E TEK DYNAMICS INC, S-1/A, 1998-11-10

E TEK DYNAMICS INC
S-1/A, 1998-11-10
SEMICONDUCTORS & RELATED DEVICES

Previous: OMEGA CABINETS LTD, 10-Q, 1998-11-10

Next: TROPICAL SPORTSWEAR INTERNATIONAL CORP, 8-K, 1998-11-10

<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 10, 1998

REGISTRATION NO. 333-61763
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

----------------

AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

----------------
E-TEK DYNAMICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

----------------
DELAWARE 3674 592337308
(STATE OR OTHER (PRIMARY STANDARD (IRS EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)

1865 LUNDY AVENUE
SAN JOSE, CALIFORNIA 95131
(408) 546-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

----------------
MICHAEL J. FITZPATRICK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
E-TEK DYNAMICS, INC.
1865 LUNDY AVENUE
SAN JOSE, CALIFORNIA 95131
(408) 546-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

----------------
COPIES TO:
LARRY W. SONSINI MATTHEW J. LUCERO DONALD M. KELLER, JR.
AARON J. ALTER CORPORATE COUNSEL TAE HEA NAHM
WILSON SONSINI GOODRICH & E-TEK DYNAMICS, INC. VENTURE LAW GROUP
ROSATI 1865 LUNDY AVENUE A PROFESSIONAL
PROFESSIONAL CORPORATION SAN JOSE, CALIFORNIA CORPORATION
650 PAGE MILL ROAD 95131 2800 SAND HILL ROAD
PALO ALTO, CALIFORNIA 94304 (408) 546-5000 MENLO PARK, CALIFORNIA 94025
(650) 493-9300 (650) 854-4488

----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable on or 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, please 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

----------------

Sales of the Common Stock made outside of the United States will be effected
through selling agents of the Underwriters. No shares of Common Stock being
registered hereby are being registered for the purpose of sales outside the
United States, as any such sales will be made in reliance on Regulation S
under the Securities Act of 1933, as amended.

----------------
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, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION, DATED NOVEMBER 9, 1998

4,000,000 SHARES

(LOGO OF ETEK DYNAMICS)
COMMON STOCK
(PAR VALUE $.001 PER SHARE)

-----------

All of the 4,000,000 shares of Common Stock being offered hereby are being
sold by E-Tek Dynamics, Inc. ("E-Tek" or the "Company"). Prior to this
offering, there has been no public market for the Common Stock. It is currently
estimated that the initial public offering price per share will be between
$8.00 and $10.00. For factors to be considered in determining the initial
public offering price, see "Underwriting".

SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR CERTAIN CONSIDERATIONS RELEVANT TO
AN INVESTMENT IN THE COMMON STOCK.

The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "ETEK".

-----------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

-----------

<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
-------------- ------------ -----------
<S> <C> <C> <C>
Per Share............................... $ $ $
Total (3)............................... $ $ $
</TABLE>
- -----

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting".
(2) Before deducting estimated expenses of $1,000,000 payable by the Company.

(3) The Company has granted the Underwriters an option for 30 days to purchase
up to 600,000 additional shares at the initial public offering price per
share, less the underwriting discount, solely to cover over-allotments. If
such option is exercised in full, the total initial public offering price,
underwriting discount, and proceeds to the Company will be $ , $
and $ , respectively. See "Underwriting".

-----------

The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that the
shares will be ready for delivery in New York, New York, on or about , 1998,
against payment therefor in immediately available funds.

GOLDMAN, SACHS & CO. MORGAN STANLEY DEAN WITTER

DAIN RAUSCHER WESSELS NATIONSBANC MONTGOMERY SECURITIES LLC
A DIVISION OF DAIN RAUSCHER INCORPORATED

-----------

The date of this Prospectus is , 1998.
<PAGE>

The inside cover of the prospectus contains the captions: "E-Tek is a leader
in the design, packaging and manufacturing of high quality passive components
and modules for fiber optic networks" and "Creating the building blocks of the
next generations of fiber optics networks" and shows a picture of a person
surrounded by pictures of the Company's family of products, including
isolators, wavelength division multiplexing components and modules, couplers
and micro-optic integrated components.

----------------

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF THE
COMPANY, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS
IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH
THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

2
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Consolidated Financial Statements
and Notes thereto, appearing elsewhere in this Prospectus. This Prospectus
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results may differ materially from the results discussed in
the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed in "Risk Factors" and
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus (i) assumes no exercise of the Underwriters' over-allotment
option, (ii) reflects, except in the Consolidated Financial Statements and
Notes thereto, the conversion of all outstanding shares of Convertible
Preferred Stock into Common Stock upon completion of this offering and (iii)
assumes the reincorporation of the Company from California to Delaware before
the effective date of this offering, and the associated changes in the
Company's charter documents.

THE COMPANY

E-Tek Dynamics, Inc. ("E-Tek" or the "Company") is a leader in the design,
packaging and manufacturing of high quality passive components and modules for
fiber optic networks. The Company offers a broad product line and believes it
has a leading share in markets for several key passive components required by
telecommunications equipment manufacturers. The Company is focused on
delivering high performance and reliable optical components for applications
which include wavelength division multiplexing ("WDM") and optical amplifiers.
The Company's products are designed for the established terrestrial and
submarine long-haul markets as well as emerging short-haul markets, such as
metropolitan area networks. The Company's customers include telecommunications
equipment manufacturers such as Alcatel, CIENA, Corning, Lucent, Nortel and
Pirelli. The Company has been profitable for the last five years and had $106.9
million in net revenues and $17.9 million in net income for the fiscal year
ended June 30, 1998.

The volume of traffic carried by telecommunication service providers has
rapidly increased over the last several years, creating capacity constraints on
heavily used short- and long-haul routes that were originally designed for
significantly less traffic. This increase has resulted in the widespread
deployment of new fiber optic networks and the adoption of new technologies to
increase the bandwidth capacity of existing fiber optic networks. The Company
believes that the growth of new and existing applications for optical
networking will drive the need for higher performance and increasingly
integrated components and modules, which are the key building blocks for
systems and subsystems in these networks. According to data provided by
ElectroniCast Corporation (a market research firm specializing in communication
networks and products) the worldwide optical network market, including passive
and active components as well as subsystems, but excluding fiber optic cable,
is expected to grow at approximately 28.7% per year from $2.3 billion in 1996
to $8.1 billion in 2001.

E-Tek's strategy is to leverage its market leadership to provide a broad
range of high quality components in large volumes for current and next
generation optical networking systems. Key elements of this strategy include:
(i) investing in product enhancements and developing new products to maintain
and expand E-Tek's leadership in passive optical components; (ii) leveraging
its design and packaging expertise to manufacture integrated components and
modules; (iii) continuing to deliver a high level of value-added service to
strengthen its existing customer relationships and develop new ones; (iv)
enhancing its manufacturing capabilities to provide rapid delivery of large
volumes of high quality, lower cost components; and (v) strengthening its
position in existing markets as well as penetrating new markets by expanding
its sales and marketing efforts to target new customers.

The Company was incorporated in Florida in May 1983, reincorporated in
California in September 1987 and will reincorporate in Delaware prior to the
effective date of this offering. The Company's principal executive offices are
located at 1865 Lundy Avenue, San Jose, California 95131, and its telephone
number is (408) 546-5000.

----------------

E-Tek, E-Tek Dynamics, the E-Tek Dynamics logo and Unifuse are trademarks of
the Company. All other brand names or trademarks appearing in this Prospectus
are the property of their respective owners.

3
<PAGE>

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the
Company............................ 4,000,000 Shares
Common Stock to be outstanding after
the offering....................... 61,428,649 Shares(1)
Use of proceeds..................... For general corporate purposes including
working capital and capital expenditures.
See "Use of Proceeds."
Proposed Nasdaq National Market
symbol............................. "ETEK"
</TABLE>

SUMMARY FINANCIAL INFORMATION

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FISCAL
FISCAL YEAR ENDED JUNE 30, QUARTER ENDED
---------------------------------------- -----------------
SEPT. 30, OCT. 2,
1994 1995 1996 1997 1998 1997 1998(7)
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net revenues............ $14,590 $31,661 $40,382 $73,076 $106,924 $27,309 $32,942
Gross profit............ 8,892 21,209 25,670 42,477 57,861 15,416 16,953
Operating expenses:
Research and
development........... 2,116 2,270 2,444 3,953 7,702 1,655 3,076
Selling, general and
administrative........ 3,279 6,697 8,773 15,290 21,097 5,198 5,395
Operating income........ 3,497 12,242 14,453 23,234 29,062 8,563 8,482
Net income.............. 1,930 7,706 9,271 15,148 17,924 5,246 5,271
Convertible Preferred
Stock accretion(2)..... -- -- -- -- 9,021 1,842 2,400
Net income available to
Common
Stockholders(3)........ $ 1,930 $ 7,706 $ 9,271 $15,148 $ 8,903 $ 3,404 $ 2,871
Net income per share:
Basic(4)............... $ 0.04 $ 0.15 $ 0.19 $ 0.30 $ 0.39 $ 0.12 $ 0.13
Diluted(4)............. 0.04 0.15 0.19 0.30 0.32 0.10 0.09
Shares used in net
income per share
calculations:
Basic(4)............... 50,000 50,000 50,000 50,000 22,970 28,073 22,037
Diluted(4)............. 50,000 50,000 50,000 50,000 55,561 51,922 58,573
</TABLE>

<TABLE>
<CAPTION>
OCTOBER 2, 1998(7)
-------------------------------------
ACTUAL PRO FORMA(5) AS ADJUSTED(6)
-------- ------------ --------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............... $ 36,584 $ 36,584 $ 69,064
Working capital......................... 38,379 38,379 70,859
Total assets............................ 102,284 102,284 134,764
Long-term obligations, net of current
portion................................ 14,851 14,851 14,851
Mandatorily Redeemable Convertible
Preferred Stock(2)..................... 127,544 -- --
Stockholders' equity (deficit).......... (71,443) 56,101 88,581
</TABLE>
- --------

(1) Excludes 11,571,351 shares of Common Stock reserved for issuance under the
Company's stock option and stock purchase plans, under which options to
purchase 4,652,992 shares at a weighted average exercise price of $6.25
were outstanding as of November 2, 1998. See "Management--Stock Plans" and
Note 8 of Notes to Consolidated Financial Statements.

(2) See Note 6 of Notes to Consolidated Financial Statements for a description
of the Mandatorily Redeemable Convertible Preferred Stock and related
accretion.
(3) The Company has never paid or declared any cash dividends on its Common
Stock.
(4) See Note 7 of Notes to Consolidated Financial Statements for the methods
used to calculate net income per share and the number of shares used in the
net income per share calculations.
(5) Pro forma to reflect conversion upon the closing of this offering of all
outstanding shares of Mandatorily Redeemable Convertible Preferred Stock
into 30,000,000 shares of Common Stock.

(6) As adjusted to reflect conversion upon the closing of this offering of all
outstanding shares of Convertible Preferred Stock into 30,000,000 shares of
Common Stock and the sale of Common Stock offered by the Company hereby
(assuming an initial public offering price of $9.00 per share) and the
application of the estimated net proceeds therefrom after deducting the
underwriting discount and estimated offering expenses. See "Use of
Proceeds" and "Capitalization."

(7) Commencing on July 1, 1998, the Company changed its fiscal quarter end to
the Friday that is closest to the end of the calendar quarter (October 2
for the first quarter in fiscal 1999). The fiscal quarter ended October 2,
1998 included 94 days compared to 92 days in the fiscal quarter ended
September 30, 1997. The Company's fiscal year end remained unchanged.

4
<PAGE>

RISK FACTORS

An investment in the shares of Common Stock offered by this Prospectus
involves a high degree of risk. Prospective purchasers of the Common Stock
offered hereby should carefully review the following risk factors as well as
the other information set forth in this Prospectus. This Prospectus contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth in the following risk factors and elsewhere in this Prospectus.

DEPENDENCE ON A LIMITED NUMBER OF MAJOR CUSTOMERS

A small number of customers have accounted for a significant portion of the
Company's net revenues to date, and the Company expects that this trend will
continue for the foreseeable future. Sales to the Company's largest customers,
affiliates of Alcatel Alsthom ("Alcatel"), affiliates of Pirelli SpA
("Pirelli"), and Corning, Inc. ("Corning") accounted for approximately 30.2%,
16.5% and 14.3%, respectively, of the Company's net revenues in fiscal 1998
and 46.0%, 8.0% and 9.4%, respectively, of the Company's net revenues in the
first quarter of fiscal 1999. Moreover, sales to the Company's five largest
customers and their affiliates represented approximately 73.4% and 62.4% of
the Company's net revenues in fiscal 1998 and in the first quarter of fiscal
1999, respectively. The Company expects to continue to be substantially
dependent on sales to its largest customers. In addition, the
telecommunications equipment industry is dominated by a small number of large
companies and is currently consolidating, thereby further reducing the number
of potential customers in the industry. The Company's dependence on large
orders from very few customers makes the relationship between the Company and
each customer critically important to the Company's business. There can be no
assurance that the Company will retain its largest customers or that it will
be able to attract additional customers. The Company has in the past
experienced delays and reductions in orders from its major customers. In
addition, the Company's customers have in the past and will in the future seek
price concessions from the Company. Further, the Company's customers may in
the future shift their purchases of certain products, such as isolators or
couplers, from the Company to the Company's competitors or to joint ventures
jointly owned by these customers and competitors. If the Company is unable to
replace lost sales with sales of other products to these customers or sales to
other customers, such a shift would have a material adverse effect on the
Company's business, financial condition and results of operations. The loss of
one or more of the Company's largest customers, any reduction or delay in
sales to these customers, the inability of the Company to successfully develop
relationships with additional customers, or any further price concessions
could have a material adverse effect on the Company's business, financial
condition and results of operations.

Almost all of the Company's customers are third party original equipment
manufacturers ("OEMs") that purchase the Company's components and modules for
use in systems manufactured and sold by them. In order for an OEM customer to
incorporate the Company's products into its systems, the Company must
demonstrate that its products provide significant commercial advantages over
competing products. There can be no assurance that the Company can
successfully demonstrate such advantages or that the Company's products will
continue to provide any advantages. Moreover, even if the Company is able to
demonstrate such advantages, there can be no assurance that OEMs will elect to
incorporate the Company's products into their current or future systems.
Further, the business strategies and manufacturing practices of the Company's
OEM customers are subject to change and any such change may result in
decisions by its customers to decrease their purchases of the Company's
products, seek other sources for products currently manufactured by the
Company or manufacture these products internally. Failure of OEMs to
incorporate the Company's products into their systems, the failure of such
OEMs' systems to achieve market acceptance or any other event causing a
decline in the Company's sales to OEMs would have a material adverse effect on
the

5
<PAGE>

Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

FLUCTUATIONS IN QUARTERLY AND ANNUAL RESULTS; SEASONALITY

The Company's net revenues and operating results have in the past varied and
may in the future vary significantly from quarter to quarter and from year to
year as a result of a number of factors. These factors may include the size
and timing of customer orders, the ability to obtain sufficient supplies of
sole or limited source materials for the Company's products, the ability to
manufacture products to meet customer demands on a timely basis, pricing
pressure from customers and competitors, potential price rebates, customer
requirements, the ability to meet customer specifications, product
qualification demands, and changes in the product mix and shipments of
components, among other factors. The Company's dependence on a small number of
customers increases the revenue impact of each customer's actions relative to
these factors. In addition, a significant portion of the Company's expenses
are relatively fixed in advance, based in large part on the Company's
forecasts of future sales. If sales are below expectations in any given
period, the adverse effect of a shortfall in sales on the Company's operating
results may be magnified by the Company's inability to adjust spending to
compensate for such shortfall. For example, in the second and third quarters
of fiscal 1998, net revenues decreased in part due to a decline in sales to a
major customer, as well as a reduction in average selling prices ("ASPs"). Due
to this likelihood of significant quarterly fluctuation in operating results,
the Company believes quarter to quarter comparisons of its results of
operations may not necessarily be meaningful indicators of annual performance.

The Company's orders fluctuate from quarter to quarter. To achieve its
revenue objectives, the Company is generally dependent upon obtaining orders
for shipment in that same quarter. Further, the Company's agreements with its
customers generally do not contain binding purchase commitments and generally
provide that its customers may change delivery schedules and cancel orders
within specified timeframes without significant penalty. The Company generally
recognizes revenue upon shipment of products to the customer. Refusal of
customers to accept shipped products, returns of shipped products or delays or
difficulties in collecting accounts receivable could result in significant
charges against income, which could have a material adverse effect on the
Company's business, financial condition and results of operations. The
inability to obtain sufficient orders in any quarter, or the cancellation or
deferral of such orders in a quarter, could have a material adverse effect on
the Company's business, financial condition and results of operations.

The Company has experienced and expects to continue to experience
seasonality in its business. The Company's sales have been affected by a
seasonal decrease in demand in the last quarter of each calendar year. The
Company expects this trend to continue, although other trends may emerge.
These trends, or other fluctuations in the timing of customer orders, may
cause quarterly or annual fluctuations and could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

DEPENDENCE ON LIMITED NUMBER OF PRODUCT LINES

A small number of products have historically accounted for a majority of the
Company's net revenues, and the Company expects that this trend will continue
for the foreseeable future. In particular, sales of isolators accounted for
approximately 51.2% and 50.4% of the Company's net revenues in fiscal 1998 and
the first quarter of fiscal 1999, respectively. The Company's other
significant products include wavelength division multiplexing ("WDM")
components and modules. The Company expects to continue to be substantially
dependent on sales of a limited number of product lines in the near future.
The Company anticipates, however, that growth in net revenues from sales of
its isolators will decline in the future due to continued declines in their
ASPs as well as the trend toward

6
<PAGE>

integration of isolators into micro-optic integrated components ("MOICs"). If
sales of its other product lines do not increase, any decline in net revenues
from sales of the Company's isolators would have a material adverse effect on
the Company's business, financial condition and results of operations. There
can be no assurance that the Company will be successful in developing any
other products or taking other steps to mitigate the risks associated with
reduced demand for its existing products. Reduced demand for the Company's
existing products would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Technology and Products."

