agent and registrar fees........................... *
Miscellaneous............................................... *
--------
Total..................................................... $ *
========
</TABLE>
* to be filed by amendment
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law, permits indemnification
of officers, directors, and other corporate agents under certain circumstances
and subject to certain limitations. The Registrant's Articles and Bylaws provide
that the Registrant shall indemnify its directors, officers, employees and
agents to the full extent permitted by the Delaware General Corporation Law,
including circumstances in which indemnification is otherwise discretionary
under Delaware law. In addition, the Registrant has entered into separate
indemnification agreements with its directors and executive officers which
require the Registrant, among other things, to indemnify them against certain
liabilities which may arise by reason of their status or service (other than
liabilities arising from acts or omissions not in good faith or willful
misconduct).
These indemnification provisions and the indemnification agreements entered
into between the Registrant and its executive officers and directors may be
sufficiently broad to permit indemnification of the Registrant's executive
officers and directors for liabilities (including reimbursement of expenses
incurred) arising under the Securities Act.
The Underwriting Agreement to be filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act, or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since inception, we have sold and issued the following unregistered
securities:
(1) From December 1997 to July 2000, we granted stock options to
purchase an aggregate of 12,201,092 shares of common stock at exercise
prices ranging from $0.0025 to $10.00 per share to employees, consultants,
directors and other service providers pursuant to our 1995 Stock Plan and
1998 Stock Plan.
(2) In September 1995, we sold an aggregate of 12,000,000 shares of
Series A preferred stock to six purchasers at a price per share of $0.05 for
an aggregate purchase price of $600,000. Shares
II-1
<PAGE>
of Series A preferred stock are convertible into shares of common stock at
the rate of one share of common stock for each share of Series A preferred
stock outstanding.
(3) In August 1996 and August 1997, we sold an aggregate of 15,385,008
shares of Series B preferred stock to 19 purchasers at a price per share of
$0.18 for an aggregate purchase price of $2,769,301.44. Shares of Series B
preferred stock are convertible into shares of common stock at the rate of
one share of common stock for each share of Series B preferred stock
outstanding.
(4) In January 1997, we issued warrants to purchase 134,452 shares of
common stock, at an exercise price of $0.2975 per share, to GBC Venture
Capital, Inc., a lender, in connection with a loan agreement.
(5) In February 1998, we sold an aggregate of 6,000,000 shares of
Series C preferred stock to 10 purchasers at a price per share of $0.50 for
an aggregate purchase price of $3,000,000. Shares of Series C preferred
stock are convertible into shares of common stock at the rate of one share
of common stock for each share of Series C preferred stock outstanding.
(6) In March 1998, we issued warrants to purchase 40,000 shares of
Series C preferred stock, at an exercise price of $0.50 per share, to GBC
Venture Capital, Inc., a lender, in connection with a loan agreement.
(7) In March 1999 and July 1999 we sold an aggregate of 10,666,664
shares of Series D preferred stock to 14 purchasers at a price per share of
$0.75 for an aggregate purchase price of $7,999,998. Shares of Series D
preferred stock are convertible into shares of common stock at the rate of
one share of common stock for each share of Series D preferred stock
outstanding.
(8) In February 2000, we sold an aggregate of 11,000,000 shares of
Series E preferred stock to 66 purchasers at a price per share of $4.00 for
an aggregate purchase price of $44,000,000. Shares of Series E preferred
stock are convertible into shares of common stock at the rate of one share
of common stock for each share of Series E preferred stock outstanding.
The sales and issuances of securities described in paragraph (1) above were
deemed to be exempt from registration under the Securities Act by virtue of Rule
701 promulgated thereunder in that they were offered and sold either pursuant to
a written compensatory benefit plan or pursuant to a written contract relating
to compensation, as provided by Rule 701.
The sale and issuance of securities described in paragraphs (2), (3), (4),
(5), (6), (7) and (8) above were deemed to be exempt from registration under the
Securities Act by virtue of Section 4(2) of the Securities Act or Regulation D
promulgated thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of Oplink, as
currently in effect.