In the May 18, 1998 issue of Fiber Optic News, it was reported that a member
of the Company's management represented that E-Tek had a 65% share of the
polarization insensitive fiber isolator ("PIFI") business and that this
business was growing at a rate of 16% annually. This representation was based
on management's internal view of the PIFI business at that time. The Company
currently believes, however, that the increased use of integrated fiber optic
components and pricing pressures in the isolator business have reduced its
PIFI market share and slowed the growth rate of the PIFI business. The Company
believes that its market share of the PIFI business may decline in the future.
Further, the rate of growth of the PIFI business is subject to significant
risks and uncertainties, including increased competition, pricing pressures,
and the increased use of integrated fiber optic components. There can be no
assurance that the PIFI business will grow or that, even if this business does
grow, that the Company's sales of PIFIs will grow accordingly.

DEPENDENCE ON TELECOMMUNICATIONS INDUSTRY

The Company's future success is dependent on the continued growth and
success of the telecommunications industry, which is evolving rapidly as
telecommunication markets around the world deregulate and open to global
competition. Generally, these factors have resulted in increased competition
and demand for telecommunications products and services, which have in turn
driven increased demand for the Company's products. There can be no assurance,
however, that globalization, deregulation and other trends causing an increase
in the need for bandwidth that are currently driving growth in the
telecommunications industry will continue in a manner that is favorable to the
Company. The telecommunications industry is also experiencing rapid
consolidation and re-alignment as industry participants position themselves to
capitalize on the rapidly changing competitive landscape developing around new
communications technologies such as fiber optic and wireless communications
networks, as well as the Internet. Further, the rate at which long distance
carriers 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 such fluctuations may continue in the future. Such
fluctuations may result in reduced demand for new or upgraded fiber optic
systems that utilize the Company's products and, therefore, result in reduced
demand for the Company's products, which would have a material adverse effect
on the Company's business, financial condition and results of operations.
There can be no assurance that technological or other developments in the
telecommunications industry will favor growth in the markets served by the
Company's products. Moreover, as the telecommunications industry consolidates
and re-aligns to accommodate technological and other developments, there is a
risk that certain of the Company's customers and telecommunication service
providers may consolidate or align themselves together in a manner that
materially and adversely affects the Company's business, financial condition
and results of operations.

RISKS OF LONG AND UNPREDICTABLE SALES CYCLES; LIMITED LONG-TERM CONTRACTS;
SHORT LEAD TIMES

The period of time between the Company's initial contact with a customer and
the receipt of an actual purchase order may span a year or more. In addition,
customers perform, and require the Company to perform, extensive and lengthy
product evaluation and testing of new components and modules before purchasing
and using them in their equipment. The Company's customers do not

7
<PAGE>

typically share information on the duration or magnitude of planned purchasing
programs, nor do they generally provide advance notice of contemplated changes
in their component purchasing priorities. The Company generally does not have
long-term contracts with its customers. Sales are typically made pursuant to
individual purchase orders, often with extremely short lead times, that may be
canceled or deferred by customers on short notice without significant penalty.
These uncertainties substantially complicate the Company's manufacturing
planning. Curtailment or termination of customer purchasing programs,
decreases in purchased volumes or reductions in the purchasing of certain
components, particularly if unanticipated by the Company, could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

DECLINE IN AVERAGE SELLING PRICES

The fiber optic component industry is characterized by declining ASPs
resulting from factors such as increased competition and greater unit volumes
as telecommunication service providers continue to deploy fiber optic
networks. The Company has in the past and may in the future experience
substantial period to period fluctuations in operating results due to
declining ASPs. The Company anticipates that ASPs will decrease in the future
in response to product introductions by competitors or the Company or other
factors, including price pressures from significant customers. In particular,
the market for low-end isolators and couplers has experienced and may continue
to experience significant ASP declines that have contributed and may in the
future continue to contribute to a decline in the Company's gross margins.
Therefore, the Company must continue to develop and introduce on a timely
basis new products that incorporate features that can be sold at higher ASPs,
as well as reduce its manufacturing costs. Failure to achieve any or all of
the foregoing could cause the Company's net revenues and gross margins to
decline, which would have a material adverse effect on the Company's business,
financial condition and results of operations.

COMPETITION; CUSTOMERS AS COMPETITORS

The market for fiber optic components is intensely competitive and
characterized by rapidly changing technology. The Company currently
experiences competition from various companies including, among others: (i)
FDK Corporation, Kyocera Corp., Shinkosha K.K. and JDS FITEL, Inc. in
isolators, (ii) Lucent Technologies Inc., Corning, Inc. and JDS FITEL, Inc. in
WDM components and modules and (iii) ADC Telecommunications, Inc. and Gould
Electronics, Inc. in couplers. Competitors in any portion of the Company's
business are also capable of rapidly becoming competitors of the Company in
other portions of the Company's business. The Company also faces competition
from numerous smaller companies. Many of the Company's current and potential
competitors have significantly greater financial, technical, marketing,
purchasing and other resources than the Company, and as a result, may be able
to respond more quickly to new or emerging technologies or standards and to
changes in customer requirements, to devote greater resources to the
development, promotion and sale of products, or to deliver competitive
products at a lower prices. Many of these competitors manufacture their
products in countries offering significantly lower labor costs than in the
United States.

8
<PAGE>

quality and reliability, customization to customer specifications, strength of
distribution channels, pricing and comprehensiveness of product offerings. In
addition, the Company believes that the size of suppliers will be an
increasingly important part of purchasers' decision-making criteria in the
future. There can be no assurance that the Company will be able to compete
successfully with its existing or new competitors or that competitive
pressures faced by the Company will not result in lower prices for the
Company's products, loss of market share, or reduced gross margins, any of
which could materially and adversely affect the Company's business, financial
condition and results of operations.

MANUFACTURING AND FACILITIES EXPANSION RISKS

The Company currently manufactures all of its products at its facilities in
San Jose, California. The Company is in the process of increasing its
manufacturing capacity at these facilities and adding overseas manufacturing
capabilities. The Company has increased its capacity by expanding the size of
its San Jose facilities from approximately 90,000 square feet to approximately
160,000 square feet. The Company has been moving portions of its operations,
including manufacturing, to these buildings as space becomes available. There
can be no assurance that the Company will not experience business
interruptions as it relocates certain of its personnel and equipment. Any such
interruptions or other transition difficulties could have a material adverse
effect on the Company's business, financial condition and results of
operations.

In addition, in an effort to increase the Company's manufacturing capacity
and reduce its manufacturing costs, as well as to expand the Company's sales
and marketing presence in Asia, the Company has recently entered into a joint
venture with a Taiwanese company to build and operate a fiber optic component
manufacturing facility in Taiwan (the "FibX Joint Venture"). The Company
believes that this new facility will begin commercial production in 1999. The
construction of this new facility and the expansion of existing facilities
entail significant risks, including shortages of materials and skilled labor,
unanticipated cost increases, unavailability or late delivery of process
equipment, unforeseen environmental or engineering problems, work stoppages,
political instability, weather interferences, any of which could have a
material adverse effect on the start up or operation of the new facility. In
addition, unexpected changes or concessions required by regulatory agencies
with respect to necessary licenses, land use permits, site approvals and
building permits could involve significant additional costs and delay the
scheduled opening of the facility and could reduce the Company's anticipated
net revenues. Following the completion of the FibX facility, the Company must
install equipment and perform necessary testing and qualification procedures
prior to commencing commercial production at the facility. As a result of the
foregoing and other factors, there can be no assurance that the project will
be completed within its current budget or within the period currently
scheduled by the Company, either of which could have a material adverse effect
on the Company's business, financial condition and operating results.
Furthermore, if the Company is unable to achieve adequate manufacturing yields
at the FibX facility in a timely manner, or at all, or if the Company's net
revenues do not increase commensurate with the anticipated increase in
manufacturing capacity associated with the new facility and the expansion of
its existing facilities, the Company's business, financial condition and
operating results could also be materially adversely affected.

The Company's manufacturing expansion and related capital expenditures are
being made in anticipation of a level of customer orders that may not be
sustained over multiple quarters, if at all. If anticipated levels of customer
orders are not received, the Company will not be able reduce its expenses
quickly enough to prevent a decline in the Company's gross margins and
operating income. Such decline would have a material adverse effect on the
Company's business, financial condition and results of operations.

The Company will be required to hire, train and manage additional production
personnel in order to increase its production capacity as scheduled. The
Company has in the past experienced and in the future may continue to
experience substantial manufacturing capacity constraints. In the past, the

9
<PAGE>

Company has been unable to accept certain orders from, and deliver products in
a timely manner to, its customers due to such constraints. In the event the
Company's plans to expand its manufacturing capacity are not implemented on a
timely basis, the Company could face production capacity constraints, which
could have a material adverse effect on the Company's business, financial
condition and operating results. In addition, the Company may be required to
make additional capital investments in new or existing manufacturing
facilities. To the extent such capital investments are required, the Company's
gross margins and, as a result, its business, financial condition and
operating results, could be materially and adversely affected.

The Company will also have to effectively coordinate and manage two
manufacturing facilities to successfully meet its overall production goals.
The Company has no experience in coordinating and managing production
facilities that are located at different sites or in the transfer of
manufacturing operations from one facility to another. As a result of these
and other factors, the failure of the Company to successfully coordinate and
manage multiple sites or to transfer the Company's manufacturing operations
could adversely affect the Company's overall production and could have a
material adverse effect on its business, financial condition and results of
operations. See "Business--Manufacturing."

MANAGEMENT OF EXPANSION

The Company is rapidly expanding certain aspects of its operations,
particularly its manufacturing operations, and the Company anticipates that
this expansion will continue in the near future. The Company intends to
satisfy its working capital and capital expenditure requirements with cash
flow from operations and available borrowings under its credit facilities. As
part of this expansion, the Company has rapidly increased its employee base,
from 439 employees on June 30, 1997 to 787 employees on October 2, 1998. The
Company intends to continue to add and train new employees as its expands. The
pace of the Company's expansion, in combination with the complexity of the
technology involved in the manufacture of the Company's products, demands an
unusually high level of managerial effectiveness in anticipating, planning,
coordinating and meeting the operational and personnel needs of the Company
and the needs of the Company's customers for quality, reliability and timely
delivery. Many of the Company's key employees have not had previous experience
in managing companies undergoing such rapid expansion. Any inability to manage
the expansion of the Company's business could have a material adverse effect
on its business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

DEPENDENCE ON SUPPLIERS

The Company is dependent on a limited number of suppliers of materials for
its products as well as equipment used to manufacture its products. Some of
the Company's suppliers are sole sources, and finding an alternative source
might involve significant expense and delays, if such a source could be found
at all. The Company has in the past been unable to ship products due to
shortages of sole-sourced materials. Substantially all of the Company's
revenues are derived from products incorporating one or more sole-sourced
materials. The reliance on a sole or limited number of suppliers has in the
past and could in the future result in lost orders, reduced control over
pricing, quality and delivery schedules, as well as the need to redesign a
product due to a failure to obtain a single source component. Any interruption
in supply of single source materials could have a material adverse effect on
the Company's business, financial condition and results of operations.

The Company has to date conducted its business with suppliers through the
issuance of conventional purchase orders based on the Company's forecasted
requirements. The Company has in the past experienced delays in the receipt of
key materials and has been unable to accept customer orders for Company
products that require such materials. The Company generally does not maintain

10
<PAGE>

long-term agreements with its suppliers, and therefore the supply of a
particular material could be terminated at any time without penalty to the
supplier. Any future difficulty in obtaining sufficient and timely delivery of
materials could result in delays or reductions in product shipments. In the
event that any significant supplier or subcontractor were to become unable or
unwilling to continue to manufacture or ship materials in required volumes,
the Company would have to identify and qualify acceptable replacements. A
delay or reduction in material shipments or any need to identify and qualify
replacement suppliers could have a material adverse affect on the Company's
business, financial condition and results of operations.

DEPENDENCE ON THIRD PARTY SALES REPRESENTATIVES AND DISTRIBUTORS

The Company sells substantially all of its products through a network of six
domestic and 22 international sales representatives and distributors.
Substantially all of the Company's sales representatives and distributors have
exclusive sales territories pursuant to contracts with the Company that are
generally terminable at the Company's option, subject to certain notice
periods. The Company's sales representatives and distributors participate in
the Company's sales and marketing efforts by developing and maintaining
relationships with key customer contacts, cross-marketing the Company's
products to its existing customer base, communicating technical specifications
and other requirements of its customers to the Company's product development
engineers, and providing customer support after the sale. Although the Company
intends to increase the number of sales representatives and distributors that
market and sell its products as its customer base expands, and to selectively
expand its direct marketing and sales force to take advantage of new customer
opportunities, the Company expects that it will continue to rely on its
independent sales representatives and distributors to market, sell and support
many of its products. In addition, substantially all of the Company's sales
representatives and distributors have exclusive rights to sell the Company's
products in certain territories, which limits the Company's ability to add
additional sales representatives and distributors. As a result, the Company's
success depends in part on the continued viability and financial stability of
the Company's sales representatives and distributors. The sales representative
and distributor industries have been historically characterized by rapid
change and instability resulting from widespread financial difficulties,
industry consolidation and the emergence of competing distribution channels.
In addition, certain of the Company's sales representatives and distributors
carry products of one or more of the Company's competitors, and such sales
representatives and distributors may carry more such products in the future.
Accordingly, there is a risk that the Company's sales representatives and
distributors may emphasize the products of one or more of the Company's
competitors at the expense of their sales and marketing efforts on behalf of
the Company's products. There can be no assurance that the Company's sales
representatives or distributors will recommend, or continue to recommend, the
Company's products, or that the Company's sales representatives or
distributors will devote sufficient resources to market the Company's products
or provide sufficient customer support for such products. The loss of, or
reduction in sales made by, one or more of the Company's key sales
representatives or distributors, or the inability to attract and retain new
sales representatives or distributors that satisfy the Company's standards,
could have a material adverse effect on the Company's business, financial
condition or results of operations.

TECHNOLOGICAL CHANGE AND NEW PRODUCTS

The Company expects that new technologies will emerge as competition in the
telecommunications equipment industry increases and the need for higher and
more cost efficient bandwidth expands. The Company's ability to anticipate
changes in technology, industry standards, customer requirements and product
offerings and to develop and introduce new and enhanced products will be
significant factors in determining the Company's long-term success. The market
for fiber optic components is characterized by significant capital investment,
diverse and competing technologies, rapid product introduction and
obsolescence of existing products. The introduction of new products
incorporating new technologies or the emergence of new industry standards
could

11
<PAGE>

render the Company's existing products uncompetitive, obsolete or
unmarketable. The development of new, technologically advanced products is a
complex and uncertain process requiring high levels of innovation and highly
skilled assembly and manufacturing processes, as well as the accurate
anticipation of technological and market trends. Many of the Company's
competitors have substantially greater financial, technical, manufacturing and
marketing resources with which to develop new technologies and to promote
market acceptance of their products. There can be no assurance that the
Company will be able to identify, develop, manufacture, market or support new
or enhanced products successfully or on a timely basis, that new Company
products will gain market acceptance or that the Company will be able to
respond effectively to product announcements by competitors, technological
changes or emerging industry standards. Any of these outcomes would have a
material and adverse effect on the Company's business, financial condition and
results of operations.

PRODUCT COMPLEXITY

Products as complex as those offered by the Company may contain defects when
first introduced or as new versions are released and new products often take
longer to develop than originally anticipated. In the past, the Company has
experienced such defects and delays in development and volume production. In
particular, the Company has experienced defects and delays in production of
integrated products. Delivery of products with production defects or
reliability or quality problems could significantly delay or hinder market
acceptance of such products, which could damage the Company's reputation and
adversely affect the Company's ability to retain its existing customers and to
attract new customers. Moreover, such defects could cause problems,
interruptions, delays or cessation of sales to the Company's customers.
Alleviating such problems may require significant expenditures of capital and
resources by the Company. There can be no assurance that, despite testing by
the Company, its suppliers or its customers, defects will not be found in new
products after commencement of commercial production, resulting in additional
development costs, loss of, or delays in, market acceptance, diversion of
technical and other resources from the Company's other development efforts,
claims by the Company's customers or others against the Company, or the loss
of credibility with the Company's current and prospective customers. Any such
event would have a material adverse effect on the Company's business,
financial condition and results of operations.

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS; CURRENCY RISKS

The Company generates a significant portion of its net revenues from sales
to companies located outside the United States, principally in Europe.
Approximately 53.4%, 42.2% and 36.5% of the Company's net revenues in fiscal
1998, 1997 and 1996, respectively, were derived from sales to customers
located outside the United States. In the first quarter of fiscal 1999, sales
to customers located outside the United States accounted for 51.1% of net
revenues, and the Company anticipates that international sales will continue
to account for a significant portion of its net revenues. As a result, a
significant portion of the Company's sales and operations may continue to be
subject to certain risks, including government controls, export licensing
requirements and restrictions, tariffs and other trade barriers, slower
accounts receivable cycles, currency exchange risks and exchange controls and
potential adverse tax consequences. Demand for the Company's products could
also be adversely affected by seasonality of international sales and economic
conditions in Europe and the Company's other overseas markets. These factors
could have a material adverse effect on future sales of the Company's products
to international customers and, consequently, on the Company's business,
financial condition and results of operations.

The Company anticipates shifting the manufacturing of certain of its mature
products offshore to the FibX Joint Venture in 1999. Foreign manufacturing is
subject to a number of other risks, including currency fluctuations,
transportation delays and interruptions, difficulties in staffing, potentially
adverse tax consequences and unexpected changes in regulatory requirements,
tariffs and other trade barriers, and political and economic instability. The
location of the FibX facility in Taiwan will also subject the Company to the
risk of political instability, including but not limited to the potential for
conflict between

12
<PAGE>

Taiwan and the People's Republic of China. Any of these risks could have a
material adverse effect on the Company's business, financial condition and
results of operations.

Currently, all of the Company's international sales are U.S. dollar
denominated. As a result, an increase in the value of the U.S. dollar relative
to foreign currencies could make the Company's products less competitive in
international markets. There can be no assurance that the Company will not be
required to or otherwise accept payment in foreign currencies in the future.
The Company's operating results could become subject to significant
fluctuations based upon changes in the exchange rates of certain currencies in
relation to the U.S. dollar. Although management will continue to monitor the
Company's exposure to currency fluctuations, and, when appropriate, may use
financial hedging techniques in the future to minimize the effect of these
fluctuations, there can be no assurance that exchange rate fluctuations will
not have a material adverse effect on the Company's business, financial
condition and results of operations in the future.

RECENT MANAGEMENT ADDITIONS AND DEPENDENCE ON KEY EMPLOYEES

The Company's senior management personnel have worked together for only a
short time. The Company's Chief Executive Officer joined the Company in
October 1997 and four of the Company's other five executive officers have
joined the Company since that time. The success of the Company is dependent,
in large part, on the long-term effectiveness of its executive officers and
their continued service to the Company. The Company does not have key man life
insurance coverage on any of its executive officers. The loss of the services
of any of the Company's executive officers could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Management."

The Company's success will also depend in large part upon its ability to
attract and retain highly-skilled technical, managerial, sales and marketing
personnel, particularly those skilled and experienced with fiber optics.
Competition for such personnel, particularly in the United States, is intense.
The Company has entered into employment agreements with several of its key
employees. See "Management--Employment Agreements and Change of Control
Arrangements." In addition, the Company has in the past recruited engineering
and technical personnel from China, Taiwan and other countries and assisted
such personnel in obtaining the necessary visas to work in the United States.
There can be no assurance that the Company will be able to recruit key
personnel from such countries in the future or that the Company will be able
to obtain visas for the skilled workers it seeks to hire. Furthermore, there
can be no assurance that the Company will be able to retain its existing key
personnel or any new key personnel. Failure to attract and retain key
personnel would have a material adverse effect on the Company's business,
financial condition and results of operations.

RISKS ASSOCIATED WITH PATENTS AND INTELLECTUAL PROPERTY RIGHTS

13
<PAGE>

partners, and generally controls access to and distribution of its
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use the
Company's products or technology without authorization, develop similar
technology independently or design around the Company's patents. In addition,
effective patent, copyright, trademark and trade secret protection may be
unavailable or limited outside of the United States, Europe and Japan. There
can be no assurance that the Company will be able to obtain any meaningful
intellectual property protection in such countries and territories. Further,
the Company occasionally incorporates the intellectual property of its
customers into its designs, and the Company has certain obligations with
respect to the non-use and non-disclosure of such intellectual property. There
can be no assurance that the steps taken by the Company to prevent
misappropriation or infringement of the intellectual property of the Company
or its customers will be successful. Moreover, litigation may be necessary in
the future to enforce the Company's intellectual property rights, to protect
the Company's trade secrets or to determine the validity and scope of
proprietary rights of others, including its customers. Such litigation could
result in substantial costs and diversion of the Company's resources and could
have a material adverse effect on the Company's business, financial condition
and results of operations.

The telecommunications equipment industry is characterized by vigorous
protection and pursuit of intellectual property rights. From time to time, the
Company has received, and may continue to receive in the future, notices of
claims of infringement of other parties' proprietary rights. There can be no
assurance that the Company will prevail in actions alleging infringement by
the Company of third-party patents or the invalidity of the patents held by
the Company will not be asserted or prosecuted against the Company, or that
any assertions of infringement or prosecutions seeking to establish the
invalidity of Company-held patents will not materially and adversely affect
the Company's business, financial condition and results of operations. For
example, in a patent or trade secret action, an injunction could issue against
the Company requiring that the Company withdraw certain products from the
market or necessitating that certain products offered for sale or under
development be redesigned. The Company has also entered into certain
indemnification obligations in favor of its customers and strategic partners
that could be triggered upon an allegation or finding of the Company's
infringement of other parties' proprietary rights. Irrespective of the
validity or successful assertion of such claims, the Company would likely
incur significant costs and diversion of its resources with respect to the
defense of such claims, which could also have a material adverse effect on the
Company's business, financial condition and results of operations. To address
any potential claims or actions asserted against it, the Company may seek to
obtain a license under a third party's intellectual property rights. There can
be no assurance that under such circumstances a license would be available on
commercially reasonable terms, if at all.

Substantial inventories of intellectual property are held by a few industry
participants, such as Lucent Technologies Inc., Northern Telecom Limited and
certain major universities and research laboratories. This concentration of
intellectual property in the hands of a few major entities also poses certain
risks to the Company in seeking to hire qualified personnel. The Company has
on a few occasions recruited such personnel from such entities. There can be
no assurance that these entities or others will not claim the misappropriation
or infringement of their intellectual property, particularly when and if
employees of these entities leave to work for the Company. There can be no
assurance that the Company will be able to avoid litigation in the future,
particularly if new employees join the Company after having worked for a
competing company. Such litigation could be very expensive to defend,
regardless of the merits of the claims, and could have a material adverse
effect on the Company's business, financial condition and results of
operations.

RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS AND STRATEGIC INVESTMENTS

The Company expects to review acquisition and strategic investment prospects
that would complement its existing product offerings, augment its market
coverage, secure supplies of critical

14
<PAGE>

materials or enhance its technological capabilities. Although the Company has
no current agreements with respect to any material acquisitions or
investments, the Company may make acquisitions of or investments in
businesses, products or technologies in the future. From time to time, the
Company has considered increasing its ownership interest in a joint venture
with its German distributor, AMS OptoTech GmbH ("AMS"), from its current level
of 40%. AMS owns the other 60%. Future acquisitions or investments by the
Company, including an increase in ownership interests in joint ventures, could
result in potentially dilutive issuances of equity securities, large one-time
write-offs, the incurrence of debt and contingent liabilities and amortization
expenses related to goodwill and other intangible assets.

Furthermore, acquisitions entail numerous risks, including difficulties in
the assimilation of operations, personnel, technologies, products and the
information systems of the acquired companies, diversion of management's
attention from other business concerns, the diversion of resources from the
Company's existing businesses, products or technologies, risks of entering
geographic and business markets in which the Company has no or limited prior
experience and the potential loss of key employees of acquired organizations.
The Company has not made any material acquisitions in the past. No assurance
can be given as to the ability of the Company to successfully integrate any
businesses, products, technologies or personnel that might be acquired in the
future. The failure of the Company to do so could have a material adverse
effect on the Company's business, financial condition and results of
operations.

ENVIRONMENTAL AND DISASTER RISKS

The Company owns its facilities in San Jose and recently purchased five
acres of vacant land near these facilities. Although the Company believes that
it has complied with all applicable environmental regulations in connection
with its land purchases, there can be no assurance that the Company will not
be required to undertake environmental remediation in order to comply with
current or future environmental laws. The cost of any remedial actions or the
paying of penalties or damages for environmental matters, regardless of fault,
could have a material adverse effect on the Company's business, financial
condition and results of operations.

The Company is subject to extensive federal, state and local environmental
laws, rules, regulations and ordinances that govern activities or operations
that may have adverse environmental effects, such as discharges to air and
water, as well as handling and disposal practices for solid and hazardous
wastes, and impose liability for the costs of cleaning up, and certain damages
resulting from, past spills, disposals or other releases of hazardous
substances (together, "Environmental Laws"). The Company handles small amounts
of hazardous materials as part of its manufacturing activities and its
facilities are located in close proximity to semiconductor manufacturers and
other companies which routinely handle hazardous substances. Although the
Company endeavors to handle all such materials in compliance with applicable
law, penalties or damages for violations of Environmental Laws relating to the
Company's handling of these materials, or for liability under any other
Environmental Laws, could have a material adverse effect on the Company's
business, financial condition and results from operations.

The Company's facilities, which are located in a seismically active area,
are susceptible to damage from earthquakes as well as from fire, floods, power
loss, telecommunications failures and similar events. The Company does not
currently have a disaster recovery plan in effect to respond to these events.
The occurrence of any of these events could significantly disrupt the
Company's operations and would have a material adverse effect on the Company's
business, financial condition and results of operations.

15
<PAGE>

YEAR 2000 COMPLIANCE

Many currently installed computer systems, software products and other
control devices are coded to accept only two digit entries in the date code
fields, which will need to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, many companies' computer
systems, software products and control devices may need to be upgraded or
replaced in order to comply with such "Year 2000" requirements. The Company
relies on its systems, applications and control devices in operating and
monitoring all major aspects of its business. The Company recently installed
new Enterprise Resource Planning software at a cost of approximately $1.0
million which the Company believes is Year 2000 compliant. With respect to its
own systems, the Company relies on the representations of its primary software
vendors that their products are Year 2000 compliant. Based in part on these
representations, the Company believes its other systems, software and devices
are also Year 2000 compliant. Nonetheless, the Company is in the process of
reviewing the effect of Year 2000 issues on its other systems, software and
devices and expects to complete the review by the end of calendar 1998. The
noncompliance of the Company's systems, software and devices could severely
disrupt the Company's operations and have a material adverse affect on its
business, financial condition and results of operations.

The Company also relies, directly and indirectly, on external systems of its
customers, suppliers, creditors, financial organizations, utilities providers
and governmental entities, both domestic and international. None of these
systems are under the control of the Company. Consequently, the Company could
be affected through disruptions in the operations of the enterprises with
which the Company interacts. Furthermore, the purchasing frequency and volume
of customers or potential customers may be affected by Year 2000 issues as
companies expend significant resources to make their current systems Year 2000
compliant. Certain of the Company's customers have requested information from
the Company concerning its exposure to Year 2000 problems, the steps it has
taken to resolve any Year 2000 problems and what level of management attention
is being focused on the issue. Similarly, the Company has sent inquiries to
certain of its suppliers requesting substantially the same information from
them. The Company has received representations from certain of its suppliers
as to the Year 2000 compliance of their systems and products. If the Company's
customers encounter Year 2000 problems that prevent their products from
functioning properly, these customers may be forced to devote significant
resources to fixing these problems and may reduce or suspend the manufacture
of new telecommunications equipment during such time. As a result, the
Company's sales of fiber optic components to these customers could be
materially and adversely affected. In addition, if the Company's suppliers,
particularly its sole-source suppliers, are unable to manufacture or deliver
supplies to the Company as a result of Year 2000 problems, the Company's
ability to manufacture and sell its products would be materially and adversely
affected. The Company does not currently have in place any contingency plans
for its operations if Year 2000 issues are not resolved in time or go
undetected. The incomplete or untimely resolution of any of these issues could
have a material adverse effect on the Company's business, financial condition
and results of operations.

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS

Sales of a substantial number of shares of Common Stock after the offering
could adversely affect the market price of the Common Stock and could impair
the Company's ability to raise capital through the sale of equity securities.
Upon completion of the offering, the Company will have outstanding 61,428,649
shares of Common Stock, assuming no exercise of the Underwriters' over-
allotment option or stock options after November 2, 1998. All of the 4,000,000
shares offered hereby (4,600,000 shares if the Underwriters' over-allotment
option is exercised in full) will be freely tradable without restriction or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"), unless purchased by "affiliates" of the Company as that
term is defined in Rule 144 under the Securities Act ("Rule 144") described
below. The remaining 57,428,649 shares of Common Stock outstanding upon the
closing of this offering (assuming no exercise of the Underwriters' over-
allotment option) will be "restricted securities" as that term is defined in
Rule 144.

16
<PAGE>

Restricted securities 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 promulgated under the Securities Act. As a result of the contractual
restrictions described below and the provisions of Rules 144, 144(k) and 701,
additional shares will be available for sale in the public market as follows:
57,428,649 shares will become eligible for sale upon expiration of the lock-up
agreements between stockholders of the Company and the representatives of the
Underwriters or the Company following the expiration of 180 days from the date
of this Prospectus, 52,606,111 of which shares shall initially be subject to
the volume and manner of sale restrictions under Rule 144. In addition to the
foregoing, as of November 2, 1998, there were options outstanding under the
Company's 1997 Equity Incentive Plan and 1997 Executive Equity Incentive Plan
(the "Plans") to purchase an aggregate of 4,652,992 shares of Common Stock, of
which options to purchase 1,086,787 shares were vested. As of November 2,
1998, no shares have been issued under the 1998 Director Option Plan, the 1998
Employee Stock Purchase Plan or the 1998 Stock Plan. The shares underlying
such options will be eligible for sale upon expiration of the lock-up
provisions contained in the plans following the expiration of 180 days from
the date of this Prospectus, subject in certain cases to such shares
underlying outstanding options becoming eligible for sale more than 180 days
after the date of this Prospectus as such options vest. The Company has agreed
not to release shares from these lock-up provisions without the prior written
consent of Goldman, Sachs & Co. In addition, the Company intends to register,
following this offering, the sale of shares of Common Stock subject to
outstanding options or reserved for issuance under the Company's new and
existing plans, thereby permitting the resale of such shares by nonaffiliates
in the public market without restriction under the Securities Act. Further,
certain stockholders holding approximately 54,025,000 shares of Common Stock
are generally entitled to demand registration of their shares of Common Stock
following the expiration of 180 days from the date of this Prospectus as well
as to "piggy-back" on certain registration statements filed by the Company in
the future. By exercising their demand registration rights, such stockholders
could cause a large number of securities to be registered and sold in the
public market, which could have an adverse effect on the market price of the
Common Stock. See "Management--Stock Plans," "Underwriting," "Shares Eligible
for Future Sale" and "Description of Capital Stock--Registration Rights."

NO PRIOR TRADING MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF STOCK
PRICE

Prior to this offering, there has been no public market for the Common Stock
of the Company. The initial public offering price will be determined by
negotiations among the Company and the representatives of the Underwriters and
may not be indicative of the price that will prevail on the open market. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. There can be no assurance that an active
public market will develop or be sustained after this offering or that the
market price of the Common Stock will not decline below the initial public
offering price. Future announcements concerning the Company or its
competitors, quarterly or annual variations in operating results,
announcements of technological innovations, the introduction of new products
or changes in product pricing policies by the Company or its competitors,
proprietary rights or product liability litigation or changes in earnings
estimates by analysts could cause the market price of the Common Stock to
fluctuate substantially. In addition, the stock market has from time to time
experienced significant price and volume fluctuations that have particularly
affected the market prices for the securities of technology companies. In the
past, following periods of volatility in the market price of a particular
company's securities, securities class action litigation has often been
brought against such company. There can be no assurance that such litigation
will not occur in the future with respect to the Company. Such litigation
could result in substantial costs and a diversion of management's attention
and resources, which could have a material adverse effect upon the Company's
business, operating results and financial condition.

17
<PAGE>

CONTROL BY EXISTING STOCKHOLDERS

The Company's founders, officers, directors and their affiliates will, in
the aggregate, beneficially own approximately 85.6% of the Company's
outstanding shares after this offering (84.8% if the Underwriters' over-
allotment option is exercised in full). The Company's founders, Theresa Pan
and Jing Jong Pan, will collectively own 32.6% of the Company's outstanding
shares after this offering, and the Company's principal investor, Summit/E-Tek
Holdings, L.L.C., will own 44.0% of such shares after this offering (32.2% and
43.5%, respectively, 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 the stockholders of the Company,
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 of the Company, or causing a change in control of the
Company which may not be favored by the Company's other stockholders. See
"Principal Stockholders."

DISCRETIONARY USE OF PROCEEDS

Of the net proceeds to the Company from the offering, estimated at
approximately $32.5 million ($37.5 million if the Underwriters' over-allotment
is exercised in full), a substantial portion will be used for general
corporate purposes and have not been designated for any particular purpose.
Accordingly, the Company will have broad discretion as to the application of
such proceeds. See "Use of Proceeds."

EFFECT OF CERTAIN CHARTER, BYLAW AND OTHER PROVISIONS

Certain provisions of the Company's Certificate of Incorporation (the
"Certificate of Incorporation") and bylaws could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, control of the Company. In addition, the Company
licenses technology from certain third parties pursuant to licenses that
contain provisions restricting or eliminating the Company's rights to use the
technology following an acquisition of the Company. Any of the foregoing
provisions could limit the price that certain investors might be willing to
pay in the future for shares of the Company's Common Stock. The Certificate of
Incorporation and bylaws allow the Company 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. See "Description of Capital
Stock."

ABSENCE OF DIVIDENDS; IMMEDIATE AND SUBSTANTIAL DILUTION

The Company currently intends to retain any future earnings to fund its
growth and, therefore, does not anticipate paying any dividends in the
foreseeable future. Purchasers of the Common Stock offered hereby will suffer
immediate and substantial dilution of $7.56 per share in the net tangible book
value of the Common Stock from the initial public offering price (at an
assumed initial public offering price of $9.00 per share). To the extent
outstanding options to purchase the Company's Common Stock are exercised,
there will be further dilution. See "Dividend Policy," "Dilution" and "Shares
Eligible for Future Sale."

18
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 4,000,000 shares of
Common Stock offered hereby are estimated to be approximately $32.5 million at
an assumed initial public offering price of $9.00 per share, after deducting
the underwriting discount and estimated offering expenses ($37.5 million if
the Underwriters' over-allotment option is exercised in full).

The Company intends to utilize the net proceeds from this offering for
working capital and general corporate purposes, including capital expenditures
of up to $32.0 million to support manufacturing, product development, and
selling, general and administrative activities. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources." A portion of the proceeds may also be used to acquire or
invest in complementary businesses or products or to obtain the right to use
complementary technologies. From time to time, in the ordinary course of
business, the Company evaluates potential acquisitions of or investments in
such businesses, products or technologies. However, the Company has no present
understandings, commitments or agreements with respect to any material
acquisition of or strategic investment in other businesses, products or
technologies. Pending use of the net proceeds for any purposes, the Company
intends to invest such funds in short-term, interest-bearing, investment grade
obligations.

DIVIDEND POLICY

The Company has never paid or declared any cash dividends on its Common
Stock or on its Convertible Preferred Stock. It is the present policy of the
Company to retain earnings to finance the growth and development of the
business and, therefore, the Company does not anticipate declaring or paying
cash dividends on its Common Stock in the foreseeable future. In addition, the
Company's line of credit restricts the Company from paying cash dividends on
its capital stock without the lender's prior consent.