3.2 Amended and Restated Certificate of Incorporation of Oplink,
to be in effect immediately following the closing of the
offering.
3.3 Bylaws of Oplink, as currently in effect.
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2 Third Amended and Restated Rights Agreement, dated as of
February 7, 2000 by and among Oplink and the investors
listed on Exhibit A attached thereto.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
5.1* Opinion of Cooley Godward LLP.
10.1+ Development Contract Agreements, by and among Oplink and
Barr Associates, Inc. dated as of January 1997, July 9,
1998, March 17, 1999, April 14, 1999 and August 1999.
10.2+ General Purchase Agreement dated June 18, 2000 by and
between Oplink and Cierra Photonics Inc.
10.3+ Manufacturers Representative/Distributor Contract dated
January 26, 1998, by and between Oplink and DBX
Communications Inc.
10.4* Purchase Agreement dated July 20, 1999 by and between Oplink
and Lucent Technologies Inc.
10.5* Purchase Agreement dated November 3, 1999 by and between
Oplink and Lucent Technologies Inc.
10.6* Purchase Agreement dated November 17, 1999 by and between
Oplink and Lucent Technologies Inc.
10.7+ Agreement dated July 2, 1999 by and between Oplink and
Corning Incorporated.
10.8 Building Floor Lease dated March 2000 by and between Fuzhou
Telelight Communication Co., Ltd. and Fuzhou Kang Shun
Guang Telecommunications Co., Ltd.
10.9 Building Use Contract dated March 28, 2000 by and between
Telecommunications Technology Company, Ltd. and Guangdong
Zhuhai High Technology Results Industrialization
Demonstration Base Company, Ltd.
10.10 Supplementary Contract I dated March 28, 2000 by and between
Zhuhai Oplink Communications Company, Ltd. and Guangdong
Zhuhai High Technology Results Industrialization
Demonstration Base Company, Ltd.
10.11 Supplementary Contract II dated March 28, 2000 by and
between Zhuhai Oplink Communications Technology Co., Ltd.
and Guangdong Zhuhai High Technology Results
Industrialization Demonstration Base Company, Ltd.
10.12 State-owned Land Use Rights Assignment Contract dated
May 16, 2000 by and between Oplink Communications Inc. and
Zhuhai Bonded Area Management Committee.
10.13 Sublease dated March 1, 2000 by and between Oplink and Steag
RTP Systems.
10.14 Consent to Sublease Agreement dated March 2000 by and among
Oplink Communications Inc., Steag RTP Systems and Carlyle
Forhen Trust.
10.15 Lease Agreement dated July 21, 1995 by and between SBC&D
Co., Inc. and AG Associates, Inc., as amended by the First
Amendment dated July 21, 1995 and the Second Amendment
dated December 3, 1997.
10.16 Representative Agreement dated May 2, 2000, by and among
Oplink and Wavetec.
10.17+ Lease Agreement dated July 13, 2000, July 12, 2000 and June
29, 2000 by and between Agilent Technologies, Inc. and
Oplink.
10.18 Sublease Agreement dated February 29, 2000 by and among Wyse
Technology Inc. and Oplink Communications Inc. and Wyse
Technology Investments Inc.
10.19 Amended and Restated Lease Agreement dated March 19, 1993 by
and between Wyse Technology Investments, Inc. and Wyse
Technology, Inc.
10.20 Amendment No. 1 to Sublease Agreement dated April 14, 2000
by and among Oplink Communications Inc., Wyse Technology
Inc. and Wyse Technology Investments Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.21 Standard Sublease dated March 29, 1999 by and between Oplink
Communications, Inc. and Digital Microwave, Inc.
10.22 Sublease Agreement dated August 29, 1997 by and among
Digital Microwave Corporation, Wyse Technology Inc. and
Wyse Technology Investments Inc.