19
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
October 2, 1998 (i) on an actual basis, (ii) on a pro forma basis to reflect
the conversion of all outstanding shares of Convertible Preferred Stock into
30,000,000 shares of Common Stock upon the closing of this offering and the
reincorporation of the Company in Delaware and (iii) as adjusted to reflect
the sale of 4,000,000 shares of Common Stock offered by the Company hereby (at
an assumed initial public offering price of $9.00 per share) and the
application of the estimated net proceeds therefrom. This table should be read
in conjunction with the Company's Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
OCTOBER 2, 1998
-------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Capital lease obligations, net of current
portion........................................ $ 3,247 $ 3,247 $ 3,247
------- -------- ---------
Long-term debt, net of current portion.......... 11,604 11,604 11,604
------- -------- ---------
Mandatorily Redeemable Convertible Preferred
Stock, no par value, 30,000,000 shares
authorized, 30,000,000 shares issued and
outstanding (actual); no shares authorized,
issued and outstanding (pro forma and as
adjusted)(1)................................... 127,544 -- --
------- -------- ---------
Stockholders' equity:
Preferred Stock, none authorized, issued and
outstanding (actual); $0.01 par value,
25,000,000 shares authorized, none issued and
outstanding (pro forma and as adjusted)....... -- -- --
Common Stock, no par value, 65,000,000 shares
authorized, 27,430,726 shares issued and
outstanding (actual); $0.001 par value,
300,000,000 shares authorized, 57,430,726
shares issued and outstanding (pro forma);
$0.001 par value, 300,000,000 shares
authorized, 61,430,726 shares issued and
outstanding (as adjusted)(2)(3)............... 22,159 149,703 182,183
Notes receivable from stockholders............. (15,369) (15,369) (15,369)
Deferred compensation.......................... (6,106) (6,106) (6,106)
Distribution in excess of net book value....... (83,901) (83,901) (83,901)
Retained earnings.............................. 11,774 11,774 11,774
------- -------- ---------
Total stockholders' equity (deficit)........... (71,443) 56,101 88,581
------- -------- ---------
Total capitalization............................ $70,952 $ 70,952 $ 103,432
======= ======== =========
</TABLE>
- --------
(1) See Note 6 of Notes to Consolidated Financial Statements.
(2) See Note 8 of Notes to Consolidated Financial Statements.

(3) Excludes 7,569,274 shares of Common Stock reserved for issuance under the
Company's 1997 Equity Incentive Plan and 1997 Executive Equity Incentive
Plan, under which options to purchase 4,313,742 shares at a weighted
average exercise price of $5.94 were outstanding as of October 2, 1998.
See "Management--Stock Plans" and Note 8 of Notes to Consolidated
Financial Statements.

20
<PAGE>

DILUTION

The pro forma net tangible book value of the Company as of October 2, 1998,
was $56.1 million, or approximately $0.98 per share of Common Stock. Pro forma
net tangible book value per share represents the amount of the Company's pro
forma stockholders' equity, divided by 57,430,726 pro forma shares of Common
Stock outstanding as of October 2, 1998. The preceding pro forma information
gives effect to the conversion of the Company's Convertible Preferred Stock
into 30,000,000 shares of Common Stock. Assuming the sale by the Company of
4,000,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $9.00 per share and receipt of the estimated net proceeds
therefrom, the pro forma adjusted net tangible book value of the Company as of
October 2, 1998 would have been approximately $88.6 million or $1.44 per
share. This represents an immediate increase in such net tangible book value
of $0.46 per share to existing stockholders and an immediate dilution of $7.56
per share to new investors. The following table illustrates this per share
dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $9.00
Pro forma net tangible book value per share as of October 2,
1998............................................................ $0.98
Increase per share attributable to new investors................. 0.46
-----
Pro forma net tangible book value per share after the offering..... 1.44
-----
Dilution per share to new investors................................ $7.56
=====
</TABLE>

The following table summarizes, on an adjusted basis as of October 2, 1998,
after giving effect to the conversion of the Company's Convertible Preferred
Stock into Common Stock, the difference between the total number of shares of
Common Stock purchased from the Company, the total consideration paid to the
Company and the average price per share paid by existing stockholders and by
new investors (at an assumed initial public offering price of $9.00 per share
and without giving effect to the underwriting discount and estimated offering
expenses):

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ -------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing
stockholders(1)(2)....... 57,430,726 93.5% $116,382,000 76.4% $2.03
New investors(2).......... 4,000,000 6.5 36,000,000 23.6 9.00
---------- ----- ------------ -----
Total................... 61,430,726 100.0% $152,382,000 100.0%
========== ===== ============ =====
</TABLE>
- --------

(1) Excludes 7,569,274 shares of Common Stock reserved for issuance under the
Company's 1997 Equity Incentive Plan and 1997 Executive Equity Incentive
Plan, under which options to purchase 4,313,742 shares at a weighted
average exercise price of $5.94 were outstanding as of October 2, 1998.
See "Management--Stock Plans" and Note 8 of Notes to Consolidated
Financial Statements.

(2) If the Underwriter's over-allotment option is exercised in full, the
number of shares held by new investors will increase to 4,600,000 shares,
or approximately 7.4% of the total number of shares to be outstanding
after this offering and the number of shares held by existing stockholders
will decrease to 92.6% of the total number of shares to be outstanding
after this offering.

21
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements
and the Notes thereto included elsewhere in this Prospectus. The consolidated
statement of operations data for the fiscal years ended June 30, 1996, 1997
and 1998, and the consolidated balance sheet data at June 30, 1997 and 1998
are derived from audited Consolidated Financial Statements included herein.
The consolidated statement of operations data for the fiscal year ended June
30, 1995 and the consolidated balance sheet data at June 30, 1995 and 1996
have been derived from audited Consolidated Financial Statements not included
herein. The consolidated statement of operations data for the fiscal year
ended June 30, 1994 and the Consolidated Balance Sheet at June 30, 1994 have
been derived from unaudited Consolidated Financial Statements not included
herein. The selected consolidated financial data as of October 2, 1998 and for
the fiscal quarters ended September 30, 1997 and October 2, 1998 are derived
from the unaudited Consolidated Financial Statements included elsewhere
herein. In the opinion of management, such unaudited financial statements have
been prepared on the same basis as the audited financial statements referred
to above and include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the Company's results of
operations for the indicated periods. Operating results for the fiscal quarter
ended October 2, 1998 are not necessarily indicative of the results that may
be expected for the fiscal year ending June 30, 1999 or any other future
period.

<TABLE>
<CAPTION>
FISCAL QUARTER
FISCAL YEAR ENDED JUNE 30, ENDED
-------------------------------------------- ------------------
SEPT. 30, OCT. 2,
1994 1995 1996 1997 1998 1997 1998(4)
------- ------- ------- ------- -------- --------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net revenues............ $14,590 $31,661 $40,382 $73,076 $106,924 $ 27,309 $32,942
Cost of goods sold...... 5,698 10,452 14,712 30,599 49,063 11,893 15,989
------- ------- ------- ------- -------- -------- -------
Gross profit........... 8,892 21,209 25,670 42,477 57,861 15,416 16,953
------- ------- ------- ------- -------- -------- -------
Operating expenses:
Research and
development........... 2,116 2,270 2,444 3,953 7,702 1,655 3,076
Selling, general and
administrative........ 3,279 6,697 8,773 15,290 21,097 5,198 5,395
------- ------- ------- ------- -------- -------- -------
Total operating
expenses............ 5,395 8,967 11,217 19,243 28,799 6,853 8,471
------- ------- ------- ------- -------- -------- -------
Operating income........ 3,497 12,242 14,453 23,234 29,062 8,563 8,482
Interest income......... 36 84 408 962 1,992 353 588
Interest expense........ (33) (54) (66) (571) (988) (171) (285)
------- ------- ------- ------- -------- -------- -------
Income before income
taxes.................. 3,500 12,272 14,795 23,625 30,066 8,745 8,785
Provision for income
taxes.................. 1,570 4,566 5,524 8,477 12,142 3,499 3,514
------- ------- ------- ------- -------- -------- -------
Net income.............. 1,930 7,706 9,271 15,148 17,924 5,246 5,271
Convertible Preferred
Stock accretion(1)..... -- -- -- -- 9,021 1,842 2,400
------- ------- ------- ------- -------- -------- -------
Net income available to
Common
Stockholders(2)........ $ 1,930 $ 7,706 $ 9,271 $15,148 $ 8,903 $ 3,404 $ 2,871
======= ======= ======= ======= ======== ======== =======
Net income per share:
Basic(3)............... $ 0.04 $ 0.15 $ 0.19 $ 0.30 $ 0.39 $ 0.12 $ 0.13
Diluted(3)............. 0.04 0.15 0.19 0.30 0.32 0.10 0.09
Shares used in net
income per share
calculations:
Basic(3)............... 50,000 50,000 50,000 50,000 22,970 28,073 22,037
Diluted(3)............. 50,000 50,000 50,000 50,000 55,561 51,922 58,573
<CAPTION>
JUNE 30,
-------------------------------------------- OCT. 2,
1994 1995 1996 1997 1998 1998(4)
------- ------- ------- ------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash
equivalents............ $ 59 $ 3,992 $ 8,026 $ 8,259 $ 21,918 $ 36,584
Working capital......... 2,524 9,464 18,342 27,706 33,582 38,379
Total assets............ 7,409 16,665 26,709 61,760 90,378 102,284
Long-term obligations,
net of current
portion................ -- -- -- 9,577 13,808 14,851
Mandatorily Redeemable
Convertible Preferred
Stock(1)............... -- -- -- -- 125,144 127,544
Stockholders' equity
(deficit).............. 3,974 11,680 20,951 36,099 (74,498) (71,443)
</TABLE>
- -------

(1) See Note 6 of Notes to Consolidated Financial Statements for a
description of the Mandatorily Redeemable Preferred Stock and related
accretion.

(2) The Company has never paid or declared any cash dividends on its Common
Stock.

(3) See Note 7 of Notes to Consolidated Financial Statements for the methods
used to calculate the net income per share and the number of shares used
in the net income per share calculations.

(4) Commencing on July 1, 1998, the Company changed its fiscal quarter end to
the Friday that is closest to the end of the calendar quarter (October 2
for the first quarter in fiscal 1999). The fiscal quarter ended October
2, 1998 included 94 days compared to 92 days in the fiscal quarter ended
September 30, 1997. The Company's fiscal year end remained unchanged.

22
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the
information included elsewhere in this Prospectus. The information in this
Prospectus contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from the
results discussed in the forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
Prospectus.

OVERVIEW

The Company designs, packages, manufactures and sells high quality passive
components for fiber optic networks. E-Tek was incorporated in Florida in May
1983, reincorporated in California in 1987 and will be reincorporated in
Delaware prior to the effective date of this offering. The Company has been
profitable for the last five years, and has focused on providing optical
components for the telecommunications industry since 1989. In July 1997, the
Company underwent a recapitalization in which it sold a controlling stake in
the Company through the issuance of Convertible Preferred Stock which has
significant rights and preferences over the Common Stock, including the right
to elect a majority of the Company's directors, cumulative dividends and a
liquidation preference. In connection with the recapitalization, the Company
also repurchased Common Stock from the Company's founders. In late calendar
1997, E-Tek hired a number of new executive officers, including its Chief
Executive Officer and Chief Financial Officer, to lead the Company in
anticipation of future growth and expansion.

The Company generates revenues primarily from the sale of components and
modules. Revenue from product sales is generally recognized at the time the
product is shipped, with provisions established for estimated product returns
and allowances. A relatively small number of telecommunications equipment
manufacturers have accounted for a significant portion of the Company's
revenue to date. This has historically resulted in an uneven order flow driven
by fluctuating demand for the Company's products. In addition, the Company's
sales have been affected by a seasonal decrease in demand in the last quarter
of each calendar year.

The fiber optic components industry is characterized by declining ASPs
resulting from such factors as increased competition and increasing unit
volumes as telecommunication service providers continue to deploy and expand
fiber optic networks. Cost and component size reductions driven by advances in
component technology and manufacturing efficiencies, as well as the increasing
integration of components, are expected to accelerate the rate of growth in
existing optical components markets and enable new markets such as
metropolitan area networks. As a result, telecommunications equipment
manufacturers are increasingly demanding high volume manufacture of low cost,
high performance, integrated components.

The Company is engaged in continuing efforts to expand its manufacturing
capabilities to address historical capacity constraints and anticipated unit
volume growth. Beginning in December 1997, the Company increased the size of
its San Jose facility from approximately 90,000 square feet to approximately
160,000 square feet and purchased approximately $7 million of capital
equipment. The Company increased its number of manufacturing employees from
396 in December 1997 to 634 in October 1998. In addition, the Company has
recently entered into a joint venture with a Taiwanese company (the "FibX
Joint Venture") to build and operate a fiber optic component manufacturing
facility in Taiwan. The Company anticipates it will begin manufacturing
certain of its mature products at the FibX facility in 1999.

In fiscal 1998 and in the first quarter of fiscal 1999, the Company derived
approximately 53.4% and 51.1%, respectively, of its revenues from sales to
customers outside the United States, principally in Europe. All sales are
denominated in U.S. dollars and the Company had no foreign exchange exposures
at June 30, 1998.

23
<PAGE>

Commencing on July 1, 1998, the Company changed its fiscal quarter end to
the Friday that is closest to the end of the calendar quarter (October 2 for
the first quarter in fiscal 1999). The fiscal quarter ended October 2, 1998
included 94 days compared to 92 days in the fiscal quarter ended September 30,
1997. The Company's fiscal year end remained unchanged.

Fluctuations in the Company's operating results have occurred in the past
and are likely to occur in the future due to a variety of factors, any of
which may have a material adverse effect on the Company's operating results.
In particular, the Company's quarterly and annual results of operations have
in the past varied and may in the future vary significantly due to general
business conditions in the fiber optic equipment industry, customer
concentration, seasonal fluctuations in demand, changes in demand for the
products of the Company's customers, changes in the mix of products sold by
the Company, the timing and amount of orders from the Company's customers,
cancellations or delays of customer product orders, new product introductions
by the Company or its competitors, cancellations, changes or delays of
deliveries of products to the Company by its suppliers, increases in the costs
of products from the Company's suppliers, fluctuations in product life cycles,
decline in ASPs, competition, changes in the Company's manufacturing capacity,
loss of or reduction in sales by sales representatives and distributors,
intellectual property disputes and general economic conditions. Since a large
portion of the Company's operating expenses, including salaries and
depreciation, is fixed and difficult to reduce, the material adverse effect of
any revenue shortfall will be magnified by the fixed nature of these operating
expenses. All of the above factors are difficult for the Company to forecast,
and these and other factors could have a material adverse effect on the
Company's business, financial condition and results of operations. In
addition, the Company's visibility regarding future customer demand is
limited. As a result of all of the foregoing, there can be no assurance that
the Company will be able to sustain profitability on a quarterly or an annual
basis. Moreover, the Company believes that period to period comparisons are
not necessarily meaningful and should not be relied upon as indicative of
future operating results. The Company's operating results in a future quarter
or quarters are likely to fall below the expectations of public market
analysts or investors. In such event, the price of the Company's Common Stock
will likely be materially adversely affected.

DEFERRED COMPENSATION EXPENSE

Through October 2 1998, the Company recorded aggregate deferred stock
compensation of approximately $2.5 million in connection with the issuance of
stock options to employees. This deferred compensation, representing the
difference between the deemed fair value of the Company's Common Stock and the
exercise price of the stock options at the date of grant, is amortized on a
straight-line basis over the vesting period, which is generally 48 months. The
Company recognized approximately $135,000 and $290,000 in deferred stock
compensation expense during the fiscal quarter ended October 2, 1998 and
during fiscal 1998, respectively. The Company expects amortization of
approximately $540,000 during each of the next four fiscal years.

During fiscal 1998, under the Company's stock option plans, the Company
issued 7,211,000 shares of Common Stock to employees and officers of the
Company in exchange for promissory notes in an aggregate principal amount of
$18,215,000. Because the notes do not bear interest, the $18,215,000 face
value was discounted using a 6% interest rate to $13,615,000 with the
difference recorded as deferred compensation cost. As this cost is expensed,
it will be offset by a corresponding non-cash interest income benefit,
resulting in no net effect on pre-tax or net income. During the fiscal quarter
ended October 2, 1998 and fiscal 1998, the Company recognized $241,000 and
$600,000, respectively, in employee compensation expense, which was offset by
the same amounts in imputed interest income. In fiscal 1999 the Company
expects to recognize approximately $1.0 million in offsetting compensation
expense and interest income.

These amortization amounts will be allocated to cost of goods sold, research
and development, and selling, general and administrative expenses based on the
applicable job function of each optionee.

24
<PAGE>

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentages
of net revenues represented by certain items reflected in the Company's
Consolidated Statement of Operations:

FISCAL YEARS ENDED JUNE 30, 1996, 1997 AND 1998

NET REVENUES. Net revenues increased 46.2% to $106.9 million for fiscal 1998
from $73.1 million for fiscal 1997, and increased 80.9% in fiscal 1997 from
$40.4 million for fiscal 1996. The net revenue increases were primarily due to
increased unit shipments of the Company's isolators, WDM components and
modules, micro-optic integrated components, and couplers, and in fiscal 1998,
also due to substantial growth in sales of products for submarine
applications. Higher unit volumes contributed to 73.5% of the increase in net
revenues whereas unit price increases contributed 26.5%. While ASPs for
certain components declined, these declines were offset by a change in product
mix towards more integrated and higher priced units. A relatively small number
of customers have accounted for a significant portion of the Company's total
revenue to date, and the Company expects that this trend will continue for the
foreseeable future. Sales to the Company's three largest customers, Alcatel,
Pirelli and Corning, accounted for approximately 30.2%, 16.5% and 14.3%
respectively, of the Company's net revenues in fiscal 1998.

GROSS PROFIT. Gross profit increased 36.2% to $57.9 million for fiscal 1998
from $42.5 million for fiscal 1997, and increased 65.5% in fiscal 1997 from
$25.7 million for fiscal 1996. Cost of goods sold consists of raw material
costs, direct labor costs, warranty costs, royalties and overhead related to
the Company's manufacturing operations. Gross profit margins declined from
63.6% for fiscal 1996 to 58.1% for fiscal 1997 and to 54.1% for fiscal 1998.
Gross profit margins declined during these periods primarily due to declining
ASPs and the Company's substantial expansion of its manufacturing capacity to
address historical capacity constraints and anticipated unit volume growth.
The Company's gross profit margins have fluctuated in the past and will
continue to fluctuate in the future. The Company expects its gross profit
margins to decline in the near future due to industry-wide pricing pressure.
The Company's gross profit margins have and will continue to fluctuate based
on the level of revenue attained, given the significant fixed costs associated
with its manufacturing operations. The Company's gross margins in the future
may be affected by a number of factors, including levels of revenue achieved,
market pricing, manufacturing volumes, efficiencies and yields, fluctuations
in the availability and price of raw materials, product mix and labor costs.

25
<PAGE>

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses consist
of compensation costs for research and development staff, depreciation of
equipment, prototype materials and overhead allocations for facilities and
services. Research and development expenses were $7.7 million, $4.0 million
and $2.4 million for fiscal 1998, 1997 and 1996, respectively, representing
7.2%, 5.4% and 6.1% of net revenues, respectively. The increase for
expenditures over this period was primarily due to the Company's investment in
the development of new products and product enhancements and an increase in
personnel. The Company expects to continue to make substantial investments in
research and development and anticipates that research and development
expenses will continue to increase in fiscal 1999 in absolute dollars. To
date, the Company has not capitalized any research and development costs.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses consist of compensation costs for selling, general and
administrative staff, sales commissions, travel expenses, marketing staff and
programs, professional services, accounting, human resources, executive
management and consulting. Selling, general and administrative expenses were
$21.1 million, $15.3 million and $8.8 million for fiscal 1998, 1997 and 1996,
respectively, representing 19.7%, 20.9% and 21.7% of net revenues,
respectively. The absolute increase in expenditures over this period reflected
the hiring of additional selling, marketing and administrative personnel and
increased commissions paid on higher revenues, as well as the amortization of
deferred compensation expense described above. The Company anticipates that
its selling, general and administrative expenses will increase in absolute
dollars during fiscal 1999 as additional personnel are hired and commissions
increase, but may vary as a percentage of net revenues depending on the
Company's future net revenues.

INTEREST INCOME AND INTEREST EXPENSE. The Company's interest income was
approximately $2.0 million, $1.0 million and $408,000 for fiscal 1998, 1997
and 1996, respectively. The Company earns interest income on its short-term
investments. In addition, the Company recognized imputed interest income in
fiscal 1998 of $600,000 related to notes receivable from stockholders.
Interest expense, incurred on borrowings secured by the Company's real
property and on capital leases, was $988,000, $571,000 and $66,000 for fiscal
1998, 1997 and 1996, respectively.

PROVISION FOR INCOME TAXES. The Company's combined federal and state income
tax rate was approximately 40%, 36% and 37% in fiscal 1998, 1997 and 1996,
respectively. The effective income tax rate for fiscal 1998 is higher than the
rates for fiscal 1997 and fiscal 1996 because of a permanent tax difference
related to the Company's investment in the FibX Joint Venture. This permanent
difference is a result of a license fee from the FibX Joint Venture for
certain technology, which is recognized as revenue for income tax purposes but
not for financial reporting purposes.

FISCAL QUARTERS ENDED SEPTEMBER 30, 1997 AND OCTOBER 2, 1998

NET REVENUES. Net revenues increased 20.6% from $27.3 million for the fiscal
quarter ended September 30, 1997 to $32.9 million for the fiscal quarter ended
October 2, 1998. The increase in net revenues reflected higher unit shipments
of the Company's isolators, WDM components and modules, micro-optic integrated
components, and couplers and substantial growth in sales of products for
submarine applications. While ASPs for certain components declined, these
declines were offset by a change in product mix towards more integrated and
higher priced units, such as those used in submarine applications.

GROSS PROFIT. Gross profit increased 10.0% to $17.0 million for the fiscal
quarter ended October 2, 1998 from $15.4 million for the fiscal quarter ended
September 30, 1997. Gross profit margins declined from 56.5% to 51.5% during
these periods, primarily due to declining ASPs and the additional depreciation
on capital expenditures and other costs associated with the Company's
expansion of its manufacturing capacity.

26
<PAGE>

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 85.9% from $1.7 million for the fiscal quarter ended September 30,
1997 to $3.1 million for the fiscal quarter ended October 2, 1998. The
increase was primarily due to the hiring of additional engineers and the
purchase of materials and depreciation on equipment used to develop new
products and to enhance existing products.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 3.8% from $5.2 million for the fiscal
quarter ended September 30, 1997 to $5.4 million for the fiscal quarter ended
October 2, 1998. The increase was primarily due to the hiring of additional
selling, general and administrative personnel to support the Company's growth.

INTEREST INCOME AND INTEREST EXPENSE. Interest income increased from
$353,000 in the fiscal quarter ended September 30, 1997 to $588,000 in the
fiscal quarter ended October 2, 1998, primarily due to recognizing the imputed
interest income of $241,000 related to notes receivable from stockholders.
Interest expense increased from $171,000 in the fiscal quarter ended September
30, 1997 to $285,000 in the fiscal quarter ended October 2, 1998, reflecting a
higher level of borrowings.

27
<PAGE>

QUARTERLY RESULTS OF OPERATIONS

The following tables set forth unaudited quarterly results for the seven
fiscal quarters ended October 2, 1998, as well as such data expressed as a
percentage of the Company's net revenues for each quarter. This information
has been presented on the same basis as the audited Consolidated Financial
Statements appearing elsewhere in this Prospectus and, in the opinion of
management, includes all adjustments, consisting only of normal recurring
adjustments, that the Company considers necessary to present fairly the
unaudited quarterly results. This information should be read in conjunction
with the Company's audited Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. The operating results for any quarter
are not necessarily indicative of results for any future period. See "Risk
Factors--Fluctuations in Quarterly and Annual Results; Seasonality."

<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
-------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, OCT. 2,
1997 1997 1997 1997 1998 1998 1998
--------- -------- --------- -------- --------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $20,983 $23,886 $27,309 $25,311 $23,729 $30,575 $32,942
Cost of goods sold...... 8,791 10,089 11,893 11,155 11,182 14,833 15,989
------- ------- ------- ------- ------- ------- -------
Gross profit........... 12,192 13,797 15,416 14,156 12,547 15,742 16,953
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and
development........... 1,199 1,201 1,655 1,746 1,921 2,380 3,076
Selling, general and
administrative........ 4,441 4,991 5,198 5,112 5,168 5,619 5,395
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 5,640 6,192 6,853 6,858 7,089 7,999 8,471
------- ------- ------- ------- ------- ------- -------
Operating income........ 6,552 7,605 8,563 7,298 5,458 7,743 8,482
------- ------- ------- ------- ------- ------- -------
Interest income......... 253 292 353 428 514 697 588
Interest expense........ (254) (141) (171) (188) (112) (517) (285)
------- ------- ------- ------- ------- ------- -------
Income before income
taxes.................. 6,551 7,756 8,745 7,538 5,860 7,923 8,785
Provision for income
taxes.................. 2,351 2,784 3,499 3,014 2,439 3,190 3,514
------- ------- ------- ------- ------- ------- -------
Net income.............. 4,200 4,972 5,246 4,524 3,421 4,733 5,271
Convertible Preferred
Stock accretion........ -- -- 1,842 2,393 2,393 2,393 2,400
------- ------- ------- ------- ------- ------- -------
Net income available to
Common Stockholders.... $ 4,200 $ 4,972 $ 3,404 $ 2,131 $ 1,028 $ 2,340 $ 2,871
======= ======= ======= ======= ======= ======= =======
Net income per share:
Basic.................. $ 0.08 $ 0.10 $ 0.12 $ 0.10 $ 0.05 $ 0.11 $ 0.13
Diluted................ 0.08 0.10 0.10 0.08 0.06 0.08 0.09
Shares used in net
income per share
calculations:
Basic.................. 50,000 50,000 28,073 21,205 21,258 21,308 22,037
Diluted................ 50,000 50,000 51,922 55,007 57,222 58,092 58,573
Net revenues............ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold...... 41.9 42.2 43.5 44.1 47.1 48.5 48.5
------- ------- ------- ------- ------- ------- -------
Gross profit........... 58.1 57.8 56.5 55.9 52.9 51.5 51.5
Operating expenses:
Research and
development........... 5.7 5.0 6.1 6.9 8.1 7.8 9.3
Selling, general and
administrative........ 21.2 20.2 19.0 20.2 21.8 18.4 16.4
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 26.9 25.9 25.1 27.1 29.9 26.2 25.7
------- ------- ------- ------- ------- ------- -------
Operating income........ 31.2 31.2 31.4 28.8 23.0 25.3 25.8
Interest income......... 1.2 1.2 1.3 1.7 2.2 2.3 1.8
Interest expense........ (1.2) (0.5) (0.6) (0.7) (0.5) (1.7) (0.9)
------- ------- ------- ------- ------- ------- -------
Income before income
taxes.................. 31.2 32.6 32.1 29.8 24.7 25.9 26.7
Provision for income
taxes.................. 11.2 11.8 12.8 11.9 10.3 10.4 10.7
------- ------- ------- ------- ------- ------- -------
Net income.............. 20.0% 20.8% 19.3% 17.9% 14.4% 15.5% 16.0%
======= ======= ======= ======= ======= ======= =======
</TABLE>

28
<PAGE>

NET REVENUES. Quarterly net revenues increased in each of the three fiscal
quarters ended September 30, 1997 due to higher unit shipments of both
existing products and new products and the overall growth of the fiber optic
market. Net revenues declined in the fiscal quarters ended December 31, 1997
and March 31, 1998 primarily due to a decline in sales to Corning, as well as
a reduction in ASPs. In addition, the results for the fiscal quarter ended
December 31, 1997 were adversely affected by reduced seasonal demand for
optical components. Net revenues increased in the two fiscal quarters ended
June 30, 1998 and October 2, 1998 primarily due to increased product purchases
by Corning, an increase in product sales for submarine applications and
increasing unit shipments generally. There can be no assurance, however, that
sales to Corning will not decline again in the future.

GROSS PROFIT. Gross profit margins declined over the seven fiscal quarters
from 58.1% in the fiscal quarter ended March 31, 1997 to 51.5% in the two
fiscal quarters ended June 30, 1998 and October 2, 1998 primarily due to
declining ASPs and, beginning in December 1997, due to the increase in the
Company's manufacturing capacity. This capacity expansion has substantially
increased the Company's fixed costs, and thus the Company's gross profits
margins would be adversely affected if anticipated levels of customer sales do
not occur or are delayed.

OPERATING EXPENSES. Research and development expenses increased as a
percentage of revenues through the fiscal quarter ended October 2, 1998 as the
Company developed additional products, including associated personnel costs,
facility costs, and related project material purchases. Research and
development personnel increased to 66 at October 2, 1998 from 51 at June 30,
1998. Selling, general and administration expenses also increased in fiscal
1998 as a result of the amortization of deferred compensation costs related to
employee stock options and to non-interest bearing notes receivable from
stockholders. Selling, general and administrative expenses generally increased
as a percentage of net revenues during the same period although such expenses
declined in absolute dollars in the fiscal quarter ended December 31, 1997 due
to lower sales commissions resulting from lower revenues. These expenses also
declined in absolute dollars in the fiscal quarter ended October 2, 1998 due
to lower consulting costs.

YEAR 2000 COMPLIANCE

29
<PAGE>

issue. Similarly, the Company has sent inquiries to certain of its suppliers
requesting substantially the same information from them. The Company has
received representations from certain of its suppliers as to the Year 2000
compliance of their systems and products. If the Company's customers encounter
Year 2000 problems that prevent their products from functioning properly,
these customers may be forced to devote significant resources to fixing these
problems and may reduce or suspend the manufacture of new telecommunications
equipment during such time. As a result, the Company's sales of fiber optic
components to these customers could be materially and adversely affected. In
addition, if the Company's suppliers, particularly its sole-source suppliers,
are unable to manufacture or deliver supplies to the Company as a result of
Year 2000 problems, the Company's ability to manufacture and sell its products
would be materially and adversely affected. The Company does not currently
have in place any contingency plans for its operations if Year 2000 issues are
not resolved in time or go undetected. The incomplete or untimely resolution
of any of these issues could have a material adverse effect on the Company's
business, financial condition and results of operations.

RECAPITALIZATION

In July 1997, the Company completed a recapitalization, pursuant to which it
sold a controlling stake in the Company through the issuance of Convertible
Preferred Stock for $120 million which has significant rights and preferences
over the Common Stock, including rights to elect a majority of the Company's
directors, cumulative dividends and a liquidation preference (the
"Recapitalization"). In connection with the Recapitalization, the Company also
repurchased $120 million in Common Stock from the Company's founders. The
Company recorded Convertible Preferred Stock accretion of $9.0 million during
fiscal 1998 related to the 8% per annum dividends payable on Convertible
Preferred Stock. Upon consummation of this offering, all shares of Convertible
Preferred Stock will convert to Common Stock and there will be no additional
accretion. The amount recorded for the Convertible Preferred Stock, including
accretion to date, will be transferred to Common Stock. See "Certain
Transactions--Recapitalization" and Note 1 of Notes to the Consolidated
Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, the Company has financed its operations and met its capital
expenditure requirements primarily through cash flow from operations and
borrowings. At October 2, 1998, the Company had working capital of $38.4
million, including $36.6 million in cash and cash equivalents, compared to
working capital at June 30, 1998 of $33.6 million, including $21.9 million in
cash and cash equivalents, and compared to $27.7 million of working capital as
of June 30, 1997, including $8.3 million in cash and cash equivalents and
$10.8 million in short-term investments.

For the fiscal quarter ended October 2, 1998, the Company's operating
activities generated net cash of $9.5 million. This resulted primarily from
net income of $5.3 million, depreciation of $2.4 million and an increase in
accrued liabilities and income tax payable of $7.2 million, offset by an
increase in inventory of $2.4 million and a decrease in accounts payable of
$2.9 million. The increase in accrued liabilities was primarily due to an
increase in deferred revenues. Deferred revenues increased from $1.0 million
at June 30, 1998 to $4.3 million at October 2, 1998. The increase was due to a
greater volume of shipments of new products during the fiscal quarter ended
October 2, 1998 compared to the preceding fiscal quarter. Inventory also
increased during the quarter as a result of an increase in sales volume.
Accounts payable decreased due to the timing of supplier payments.

For fiscal 1998, the Company's operating activities generated net cash of
$27.7 million. This resulted primarily from net income of $17.9 million,
depreciation of $6.1 million and an increase in accounts payable and accrued
liabilities of $10.4 million, offset by an increase in deferred tax assets and
inventories of $6.8 million. The increase in accounts payable was primarily
due to an increase in inventory purchases as a result of an increase in sales
volume. The increase in accrued liabilities was due to an increase in accrued
compensation expense and accrued warranty expense. The increase in deferred
tax assets resulted mainly from the incurrence of expenses deductible for book
purposes that were not currently deductible for tax purposes.

For fiscal 1997, the Company generated $13.5 million net cash from operating
activities. This resulted primarily from $15.1 million net income, $3.1
million of depreciation and an increase in

30
<PAGE>

accrued liabilities of $5.9 million, offset by an increase in accounts
receivable of $10.0 million. The increase in accrued liabilities was due
primarily to the increase in accrued compensation and accrued warranty. The
increase in accounts receivable was due to the increase in sales.

For fiscal 1996, net cash provided by operating activities of $10.2 million
was due mainly to net income of $9.3 million and depreciation of $1.4 million.

Net cash provided by investing activities was $2.9 million for the fiscal
quarter ended October 2, 1998, and consisted of the receipt of $7.0 million
from the FibX joint venture, partially offset by $4.1 million in capital
expenditures. Net cash used in investing activities was $12.4 million for
fiscal 1998, $21.4 million for fiscal 1997 and $4.8 million for fiscal 1996,
and consisted primarily of capital expenditures. Capital expenditures were
$19.1 million for fiscal 1998, $18.2 million for fiscal 1997 and $1.9 million
for fiscal 1996. The substantial increases in capital expenditures in fiscal
1997 and 1998 were related to the November 1996 acquisition of the Company's
previously leased San Jose manufacturing facility, as well as additions to
machinery and equipment, computers and leasehold improvements in connection
with such purchase. In fiscal 1999, the Company expects to invest
approximately $25.0 million in production equipment and leasehold improvements
in order to expand its San Jose manufacturing capabilities and approximately
$7.0 million in research and development and general and administrative
activities.

Net cash provided by financing activities was $2.2 million for the fiscal
quarter ended October 2, 1998, reflecting a net increase in borrowings on
long-term debt. Net cash used in financing activities was $1.6 million for
fiscal 1998 as compared to $8.1 million of net cash provided by financing
activities for fiscal 1997 and $1.4 million of net cash used in financing
activities for fiscal 1996. The fiscal 1998 amount reflects the net effect of
the Recapitalization as well as the addition of $3.0 million of long term
debt. The fiscal 1997 amount reflects the incurrence of $7.7 million in long-
term debt in connection with the purchase of real estate and improvements for
the Company's San Jose facilities.

The Company has a $15.0 million revolving credit agreement with Bank of
America which expires on December 31, 1998. The revolving credit agreement is
secured by the Company's accounts receivable, inventories and equipment and
contains customary restrictive covenants, including covenants for minimum
tangible net worth, liabilities to tangible net worth and cash flow. The
borrowings thereunder bear interest at a rate of LIBOR plus 1.5%. At October
2, 1998, the Company had no borrowings outstanding under the revolving credit
agreement. The Company anticipates that the revolving credit agreement will be
renewed prior to its expiration.

The Company's allowance for doubtful accounts and sales returns was
approximately $5.6 million and $4.9 million as of October 2, 1998 and June 30,
1998, respectively. Both amounts included approximately $1.1 million of
reserve for receivables related to sales to AMS OptoTech GmbH, a partner in a
joint venture. The Company has not recognized such revenue as AMS OptoTech
GmbH has been holding the payment to the Company to fund the operation of the
joint venture. The joint venture has incurred cumulative losses from its
inception through October 2, 1998.

The Company's inventory increased from $4.1 million at June 30, 1997 to $6.9
million at June 30, 1998 to $9.3 million at October 2, 1998. The increase
relates primarily to the growth experienced by the Company during fiscal 1998
and the fiscal quarter ended October 2, 1998. The Company's reserves as a
percentage of gross inventory increased from 30% at June 30, 1997 to 35% at
June 30, 1998 and decreased to 31% at October 2, 1998. The Company believes
that this level of reserves is customary in the Company's industry given the
pace of its technological change. The increase in the absolute dollars in
inventory reserves was primarily due to the increased excess and obsolete
inventory risk as a result of increased market competition and introduction of
new products.

The Company may in the future pursue acquisitions of, or strategic
investments in, businesses, products and technologies, or enter into
additional joint venture arrangements, that could complement or expand the
Company's business. From time to time, the Company has considered increasing
its ownership interest in its joint venture with AMS OptoTech GmbH. Any
material acquisition, strategic investment or joint venture could result in a
decrease in the Company's working capital depending on the amount, timing and
nature of the consideration to be paid.

31
<PAGE>

Pursuant to the FibX Joint Venture, the Company and the other investor each
contributed $7.0 million in cash for a 50% interest. Under the FibX Joint
Venture agreement and a related license agreement, the Company received $7.0
million in September 1998 for certain technologies of the Company that were
licensed to the FibX Joint Venture. See Note 3 of Notes to Consolidated
Financial Statements. The FibX Joint Venture agreement does not require the
Company to provide any additional financing to the FibX Joint Venture.