10.23 Stock Option Agreement dated May 10, 2000 by and between
Oplink and Robert David Spreng.
10.24 Stock Option Agreement dated May 10, 2000 by and between
Oplink and Bruce Horn.
10.25 Stock Option Agreements dated May 10, 2000 by and between
Oplink and Ian Jenks.
10.26 Oplink's 2000 Equity Incentive Plan.
10.27 Oplink's 2000 Employee Stock Purchase Plan.
10.28 Oplink's 1995 Stock Plan.
10.29 Oplink's 1998 Stock Plan.
21.1* Subsidiaries of Oplink.
23.1 Consent of PricewaterhouseCoopers, LLP.
23.2* Consent of Cooley Godward LLP. (See Exhibit 5.1.)
24.1 Power of Attorney. (See page II-6)
27.1 Financial Data Schedule.
</TABLE>
------------------------
(*) To be filed by amendment.
(+) Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
(b) FINANCIAL STATEMENT SCHEDULES.
All schedules are omitted because they are not required, they are not
applicable or the information is already included in the financial statements or
notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities Act,
the information omitted from the form of this prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) That for purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of the securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referenced in Item 15 of this Registration
Statement or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission this indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against these liabilities (other than
the payment by the Registrant of expenses incurred
II-4
<PAGE>
or paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by a director,
officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether the indemnification by it is against public
policy as expressed in the Securities Act of 1933, and will be governed by the
final adjudication of this issue.
(4) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in the denomination and registered in the
names required by the Underwriters to permit prompt delivery to each purchaser.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of San Jose, State of California, on the 1st day of August, 2000.
<TABLE>
<S> <C> <C>
OPLINK COMMUNICATIONS, INC.
By: /s/ JOSEPH Y. LIU
----------------------------------------------
Joseph Y. Liu
Chief Executive Officer
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Joseph Y. Liu and Bruce Horn, his or her true and lawful attorney-in-fact and
agent, each acting alone, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments
and registration statements filed pursuant to Rule 462) to the Registration
Statement on Form S-1, and to any registration statement filed under Securities
and Exchange Commission Rule 462, and to file the same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOSEPH Y. LIU
------------------------------------ Chief Executive Officer August 1, 2000
Joseph Y. Liu (Principal Executive Officer)
* Chief Financial Officer
------------------------------------ (Principal Financial and Accounting August 1, 2000
Bruce Horn Officer)
*
------------------------------------ Chairman of the Board August 1, 2000
Ian Jenks
*
------------------------------------ Director August 1, 2000
Chieh Chang
*
------------------------------------ Director August 1, 2000
Herbert Chang
/s/ EDWARD LABUDA
------------------------------------ Director August 1, 2000
Edward Labuda
/s/ LEONARD J. LEBLANC
------------------------------------ Director August 1, 2000
Leonard J. LeBlanc
*
------------------------------------ Director August 1, 2000
David Spreng
</TABLE>
<TABLE>
<S> <C>
*By: /s/ JOSEPH Y. LIU
-------------------------------
Joseph Y. Liu
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of Oplink, as
currently in effect.
3.2 Amended and Restated Certificate of Incorporation of Oplink,
to be in effect immediately following the closing of the
offering.
3.3 Bylaws of Oplink, as currently in effect.
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2 Third Amended and Restated Rights Agreement, dated as of
February 7, 2000 by and among Oplink and the investors
listed on Exhibit A attached thereto.
5.1* Opinion of Cooley Godward LLP.
10.1+ Development Contract Agreements, by and among Oplink and
Barr Associates, Inc. dated as of January 1997, July 9,
1998, March 17, 1999, April 14, 1999 and August 1999.
10.2+ General Purchase Agreement dated June 18, 2000 by and
between Oplink and Cierra Photonics Inc.
10.3+ Manufacturers Representative/Distributor Contract dated
January 26, 1998, by and between Oplink and DBX
Communications Inc.