The Company believes that the net proceeds from the offering, cash flow from
operations, existing cash and cash equivalent balances, short-term investment
balances, available borrowings under the revolving credit agreement and
capital leases will satisfy the Company's working capital and capital
expenditure requirements for at least the next 12 months, although the Company
may seek to raise additional capital during that period. There can be no
assurance the Company will not require additional funds prior to the
expiration of such 12 month period. Beyond the next 12 months, the Company
intends to satisfy its working capital and capital expenditure requirements
with cash flow from operations and available borrowings under credit
facilities. However, if such sources are insufficient, or even if they are
sufficient, the Company may seek additional debt or equity financing. The
Company requires substantial working capital to fund its business,
particularly to finance accounts receivable and inventory, and for investments
in property, plant and equipment, and may consume working capital more rapidly
than currently anticipated resulting in the need for additional capital. The
Company's need to raise additional equity or debt financing in the future will
depend on many factors, including the rate of sales growth, the market
acceptance of the Company's existing and new products, the amount and timing
of research and development expenditures, the timing and size of any
acquisitions of complementary businesses or the increase of its ownership
interest in existing joint ventures, products or technologies and the
expansion of sales and marketing efforts. There can be no assurance that such
financing will be available on acceptable terms, if at all, or that such
financing will not be dilutive to the Company's stockholders.

RECENT FINANCIAL PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board issued two new
Statements of Financial Accounting Standards ("SFAS"). SFAS 130, "Reporting
Comprehensive Income," establishes standards for reporting and display of
comprehensive income within a financial statement. This statement requires the
Company to report additional information on comprehensive income to supplement
the reporting of income. SFAS 130 is effective for fiscal years beginning
after December 15, 1997. Comparative financial statements provided for earlier
periods are required to be reclassified so that comprehensive income is
displayed in a comparative format for all periods presented. SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information,"
establishes standards for reporting information about operating segments in
annual and interim financial statements. This statement also establishes
standards for related disclosures about products and services, geographic
areas and major customers. SFAS 131 is effective for financial statements for
fiscal years beginning after December 15, 1997. The Company adopted SFAS 130
for the interim period of fiscal 1999. The adoption of SFAS 130 did not have a
material effect on the Company's presentation of its consolidated financial
statements. The Company will adopt SFAS 131 at the end of fiscal 1999 and is
currently studying its provisions.

In June 1998, the Financial Accounting Standards Board issued SFAS 133
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities and is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The Company does not expect the adoption
of SFAS 133 to have a material impact on the Company's results of operations.

32
<PAGE>

BUSINESS

OVERVIEW

E-Tek is a leader in the design, packaging and manufacturing of high quality
passive components for fiber optic networks. The Company offers a broad
product line and believes it has a leading share in markets for several key
passive components required by telecommunications equipment manufacturers. The
Company is focused on delivering high performance and reliable optical
components for applications which include wavelength division multiplexing
("WDM") and optical amplifiers. The Company's products are designed for the
established terrestrial and submarine long-haul markets as well as emerging
short-haul markets, such as metropolitan area networks. The Company's
customers include telecommunications equipment manufacturers such as
affiliates of Alcatel Alsthom ("Alcatel"), CIENA Corporation, Corning, Inc.
("Corning"), Lucent Technologies Inc. ("Lucent"), Northern Telecom Limited
("Nortel") and affiliates of Pirelli SpA ("Pirelli"). The Company has been
profitable for the last five years and had $106.9 million in net revenues and
$17.9 million in net income for the fiscal year ended June 30, 1998.

INDUSTRY BACKGROUND

The volume of traffic carried by telecommunication service providers on
their networks has rapidly increased over the last several years as a result
of the rapidly growing amount of data traffic and, to a lesser extent, voice
traffic. Data traffic has increased due to a proliferation of bandwidth
intensive applications such as Internet access, distributed computing, e-mail,
remote access and electronic commerce. Although telecommunication service
providers have increased the capacity of their networks by deploying fiber
optic cable for long-haul routes and, more recently, for short-haul routes
such as metropolitan area networks, the increase in demand for bandwidth has
created capacity constraints on these routes, which were originally designed
for significantly less traffic. Telecommunication service providers can
address their capacity constraints by either installing new fiber or expanding
the transmission capacity of existing fiber utilizing technologies such as
time division multiplexing ("TDM") and, more recently, WDM. TDM increases the
transmission speed of optical signals whereas WDM increases the number of
optical signals transmitted simultaneously on a single fiber. Regardless of
the method used for addressing capacity constraints, the demand for optical
networking equipment, including components, modules, subsystems and systems is
expected to increase.

Optical components and modules are the building blocks of optical systems
and subsystems. There are two basic segments of optical components: passive
optical components, such as isolators, filters and couplers, which route and
guide light; and active components which generate light (source lasers),
amplify light (pump lasers) or detect light (photodetectors). The performance
of optical components is determined by the quality and processing of raw
materials and the quality of "packaging," which includes coating, fiber
alignment and encapsulation into a functional component. To minimize the
number of components, and thereby reduce costs and improve system reliability,
telecommunications equipment manufacturers are increasingly requiring the
integration of multiple components into a single module. For example, a
subsystem such as an Erbium Doped Fiber Amplifier (an "EDFA") is comprised of
multiple passive and active components. According to IGI Consulting (a market
research company specializing in telecommunications) the market for EDFAs
alone is expected to grow from $95 million in 1996 to $1.2 billion in 2002.

The Company believes that the growth of new and existing applications for
optical networking will continue to drive the need for components and modules.
Improvements in component technology that increase component integration,
enhance performance, lower cost and increase reliability and quality are
expected to enable the increased deployment of optical networking equipment in
high growth markets such as submarine networks and metropolitan area networks.
In addition, these improvements

33
<PAGE>

may enable advancements in optical cross connect and optical switching
technology which are expected to be the catalysts for a shift to all optical
networks. According to data provided by ElectroniCast Corporation (a market
research firm specializing in communication networks and products) the
worldwide optical network market, including passive and active components as
well as subsystems, but excluding fiber optic cable, is expected to grow at
approximately 28.7% per year from $2.3 billion in 1996 to $8.1 billion in
2001.

The large number of different components and the rapid rate of technological
change make it difficult for telecommunications equipment manufacturers to
produce a full suite of components in-house without creating a large and
dedicated engineering and manufacturing workforce. When purchasing components
from third-party suppliers, telecommunications equipment manufacturers are
faced with a fragmented optical component market that includes a large number
of small vendors. Small vendors often possess a limited product line, lack the
ability to integrate components and are unable to scale production to deliver
high volumes of quality products in a timely manner. Because of these factors,
telecommunications equipment manufacturers often experience difficulty in
obtaining sufficient quantities of reliable and low-cost optical components to
meet their growing demand for optical networking systems.

THE E-TEK SOLUTION

. BROAD PRODUCT LINE FOR OPTICAL SYSTEMS. The Company offers a broad line
of high quality passive optical components such as isolators, WDM
components and modules, couplers and micro-optic integrated components
for telecommunications systems. The Company leverages product expertise
from its multiple product lines to more effectively design and develop
value-added integrated components and modules.

. COMPONENT DESIGN, PACKAGING AND INTEGRATION EXPERTISE. E-Tek's ten years
of experience in designing and packaging optical components enable it to
integrate multiple optical functions into one micro-optic integrated
component (a "MOIC"). For example, the Company recently introduced a
product that combines tap coupler and isolator functions into a single
module for use in EDFAs. MOICs are attractive to telecommunications
equipment manufacturers because they reduce discrete component count,
speed up the assembly process, increase system reliability and lower
system costs. The Company is designing and manufacturing additional
integrated components and modules to meet the evolving needs of its
customers.

. HIGH QUALITY, RELIABLE PRODUCTS. E-Tek has a reputation and proven track
record of providing high quality, reliable passive optical components
that are a mission critical element of telecommunications systems. The
Company has attained high ratings in internal and external quality
assurance evaluations and has been ISO 9001 certified since 1995. The
Company's ability to design and manufacture quality products has enabled
it to successfully penetrate high-growth markets such as the submarine
optical systems market which requires components that can operate
reliably in an undersea environment where maintenance is extremely
expensive.

. VALUE-ADDED CUSTOMER RELATIONSHIPS. E-Tek has established strong customer
relationships with certain telecommunication equipment manufacturers. The
Company works closely with these customers from the initial product
design stage through the manufacturing process. This

34
<PAGE>

ongoing level of interaction enables the Company to better align its
product development efforts with its customers' evolving product needs.

. SCALABLE MANUFACTURING CAPABILITIES. Telecommunications equipment
manufacturers increasingly require a high volume supply of components
with shorter lead times. E-Tek has invested in expanding manufacturing
capacity and developing proprietary manufacturing processes and tools
that enable volume production of a broad array of optical components and
modules. The Company's large, skilled work force can be reallocated to
different product lines in response to changes in product and volume
demands. The combination of the Company's flexible manufacturing process
and highly trained work force helps to ensure the reliable delivery of
large orders to its customers.

THE E-TEK STRATEGY

. MAINTAIN AND EXPAND LEADERSHIP IN OPTICAL COMPONENT TECHNOLOGY. The
Company intends to continue to invest in new product development and
product enhancements that will drive the growth of optical systems and
will provide additional competitive advantages. As of October 2, 1998,
the Company had 45 U.S. patents issued and 31 U.S. and 18 foreign patent
applications pending. The Company currently focuses its product
development efforts on components for strategic growth areas such as WDM,
EDFAs and optical switching.

. DESIGN AND BUILD INCREASINGLY INTEGRATED COMPONENTS AND MODULES. The
Company intends to leverage its design and packaging expertise to
manufacture value-added integrated components and modules. The Company
believes that there is growing demand from telecommunications equipment
manufacturers for more highly integrated components. Integration provides
many benefits to the Company's customers, including cost reductions as
well as performance and reliability improvements. In addition, these
integrated components allow telecommunications equipment manufacturers to
design smaller systems that can be more easily manufactured.

. STRENGTHEN EXISTING AND DEVELOP NEW CUSTOMER RELATIONSHIPS. The Company
believes that strong customer relationships are a competitive advantage
that enable it to more effectively target its product development and
manufacturing efforts. The Company has established relationships with key
telecommunications equipment manufacturers by working as a partner to
solve their product needs. The Company intends to strengthen its existing
customer relationships by continuing to deliver a high level of value-
added service and leverage its reputation for high quality products to
penetrate new key accounts.

. ENHANCE MANUFACTURING CAPABILITIES. Telecommunications equipment
manufacturers are increasingly demanding higher volumes of components
with shorter delivery lead times and are requiring higher quality and
lower cost components. To meet these demands, the Company is increasing
its manufacturing capacity, investing in automated manufacturing
processes and establishing lower cost offshore manufacturing facilities.

. TARGET ATTRACTIVE SEGMENTS OF THE OPTICAL NETWORKING MARKET. The Company
intends to leverage its expertise to strengthen its position in the
terrestrial and submarine long-haul markets as well as penetrate new
markets, such as metropolitan area networks. The Company believes that
technology advancements and cost reductions in optical components and
modules will enable the continued growth of optical networking into
markets beyond established terrestrial and submarine long-haul
applications.

. EXPAND SALES AND MARKETING EFFORTS. The nature of the target customer
base for the Company's optical components and modules requires a focused
sales and marketing effort. The

35
<PAGE>

Company believes it is necessary to expand these efforts to improve
service to existing customers and effectively target new customers. The
Company intends to selectively expand its direct sales force and
independent sales representatives network to pursue additional customer
opportunities.

TECHNOLOGY AND PRODUCTS

Fiber optic systems manufactured by the Company's customers are used to
transmit, amplify, isolate, route, monitor and receive optical signals, or
wavelengths. The performance of optical components is determined by the
quality and processing of raw materials and the quality of "packaging," which
includes coating, fiber alignment and encapsulation into a functional
component. The Company believes that its capabilities in these areas enable it
to produce components with higher levels of performance, reliability and
management and control of optical signals.

The Company's technological expertise allows it to be a leading provider of
passive components for fiber optic systems and subsystems, including WDM
systems and EDFAs. The following diagram illustrates where the Company's
components are used in WDM systems and EDFAs:

[SCHEMATIC OF TRANSMITTER, ERBIUM-DOPED FIBER AMPLIFIER, AND RECEIVER]

The Company's products are divided into five main categories: optical
isolators, WDM components and modules, couplers, MOICs and other products.
Prices vary by product line but typically range from $200 for a simple
component to $5,000 or more for more complex products.

OPTICAL ISOLATORS. The Company began manufacturing isolators in 1989, and
currently offers a wide range of isolator products, including a recently
introduced high reliability isolator for submarine networks. Isolators act as
a one-way valve for wavelengths. Since optical signals travel along a fiber in
either direction, any disturbance in the fiber can cause a portion of the
signal traveling in one direction to reflect in the opposite direction. These
reflected signals can cause interference in the network. An optical isolator
prevents the reflected signals from traveling past it in the wrong direction
while still allowing the unimpeded passage of signals in the original
direction. In the basic form of the

36
<PAGE>

isolator product, a short section of optical fiber is attached with micron-
scale precision to a lens to expand the optical signal to a parallel beam.
Attached to this assembly are small crystals with optical asymmetry to direct
the beam along the optical path and to divert any light traveling in the
reverse direction off to the side. A lens attached to a second short section
of optical fiber collects the light in the beam.

The key performance parameters for an isolator are the percentage of the
original light in the first fiber that passes to the second and the amount of
residual light that passes from the second fiber back to the first. The
performance parameters are directly affected by the skill employed in the
optical design, the ability to secure precision parts and the procedures used
to assemble the parts with exactness. The Company believes its competence in
manufacturing optical isolators with uniformly high percentages of passed
through light and exceedingly small residual light is a key strength.

WDM COMPONENTS AND MODULES. Since 1995, the Company has produced WDM
components and modules, including multiplexers, de-multiplexers, optical
add/drops and gain flattening filters. A WDM multiplexer combines light
sources of different wavelengths for simultaneous transmission along a single
fiber. The combining and separating of wavelengths can be accomplished in
several ways, one of which involves building a WDM component similar in design
and manufacturing process to the optical isolator. In this WDM component,
optically asymmetric crystals used in an isolator are replaced with thin
dielectric filters that enable the passage of specific optical wavelengths and
the reflection of others. These WDM components are then cascaded and spliced
together to create WDM multiplexer and de-multiplexer modules. The key
performance parameters are the efficiency with which the individual
wavelengths are directed to (and only to) the proper fiber section.

COUPLERS. Since 1991, the Company has manufactured several types of
couplers, including wideband and narrowband tree and star couplers, two window
wideband couplers, ultra-low PDL couplers, and single-fusion 1x3 and 1x4
couplers. A coupler is used to combine and/or split optical signals. Couplers
are often used to tap off a small portion of a light stream for monitoring
purposes or to distribute the signal to multiple points. If the portion tapped
is approximately half, the component is typically called a fiber coupler. If
the portion is small (a few percent), the product is referred to as an optical
tap. In either case, the function can be performed with the same technology--
fusing two fibers together with the proper spacing to achieve the desired
crossing of light from the main fiber to the branching fiber. The Company has
developed a new, patented Unifuse technology, which it believes produces more
robust and reliable taps and couplers.

MICRO-OPTIC INTEGRATED COMPONENTS. MOICs are modules that integrate two or
more optical component functions into a single package. These functions
include, but are not limited to, isolator, WDM and tap coupler functions. For
example, the Company recently introduced a product that combines tap coupler
and isolator functions into a single module for use in EDFAs. This integration
reduces the total component count in a system and provides many benefits for
the Company's customers, including reductions in inventory and the physical
dimensions of the subsystem or system and production costs, as well as
improvements in performance and reliability. The Company designs and
manufactures a range of MOICs for a variety of applications.

OTHER. The Company manufactures a variety of other components and modules
that perform various functions within an optical system. These products
include attenuators, circulators, mechanical switches and laser controllers.
The Company also has a decade of experience in making assembly and test
equipment for internal use as well as for external sale. Recent products in
this category emphasize the generation and control of the multiple wavelengths
of laser light needed to test and evaluate broad-spectrum optical assemblies
such as fiber amplifiers.

37
<PAGE>

CUSTOMERS

The Company sells its products primarily to telecommunications equipment
manufacturers. Customers that purchased more than $500,000 of E-Tek's products
in fiscal 1998 include:

<TABLE>
<S> <C>
Alcatel ITS, Inc. NEC Corporation
Alcatel Network Systems, Inc. Northern Telecom Limited
Alcatel Submarine Networks, Limited Pirelli Cable Corp.
CIENA Corporation Pirelli Cavi SpA
Corning, Inc. Cables Pirelli SA
Hewlett-Packard Company Tyco Submarine Systems Ltd.
Lucent Technologies Inc. Williams Communications Group
MCI WorldCom, Inc.
</TABLE>

The Company has established strong relationships with certain
telecommunications equipment manufacturers. The Company works closely with
these customers from the initial product design through the manufacturing
process to delivery of the final product. This ongoing level of interaction
enables the Company to better align its product development efforts with its
customers' evolving product needs.

A small number of customers have historically accounted for a substantial
portion of the Company's net revenues. Sales to the Company's largest
customers, Alcatel, Pirelli, and Corning, accounted for approximately 30.2%,
16.5% and 14.3%, respectively, of the Company's net revenues in fiscal 1998
and 46.0%, 8.0% and 9.4%, respectively, of the Company's net revenues in the
first quarter of fiscal 1999. Moreover, sales to the Company's five largest
customers and their affiliates represented approximately 73.4% and 62.4% of
the Company's net revenues in fiscal 1998 and in the first quarter of fiscal
1999, respectively. The loss of any key customer could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Risk Factors--Dependence on a Limited Number of Major
Customers."

RESEARCH AND DEVELOPMENT

The Company currently has 66 employees engaged in research and development,
including 38 engineers with advanced degrees, 18 of whom have Ph.D.s. The
Company seeks to continue to develop core technologies with applications for
product solutions in each of the Company's target markets, which enables the
Company to leverage its ability to address various component markets with a
relatively focused investment in research and development. The Company's
research and development expenses for fiscal 1998 and fiscal 1997 were
approximately $7.7 million and $4.0 million, respectively, and $3.1 million
for the fiscal quarter ended October 2, 1998. The Company plans to continue to
increase its research and development budget and staffing levels in fiscal
1999. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

MANUFACTURING

The Company currently manufactures and packages its component products at
its facilities in San Jose, California. The Company's in-house manufacturing
capabilities include product design, optical assembly, integration and testing
of its component products. The Company maintains a proprietary system of
optical assembly stations located in clean rooms throughout its facilities to
manufacture custom engineered and standard products. By leveraging these
manufacturing skills, the Company seeks to maintain flexible manufacturing
processes designed to meet customer expectations for innovative product
solutions, high volume capacity, high quality and on-time delivery.

Telecommunications equipment manufacturers require high quality and
reliability in the components incorporated into their systems. The Company
emphasizes quality assurance through

38
<PAGE>

ongoing staff training and internal manufacturing systems and procedures
throughout the Company's various manufacturing processes, including the
design, assembly, integration, packaging and test functions of these
processes. Quality control procedures necessary to meet increasingly stringent
customer demands are in place throughout the Company, including appropriate
levels of incoming inspection and outgoing testing. The Company has attained
high ratings in internal and external evaluations and has been ISO 9001
certified since 1995.

The raw materials which the Company requires for the manufacture of its
products are generally available from several sources, although a number of
raw materials are available only from sole source suppliers. See "Risk
Factors--Dependence on Suppliers."

To further enhance its manufacturing capabilities and reduce manufacturing
costs, the Company intends to increase its level of manufacturing automation
and expand into additional facilities as required. The Company has recently
increased its capacity by expanding the size of its facilities from
approximately 90,000 square feet to approximately 160,000 square feet. The
Company has been moving portions of its operations, including manufacturing
operations, to this new space as it becomes available. The Company has
financed its facilities expansion through a combination of cash flow from
operations, commercial credit lines and capital lease financing. In addition,
the Company entered into the FibX Joint Venture to build and operate a fiber
optic component manufacturing facility in Taiwan. The Company anticipates that
it will begin manufacturing certain of its mature products at this facility in
1999. See "Risk Factors--Manufacturing and Facilities Expansion Risks."

SALES AND MARKETING

The Company markets and sells its products primarily through a network of
six domestic and 22 international sales representatives and distributors. The
Company's sales representatives and distributors are independent organizations
that generally have exclusive geographic territories and are generally
compensated on a commission basis.

The Company also employs a 36 person sales and marketing staff located in
San Jose, which manages key customer accounts and supports the Company's sales
representatives and distributors. The Company's customers often have unique
technical specifications and performance requirements for components and
typically require specific product designs. As a result, the Company's sales
efforts are dependent on close cooperation between the Company's independent
sales representatives and distributors and the Company's in-house personnel.

In support of its selling effort, the Company conducts marketing programs
intended to position and promote its products within the telecommunications
industry. Marketing personnel coordinate the Company's participation in trade
shows and design and implement the Company's advertising efforts. In addition,
the marketing group gathers and maintains market research and tracks industry
trends and developments in order to anticipate customer needs for new products
and develop pricing strategies.

COMPETITION

39
<PAGE>

and as a result, may be able to respond more quickly to new or emerging
technologies or standards and to changes in customer requirements, to devote
greater resources to the development, promotion and sale of products, or to
deliver competitive products at a lower prices. Many of these competitors
manufacture their products in countries offering significantly lower labor
costs than in the United States.

Existing and potential customers are also current and potential competitors
of the Company. These companies may develop or acquire additional competitive
products or technologies in the future and thereby reduce or cease their
purchases from the Company. For example, one of the Company's customers
recently purchased a fiber optic component manufacturer and began
manufacturing a product internally that it formerly purchased from the
Company. The Company may also face competition in the future from these and
other parties that develop fiber optic components based upon the technologies
similar to or different from the technologies employed by the Company. The
Company expects competition in general to intensify substantially, and further
expects competition to be broadly based on varying combinations of
manufacturing capacity, ability to deliver on-time, technical features,
quality and reliability, customization to customer specifications, strength of
distribution channels, pricing and comprehensiveness of product offerings. In
addition, the Company believes that the size of suppliers will be an
increasingly important part of purchasers' decision-making criteria in the
future. There can be no assurance that the Company will be able to compete
successfully with its existing or new competitors or that competitive
pressures faced by the Company will not result in lower prices for the
Company's products, loss of market share, or reduced gross margins, any of
which could materially and adversely affect the Company's business, financial
condition and results of operations.

PATENTS AND INTELLECTUAL PROPERTY RIGHTS

The Company's success will depend, in part, on its ability to protect its
intellectual property. The Company relies primarily on patent, copyright,
trademark and trade secret laws, as well as nondisclosure agreements and other
methods to protect its proprietary technologies and processes. There can be no
assurance that such measures will provide meaningful protection for the
Company's proprietary technologies and processes. As of October 2, 1998, the
Company had 45 U.S. patents issued and 31 U.S. and 18 foreign patent
applications pending. These patents expire between 2007 and 2016. There can be
no assurance that any patent will issue as a result of these applications or
future applications or, if issued, that any patent claims allowed will be
sufficiently broad to protect the Company's technology. In addition, there can
be no assurance that any existing or future patents will not be challenged,
invalidated or circumvented, or that any right granted thereunder would
provide meaningful protection to the Company. The failure of any patents to
provide protection to the Company's technology would make it easier for the
Company's competitors to offer similar products. The Company also generally
enters into confidentiality agreements with its employees and strategic
partners, and generally controls access to and distribution of its
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use the
Company's products or technology without authorization, develop similar
technology independently or design around the Company's patents. In addition,
effective patent, copyright, trademark and trade secret protection may be
unavailable or limited outside of the United States, Europe and Japan. There
can be no assurance that the Company will be able to obtain any meaningful
intellectual property protection in such countries and territories. Further,
the Company occasionally incorporates the intellectual property of its
customers into its designs, and the Company has certain obligations with
respect to the non-use and non-disclosure of such intellectual property. There
can be no assurance that the steps taken by the Company to prevent
misappropriation or infringement of the intellectual property of the Company
or its customers will be successful. Moreover, litigation may be necessary in
the future to enforce the Company's intellectual property rights, to protect
the Company's trade secrets or to determine the validity and scope of
proprietary rights of others, including its customers. Such litigation could
result in substantial costs and diversion of the Company's resources

40
<PAGE>

and could have a material adverse effect on the Company's business, financial
condition and results of operations.

The telecommunications equipment industry is characterized by vigorous
protection and pursuit of intellectual property rights. From time to time, the
Company has received, and may continue to receive in the future, notices of
claims of infringement of other parties' proprietary rights. There can be no
assurance that the Company will prevail in actions alleging infringement by
the Company of third-party patents or the invalidity of the patents held by
the Company will not be asserted or prosecuted against the Company, or that
any assertions of infringement or prosecutions seeking to establish the
invalidity of Company-held patents will not materially and adversely affect
the Company's business, financial condition and results of operations. For
example, in a patent or trade secret action, an injunction could issue against
the Company requiring that the Company withdraw certain products from the
market or necessitating that certain products offered for sale or under
development be redesigned. The Company has also entered into certain
indemnification obligations in favor of its customers and strategic partners
that could be triggered upon an allegation or finding of the Company's
infringement of other parties' proprietary rights. Irrespective of the
validity or successful assertion of such claims, the Company would likely
incur significant costs and diversion of its resources with respect to the
defense of such claims, which could also have a material adverse effect on the
Company's business, financial condition and results of operations. To address
any potential claims or actions asserted against the Company, the Company may
seek to obtain a license under a third party's intellectual property rights.
There can be no assurance that under such circumstances a license would be
available on commercially reasonable terms, if at all.

Substantial inventories of intellectual property are held by a few industry
participants, such as Lucent, Nortel and certain major universities and
research laboratories. This concentration of intellectual property in the
hands of a few major entities also poses certain risks to the Company in
seeking to hire qualified personnel. The Company has on a few occasions
recruited such personnel from such entities. There can be no assurance that
these entities or others will not claim the misappropriation or infringement
of their intellectual property, particularly when and if employees of these
entities leave to work for the Company. There can be no assurance that the
Company will be able to avoid litigation in the future, particularly if new
employees join the Company after having worked for a competing company. Such
litigation could be very expensive to defend, regardless of the merits of the
claims, and could have a material adverse effect on the Company's business,
financial condition and results of operations.

EMPLOYEES

As of October 2, 1998, the Company employed 787 persons, of whom 634 were
primarily engaged in manufacturing, 66 were engaged in research and
development, 36 were engaged in sales, marketing and technical support and 51
were engaged in administration. The Company's employees are not represented by
any collective bargaining agreement, and the Company has not experienced a
work stoppage. The Company believes its employee relations are good.

FACILITIES

The Company's principal offices and facilities are located in San Jose,
California. The Company owns three buildings in San Jose aggregating
approximately 180,000 square feet, 20,000 square feet of which is leased to a
third party through May 2001, as well as five acres of vacant land nearby. The
Company also leases 5,148 square feet in close proximity to its San Jose
facilities. This lease expires on March 31, 2000. The Company believes that
its existing facilities are adequate to meet its current needs.

41
<PAGE>

LEGAL PROCEEDINGS

The Company has in the past received notifications alleging that it is
infringing the intellectual property rights of third parties. The Company is
involved in disputes and litigation in the normal course of its business. The
Company does not believe that the outcome of any of these infringement
allegations or these disputes or litigation will have a material adverse
effect on the Company's business, financial condition or results of
operations.

42
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information with respect to each of
the executive officers and directors of the Company as of the date of this
offering.

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
Michael J. Fitzpatrick(1).. 49 President, Chief Executive Officer and Director
Ming Shih.................. 45 Senior Vice President, Sales and Marketing
Sanjay Subhedar............ 46 Senior Vice President, Operations,
Chief Financial Officer and Secretary
Philip J. Anthony.......... 46 Vice President, Engineering
Jim Northington............ 51 Vice President, Manufacturing
William H. Diamond, Jr..... 42 Vice President, Marketing
Walter G. Kortschak(1)(2).. 39 Chairman of the Board of Directors
David W. Dorman(1)......... 44 Director
Donald J. Listwin.......... 39 Director
Joseph W. Goodman(2)....... 62 Director
Peter Y. Chung(2).......... 31 Director(3)
</TABLE>
- --------
(1) Member of the Compensation Committee

(2) Member of the Audit Committee

(3) Upon the closing of this offering, the Company anticipates that Mr. Chung
will rejoin the Company's Board of Directors.

MICHAEL J. FITZPATRICK joined the Company as President and Chief Executive
Officer and as a director in October 1997. Prior to joining the Company, Mr.
Fitzpatrick served as President and Chief Executive Officer of Pacific Telesis
Enterprises ("Pacific Telesis"), a telecommunication service provider, from
July 1994 to October 1997. While at Pacific Telesis, Mr. Fitzpatrick also
served as Executive Vice President of Marketing and Sales from January 1994 to
July 1994 and Executive Vice President of Statewide Markets with Pacific Bell,
an affiliate of Pacific Telesis, from September 1993 to January 1994. From
October 1991 to August 1993, Mr. Fitzpatrick was President and Chief Executive
Officer of Network Systems Corporation, an internetworking company. Mr.
Fitzpatrick received a B.A. from Duke University.

MING SHIH, one of the founders of the Company, was promoted to Senior Vice
President, Sales and Marketing in July 1998. Prior to that he served as
corporate vice president as well as in various senior management roles at the
Company, with responsibility for engineering, manufacturing and sales and
marketing. Mr. Shih received an M.S. from the Illinois Institute of Technology
and an M.S. from the Florida Institute of Technology.

SANJAY SUBHEDAR joined the Company in December 1997 as Vice President,
Finance and Chief Financial Officer and was promoted to Senior Vice President,
Operations and Chief Financial Officer in July 1998. Mr. Subhedar was also
appointed as the Secretary of the Company in March 1998. From February 1986 to
July 1996, Mr. Subhedar served as Chief Financial Officer of StrataCom, Inc.,
a wide area networking company. Following StrataCom's merger with Cisco
Systems, Inc. ("Cisco"), an internetworking company, in July 1996, Mr.
Subhedar served as Vice President of Cisco's WAN Business Unit until October
1997. Mr. Subhedar received a B.S. from the University of Bombay, India, and
an M.B.A. from Indiana University.

PHILIP J. ANTHONY joined the Company in June 1998 as Vice President,
Engineering. Prior to joining the Company, Dr. Anthony served in various
capacities at Lucent Technologies, Inc., a manufacturer of communications
systems, software and products (and at its predecessors Bell Laboratories and
AT&T Corp.), most recently as Director of Passive Devices and Integrated
Optical

43
<PAGE>

Modules in the Optoelectronic Business of the Lucent Microelectronics Group
from October 1997 to June 1998. From September 1987 to October 1997, he served
as the department head of various research and development departments in the
photonics laboratories of Bell Laboratories. Dr. Anthony received a B.S. from
the University of Dayton, and an M.S. and Ph.D. from the University of
Illinois.

JIM NORTHINGTON joined the Company in July 1998 as Vice President,
Manufacturing. From November 1994 to July 1998, Mr. Northington served in
various capacities at SMART Modular Technologies, Inc. ("SMART Modular"), a
manufacturer of computer memory modules and cards. While at SMART Modular, he
served as the Vice President, Worldwide Operations from November 1997 to July
1998, as Vice President, Quality Assurance and Corporate Development from July
1996 to November 1997, and as Vice President, Operations from November 1994 to
July 1996. From August 1989 to November 1994, Mr. Northington was a Principal
at APS Products where, as a self-employed consultant, he provided
manufacturing operations expertise to clients with a primary focus on adapter
cards, peripherals and systems products. Mr. Northington received a B.S. from
Long Beach State College.

WILLIAM H. DIAMOND, JR. joined the Company as Vice President, Marketing in
October 1998. Prior to joining the Company, Mr. Diamond served as Director of
Marketing for Lucent Technologies Optoelectronics, a manufacturer of fiber
optic components and subsystems for communications applications, from July
1997 to October 1998. From April 1996 to July 1997, Mr. Diamond was Managing
Director, Europe, Middle East, Africa, for Best Power Technology, Inc. ("Best
Power"), a unit of General Signal, a manufacturer of various industrial and
electronic goods. Prior to joining Best Power, Mr. Diamond served as UK
General Manager and European Sales Manager for AT&T Microelectronics Europe
from January 1996 to April 1996. While at AT&T Microelectronics Europe, Mr.
Diamond also served as European Marketing Director for Optoelectronics from
April 1992 to January 1996 and UK General Manager from June 1994 to July 1996.
Mr. Diamond received a B.A. from Holy Cross College and an M.B.A. from
Georgetown University.

WALTER G. KORTSCHAK has been the Chairman of the Board of Directors of the
Company since July 1997. Mr. Kortschak is a General Partner of Summit
Partners, a private equity capital firm in Palo Alto, California, where he has
been employed since June 1989. Summit Partners and its affiliates manage a
number of venture capital funds, including Summit Ventures IV, L.P., Summit
Investors III, L.P. and Summit Subordinated Debt Fund II, L.P., which are all
of the members of Summit/E-Tek Holdings, L.L.C., a principal stockholder of
the Company. Mr. Kortschak also serves as a director of Aspec Technology,
Inc., a provider of implementation technology solutions for integrated circuit
design, and HMT Technology Corporation, a thin film disk drive media company,
as well as several privately held companies. Mr. Kortschak received a B.S.
from Oregon State University, an M.S. from The California Institute of
Technology and an M.B.A. from the University of California, Los Angeles.

DAVID W. DORMAN has been a director of the Company since June 1998. Mr.
Dorman has served as the Chairman, President and Chief Executive Officer of
PointCast Incorporated ("PointCast"), a company providing broadcast news
through the Internet and corporate intranets, since November 1997. Prior to
joining PointCast, Mr. Dorman served as the Executive Vice President of SBC
Communications ("SBC") from August 1997 to November 1997, following the merger
of SBC and Pacific Telesis. Prior to that, Mr. Dorman served as President and
Chief Executive Officer of Pacific Bell from July 1994 to August 1997. From
1981 to July 1994, Mr. Dorman held various senior management positions at
Sprint Corporation, a telecommunications company. Mr. Dorman also serves as a
director of 3Com Corporation, a supplier of data, voice and video
communications technology, Science Applications International Corporation, a
diversified professional and technical services and technology manufacturing
company, and Scientific-Atlanta, Inc., a provider of products and services for
development of advanced terrestrial and satellite networks. Mr. Dorman
received a B.S. from the Georgia Institute of Technology.

44
<PAGE>

DONALD J. LISTWIN has been a director of the Company since July 1998. Mr.
Listwin is an Executive Vice President at Cisco Systems, Inc., where he has
been employed since 1990. In April 1997, Mr. Listwin was named the Senior Vice
President of Cisco's Service Provider Line of Business. Prior to that, he was
Senior Vice President of Cisco's IOS Development and Marketing from August
1996 to April 1997, Vice President and General Manager of Cisco's Access
Business Unit from September 1995 to August 1996, and Vice President of
Marketing from September 1993 to September 1995. Mr. Listwin received a B.S.
from the University of Saskatchewan, Canada.

JOSEPH W. GOODMAN has been a director of the Company since July 1998. Since
September 1996, he has been the Senior Associate Dean of the School of
Engineering at Stanford University. Prior to becoming the Senior Associate
Dean at Stanford, Dr. Goodman served as the Chairman of the Department of
Electrical Engineering from January 1988 to September 1996. Mr. Goodman has
also been the William E. Ayer Professor of Electrical Engineering at Stanford
since 1988. He has been employed by Stanford University in various other
capacities since 1963. Dr. Goodman received a B.A. from Harvard University and
an M.S. and Ph.D. from Stanford University.

PETER Y. CHUNG was a director of the Company from July 1997 until July 1998.
Upon the closing of this offering, the Company anticipates that he will rejoin
the Company's Board of Directors. Mr. Chung is a Principal of Summit Partners,
a private equity capital firm in Palo Alto, California, where he has been
employed since August 1994. Summit Partners and its affiliates manage a number
of venture capital funds, including Summit Ventures IV, L.P., Summit Investors
III, L.P. and Summit Subordinated Debt Fund II, L.P., which are all of the
members of Summit/E-Tek Holdings, L.L.C., a principal stockholder of the
Company. From August 1989 to July 1992, Mr. Chung worked in the Mergers and
Acquisitions Department of Goldman, Sachs & Co. Mr. Chung also serves as a
director of Splash Technology Holdings, Inc., a developer of color server
systems, as well as several privately held companies. Mr. Chung received a
B.A. from Harvard University and an M.B.A. from Stanford University.