10.4* Purchase Agreement dated July 20, 1999 by and between Oplink
and Lucent Technologies Inc.
10.5* Purchase Agreement dated November 3, 1999 by and between
Oplink and Lucent Technologies Inc.
10.6* Purchase Agreement dated November 17, 1999 by and between
Oplink and Lucent Technologies Inc.
10.7+ Agreement dated July 2, 1999 by and between Oplink and
Corning Incorporated.
10.8 Building Floor Lease dated March 2000 by and between Fuzhou
Telelight Communication Co., Ltd. and Fuzhou Kang Shun
Guang Telecommunications Co., Ltd.
10.9 Building Use Contract dated March 28, 2000 by and between
Telecommunications Technology Company, Ltd. and Guangdong
Zhuhai High Technology Results Industrialization
Demonstration Base Company, Ltd.
10.10 Supplementary Contract I dated March 28, 2000 by and between
Zhuhai Oplink Communications Company, Ltd. and Guangdong
Zhuhai High Technology Results Industrialization
Demonstration Base Company, Ltd.
10.11 Supplementary Contract II dated March 28, 2000 by and
between Zhuhai Oplink Communications Technology Co., Ltd.
and Guangdong Zhuhai High Technology Results
Industrialization Demonstration Base Company, Ltd.
10.12 State-owned Land Use Rights Assignment Contract dated
May 16, 2000 by and between Oplink Communications Inc. and
Zhuhai Bonded Area Management Committee.
10.13 Sublease dated March 1, 2000 by and between Oplink and Steag
RTP Systems.
10.14 Consent to Sublease Agreement dated March 2000 by and among
Oplink Communications Inc., Steag RTP Systems and Carlyle
Forhen Trust.
10.15 Lease Agreement dated July 21, 1995 by and between SBC&D
Co., Inc. and AG Associates, Inc., as amended by the First
Amendment dated July 21, 1995 and the Second Amendment
dated December 3, 1997.
10.16 Representative Agreement dated May 2, 2000, by and among
Oplink and Wavetec.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.17+ Lease Agreement dated July 13, 2000, July 12, 2000 and June
29, 2000 by and between Agilent Technologies, Inc. and
Oplink.
10.18 Sublease Agreement dated February 29, 2000 by and among Wyse
Technology Inc. and Oplink Communications Inc. and Wyse
Technology Investments Inc.
10.19 Amended and Restated Lease Agreement dated March 19, 1993 by
and between Wyse Technology Investments, Inc. and Wyse
Technology, Inc.
10.20 Amendment No. 1 to Sublease Agreement dated April 14, 2000
by and among Oplink Communications Inc., Wyse Technology
Inc. and Wyse Technology Investments Inc.
10.21 Standard Sublease dated March 29, 1999 by and between Oplink
Communications, Inc. and Digital Microwave, Inc.
10.22 Sublease Agreement dated August 29, 1997 by and among
Digital Microwave Corporation, Wyse Technology Inc. and
Wyse Technology Investments Inc.
10.23 Stock Option Agreement dated May 10, 2000 by and between
Oplink and Robert David Spreng.
10.24 Stock Option Agreement dated May 10, 2000 by and between
Oplink and Bruce Horn.
10.25 Stock Option Agreements dated May 10, 2000 by and between
Oplink and Ian Jenks.
10.26 Oplink's 2000 Equity Incentive Plan.
10.27 Oplink's 2000 Employee Stock Purchase Plan.
10.28 Oplink's 1995 Stock Plan.
10.29 Oplink's 1998 Stock Plan.
21.1* Subsidiaries of Oplink.
23.1 Consent of PricewaterhouseCoopers, LLP.
23.2* Consent of Cooley Godward LLP. (See Exhibit 5.1.)
24.1 Power of Attorney. (See page II-6)
27.1 Financial Data Schedule.
</TABLE>
------------------------
(*) To be filed by amendment.
(+) Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