The Company's Board of Directors will be divided into three classes,
designated Class I, Class II and Class III, upon the closing of this offering.
Each class of directors will consist of two or more directors. At each annual
meeting of stockholders following the offering, one class of directors will be
elected to a three-year term to succeed the directors of the same class whose
terms are then expiring. The initial Class I directors, whose terms will
expire at the Company's 1999 Annual Meeting of Stockholders, will be Joseph W.
Goodman and Peter Y. Chung. The initial Class II directors, whose terms will
expire at the Company's 2000 Annual Meeting of Stockholders, will be David W.
Dorman and Donald J. Listwin. The initial Class III directors, whose terms
will expire at the Company's 2001 Annual Meeting of Stockholders, will be
Walter G. Kortschak and Michael J. Fitzpatrick. See "Description of Capital
Stock--Antitakeover Effects of Certificate of Incorporation, Bylaws and
Delaware Law."

Executive officers of the Company are elected by, and serve at the
discretion of, the Board of Directors.

There are no family relationships among the directors or officers of the
Company, including Mr. Chung who does not currently serve on the Company's
Board of Directors, but who will join the Board of Directors upon the closing
of this offering.

BOARD COMMITTEES

The Board of Directors has established an Audit Committee of directors to
make recommendations concerning the engagement of independent public
accountants, review the plans and results of the audit engagement with the
Company's independent public accountants, review the independence of the
Company's independent public accountants, consider the range of audit and non-

45
<PAGE>

audit fees and review the adequacy of the Company's internal accounting
controls. Upon the closing of this offering, the Audit Committee will consist
of Peter Y. Chung, Joseph W. Goodman and Walter G. Kortschak.

The Board of Directors has also established a Compensation Committee of
directors to determine compensation for the Company's executive officers and
to administer the Company's 1998 Stock Plan, 1998 Director Option Plan and
1998 Employee Stock Purchase Plan. Upon the closing of this offering, the
Compensation Committee will consist of David W. Dorman, Michael J. Fitzpatrick
and Walter G. Kortschak.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During fiscal 1998 (the "Last Fiscal Year"), Michael J. Fitzpatrick, Walter
G. Kortschak and Theresa Pan served as members of the Compensation Committee
of the Company's Board of Directors. Mr. Fitzpatrick has served as the
President and Chief Executive Officer of the Company since October 1997.
During fiscal 1998, Ms. Pan served as the President and Chief Executive
Officer of the Company until October 1997, and Chief Financial Officer of the
Company until December 1997. In addition, Ms. Pan was a principal stockholder
of the Company at all times during the Last Fiscal Year. Mr. Kortschak is a
General Partner of Summit Partners, a private equity capital firm which
manages Summit Ventures IV, L.P., Summit Investors III, L.P. and Summit
Subordinated Debt Fund II, L.P., which are all members of Summit/E-Tek
Holdings, L.L.C., a principal stockholder of the Company. See "Principal
Stockholders" and "Certain Transactions."

No member of the Compensation Committee serves as a member of the board of
directors or compensation committee of any other entity that has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee. Prior to the formation of the Compensation Committee
in August 1997, the Board of Directors of the Company as a whole made
decisions relating to compensation of the Company's executive officers.

DIRECTOR COMPENSATION

The Company does not currently compensate its directors, but directors are
reimbursed for out-of-pocket expenses incurred in connection with attendance
at meetings of the Board of Directors or any committees thereof. The directors
of the Company are generally eligible to participate in the Company's 1998
Stock Plan and, to the extent that a director is also an employee of the
Company, to participate in the Company's 1998 Employee Stock Purchase Plan.
The directors of the Company who are not employees of the Company will also
receive periodic stock option grants under the Company's 1998 Director Option
Plan. See "Stock Plans."

46
<PAGE>

EXECUTIVE COMPENSATION

The following table sets forth all compensation paid by the Company during
the Company's Last Fiscal Year to each person who served as the Company's
Chief Executive Officer during such year and the Company's only other
executive officer whose total salary and bonus for services rendered to the
Company in all capacities during such year exceeded $100,000 in the aggregate
(collectively, the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------ -----------------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING
NAME AND PRINCIPAL POSITIONS SALARY BONUS COMPENSATION AWARDS OPTIONS
- ---------------------------- -------- -------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Michael J. Fitzpatrick(1).. $188,077 $300,000 $258,000(2) -- 2,825,000
President and Chief
Executive Officer

Ming Shih.................. 233,423 215,000 159,000(2) 555,555(3) 500,000
Senior Vice President,
Sales and Marketing

Theresa Pan(4)............. 389,718 175,000 -- -- --
President, Chief Executive
Officer and Chief
Financial Officer
</TABLE>
- --------

(1) Mr. Fitzpatrick's employment with the Company commenced in October 1997
at an annual base salary of $300,000.
(2) Represents imputed interest income resulting from a 0% interest loan made
to fund the exercise of options to purchase Common Stock of the Company.

(3) Such shares were purchased at fair market value, as determined by the
Company's Board of Directors, and are subject to a right of repurchase by
the Company which lapses periodically over a three-year vesting period
commencing in July 1997.
(4) Ms. Pan resigned as President and Chief Executive Officer of the Company
in October 1997 and as Chief Financial Officer of the Company in December
1997. Ms. Pan thereafter served on the Board of Directors and as a member
of its Compensation Committee until July 1998.

OPTION GRANTS IN LAST FISCAL YEAR

The following table provides information concerning grants of options to
purchase the Company's Common Stock made during the Company's Last Fiscal Year
to each of the Named Executive Officers.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE
OPTIONS VALUE AT ASSUMED
NUMBER OF GRANTED TO DEEMED ANNUAL RATES OF STOCK
SECURITIES EMPLOYEES VALUE PER APPRECIATION FOR
UNDERLYING IN LAST EXERCISE SHARE ON OPTION TERM(4)
OPTIONS FISCAL PRICE PER EXPIRATION DATE OF -------------------------------
GRANTED(#) YEAR(1) SHARE(2) DATE GRANT(3) 0% 5% 10%
---------- ---------- --------- ---------- --------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael J. Fitzpatrick.. 2,825,000(5) 26.8% $2.30 10/14/2007 $2.30 -- $4,086,278 $10,355,342
Ming Shih............... 500,000 4.8% 3.25 02/04/2008 3.75 $250,000 1,429,188 3,238,188
Theresa Pan............. -- -- -- -- -- -- -- --
</TABLE>
- --------
(1) Based on an aggregate of 10,524,641 options to purchase Common Stock of
the Company granted by the Company during the Last Fiscal Year under the
Company's 1997 Equity Incentive Plan and 1997 Executive Equity Incentive
Plan.
(2) All options were granted at an exercise price equal to the fair market
value of the Company's Common Stock as determined by the Board of
Directors of the Company on the date of grant. The Company's Common Stock
was not publicly traded at the time of the option grants.

47
<PAGE>

(3) The deemed value for the date of grant was determined after the date of
grant solely for financial accounting purposes.
(4) Potential realizable values are net of exercise price, but before taxes
associated with exercise. Amounts represent hypothetical gains that could
be achieved for the respective options if exercised at the end of the
option term. The assumed 0%, 5% and 10% rates of stock price appreciation
are provided in accordance with rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of
the future Common Stock price. The assumed rate of appreciation of 0%
indicates the value at the effective date of this offering based on the
deemed value for financial accounting purposes, less the exercise price.
Actual gains, if any, on stock option exercises are dependent on the
future performance of the Common Stock, overall market conditions and the
option holders' continued employment through the vesting period. This
table does not take into account any appreciation in the price of the
Common Stock from the date of grant to date.
(5) All such options were immediately exercised by Mr. Fitzpatrick on the date
of grant, but 2,260,000 shares acquired upon such exercise are subject to
a right of repurchase by the Company which lapses periodically over a
four-year vesting period which commenced in November 1997, and 188,333
shares acquired upon such exercise are subject to a right of repurchase by
the Company which lapses periodically over a five-year vesting period and
on an accelerated basis upon the achievement of certain milestones.

AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES

The following table sets forth the number of shares of Common Stock acquired
upon the exercise of stock options by the Named Executive Officers during the
Company's Last Fiscal Year, and the number and value of securities underlying
unexercised options held by the Named Executive Officers as of June 30, 1998.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
NUMBER OF UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED JUNE 30, 1998(1) JUNE 30, 1998(2)
ON ------------------------- -------------------------
NAME EXERCISE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Michael J. Fitzpatrick.. 2,825,000(3) -- -- -- --
Ming Shih............... -- 150,000 350,000 $1,012,500 $2,362,500
Theresa Pan............. -- -- -- -- --
</TABLE>
- --------
(1) All options are immediately exercisable at the date of grant, but shares
purchased upon exercise of options are subject to repurchase by the
Company based upon a prescribed vesting schedule.
(2) Calculated on the basis of the fair market value of the Company's Common
Stock as of June 30, 1998 ($10.00 per share), as determined by the
Company's Board of Directors, less the aggregate exercise price.
(3) Includes 2,260,000 shares owned by Mr. Fitzpatrick that are subject to a
right of repurchase by the Company which lapses periodically over a four-
year vesting period which commenced in November 1997, and 188,333 shares
owned by Mr. Fitzpatrick that are subject to a right of repurchase by the
Company which lapses periodically over a five-year vesting period and on
an accelerated basis upon the achievement of certain milestones. As
calculated in accordance with the rules of the Securities and Exchange
Commission, there was no "value realized" by Mr. Fitzpatrick upon the
exercise of such options because the aggregate exercise price of such
options was equal to the aggregate fair market value of such shares on the
date of exercise as determined by the Company's Board of Directors.

48
<PAGE>

EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS

On October 1, 1997, the Company entered into an employment agreement with
Michael J. Fitzpatrick to serve as the Company's President and Chief Executive
Officer. The agreement provides that Mr. Fitzpatrick is an "at-will" employee
of the Company, that he will be paid a minimum base salary of $300,000 per
annum, and that he will be eligible to receive an annual bonus of at least
$300,000. The agreement also provides that in the event that Mr. Fitzpatrick
is terminated for any reason other than "cause," if he resigns for "good
reason," or upon a change of control of the Company (each as defined therein),
(i) he will be entitled to receive a severance payment in an amount equal to
his monthly base salary and pro rated bonus until the earlier of the
expiration of 12 months or his commencement of employment with another firm
and (ii) the vesting of all options and restricted stock held by him subject
to a right of repurchase by the Company will be accelerated by 12 months. In
addition, the agreement provides that in the event that Mr. Fitzpatrick's
employment with the Company is terminated by him or the Company within 6
months following a "change of control" of the Company, the vesting of all
options and restricted stock held by him will be fully accelerated and Mr.
Fitzpatrick will be entitled to receive a severance payment in an amount equal
to two times his base salary and bonus.

On December 2, 1997, the Company entered into an employment agreement with
Sanjay Subhedar to serve as the Company's Vice President and Chief Financial
Officer. The agreement provides that Mr. Subhedar is an "at-will" employee of
the Company, that he will be paid a minimum base salary of $175,000 per annum,
and that he will be eligible to receive an annual bonus of up to $100,000. The
agreement also provides that in the event that Mr. Subhedar is terminated for
any reason other than "cause," or if he resigns for "good reason" (each as
defined therein), (i) he will be entitled to receive a severance payment in an
amount equal to his monthly base salary until the earlier of the expiration of
12 months or his commencement of employment with another firm and (ii) the
vesting of all options and restricted stock held by him subject to a right of
repurchase by the Company will be accelerated by 12 months. In addition, the
agreement provides that upon a "change of control" of the Company, the vesting
of all options and restricted stock held by him will be accelerated by 12
months (but will not be further accelerated beyond the acceleration described
in the foregoing sentence upon any subsequent termination of his employment
with the Company following such change of control).

On May 26, 1998, the Company entered into an employment agreement with
Philip J. Anthony to serve as the Company's Vice President of Engineering. The
agreement provides that Mr. Anthony will be an "at-will" employee of the
Company, that he will be paid a base salary of $160,000 per annum (subject to
annual review), and that he will be entitled to receive a bonus of up to 30%
of his then current base salary. The agreement also provides that in the event
that Mr. Anthony is terminated for any reason other than "cause," or if he
resigns for "good reason" (each as defined therein), (i) he will be entitled
to receive a severance payment in an amount equal to his monthly base salary
until the earlier of the expiration of 12 months or his commencement of
employment with another firm, and (ii) the vesting of all options and
restricted stock held by him subject to a right of repurchase by the Company
will be accelerated by 12 months.

On July 21, 1998, the Company entered into an employment agreement with Jim
Northington to serve as the Company's Vice President of Manufacturing. The
agreement provides that Mr. Northington will be an "at-will" employee of the
Company, that he will be paid a base salary of $160,000 per annum (subject to
annual review), and that he will be entitled to receive a bonus of up to 30%
of his then current base salary.

On September 21, 1998, the Company entered into an employment agreement with
William H. Diamond, Jr. to serve as the Company's Vice President of Marketing.
The agreement provides that Mr. Diamond will be an "at-will" employee of the
Company, that he will be paid a base salary of $180,000 per annum (subject to
annual review), and that he will be entitled to receive a bonus of up to 30%
of

49
<PAGE>

his then current base salary. The agreement also provides that in the event
that Mr. Diamond is terminated for any reason other than "cause," or if he
resigns for "good reason" (each as defined therein), (i) he will be entitled
to receive a severance payment in an amount equal to his monthly base salary
until the earlier of the expiration of 12 months or his commencement of
employment with

another firm, and (ii) the vesting of all options and restricted stock held by
him subject to a right of repurchase by the Company will be accelerated by 12
months.

STOCK PLANS

1997 EQUITY INCENTIVE PLAN

The Company's 1997 Equity Incentive Plan (the "1997 Plan") was adopted by
the Board of Directors and approved by the stockholders in June 1997. A total
of 10,555,555 shares of Common Stock have been reserved for issuance under the
1997 Plan. As of November 2, 1998, 1,506,855 shares of Common Stock subject to
repurchase by the Company had been issued upon exercise of options, 1,896,794
shares of Common Stock not subject to repurchase by the Company had been
issued upon exercise of options, and 4,233,547 shares of Common Stock options
were outstanding at a weighted average exercise price of $5.88. The Board of
Directors has determined that no further options will be granted under the
1997 Plan after the completion of this offering. Unless terminated sooner, the
1997 Plan will terminate automatically in June 2007.

The 1997 Plan provides for the grant of incentive stock options, within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), to employees of the Company and for the grant of nonstatutory stock
options and restricted stock awards to employees, directors and consultants of
the Company.

Options granted under the 1997 Plan must generally be exercised within three
months after the end of an optionee's status as an employee, director or
consultant of the Company, or within twelve months after such optionee's
termination by death or disability, but in no event later than the expiration
of the option term. In the event an optionee is terminated for cause, his or
her option shall terminate immediately.

Options and restricted stock awards granted under the 1997 Plan are
generally not transferable by the optionee other than by will or by the laws
of descent and distribution, and each option and restricted stock award is
exercisable during the lifetime of the optionee only by such optionee. The
1997 Plan provides that in the event of a (i) dissolution or liquidation of
the Company, (ii) certain mergers or consolidations or (iii) a sale of all or
substantially all of the assets of the Company, each option and restricted
stock award shall be assumed or an equivalent option or award substituted for
by the successor corporation. If the outstanding options and restricted stock
awards are not assumed or substituted for by the successor corporation, such
options and restricted stock awards shall terminate.

1997 EXECUTIVE EQUITY INCENTIVE PLAN

The Company's 1997 Executive Equity Incentive Plan (the "1997 Executive
Plan") was adopted by the Board of Directors in October 1997 and approved by
the stockholders in December 1997. A total of 4,444,445 shares of Common Stock
have been reserved for issuance under the 1997 Executive Plan. As of November
2, 1998, 3,836,667 shares of Common Stock subject to repurchase by the Company
had been issued upon exercise of options, 188,333 shares of Common Stock not
subject to repurchase by the Company had been issued upon exercise of options,
and 419,445 shares of Common Stock options were outstanding at a weighted
average exercise price of $10.00. The Board of Directors has determined that
no further options will be granted under the 1997 Executive Plan after the
completion of this offering. Unless terminated sooner, the 1997 Executive Plan
will terminate automatically in October 2007.

50
<PAGE>

The 1997 Executive Plan provides for the grant of incentive stock options,
within the meaning of Section 422 of the Code, non-qualified stock options,
restricted stock awards and stock bonuses (each, an "Award") to employees of
the Company who are also directors or officers of the Company.

Options granted under the 1997 Executive Plan must generally be exercised
within three months after the end of an optionee's status as an employee,
director or consultant of the Company, or within twelve months after such
optionee's termination by death or disability, but in no event later than the
expiration of the option term. In the event an optionee is terminated for
cause, his or her option shall terminate immediately.

Awards granted under the 1997 Executive Plan are generally not transferable
by the optionee other than by will or by the laws of descent and distribution,
and each Award is exercisable during the lifetime of the optionee only by such
optionee. The 1997 Executive Plan provides that in the event of a (i)
dissolution or liquidation of the Company, (ii) certain mergers or
consolidations or (iii) a sale of all or substantially all of the assets of
the Company, each Award shall be assumed or an award substituted for by the
successor corporation. If the outstanding Awards are not assumed or
substituted for by the successor corporation, vesting of the Awards shall
accelerate immediately prior to the consummation of such transaction and shall
terminate on the consummation of such transaction.

1998 STOCK PLAN

The Company's 1998 Stock Plan (the "1998 Plan") was adopted by the Board of
Directors in August 1998 and approved by the stockholders in November 1998. As
of the date of this Prospectus, no options have been granted under the 1998
Plan.

The 1998 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 ("SPRs") to employees, directors and
consultants. A total of (i) 3,000,000 shares of Company Common Stock (plus
shares which have been reserved but unissued under the Company's 1997 Plan),
(ii) any shares returned to the 1997 Plan as a result of termination of
options or repurchase of shares by the Company and (iii) annual increases to
be added on the date of each annual meeting of stockholders commencing in 1999
equal to the lesser of 3,000,000 shares, 4% of the outstanding shares, or such
lesser amount as may be determined by the Board of Directors, are currently
reserved for issuance pursuant to the 1998 Plan. Unless terminated sooner, the
1998 Plan will terminate automatically in September 2008.

The administrator of the 1998 Plan has the power to determine the terms of
the options or SPRs granted, including the exercise price of the option or
SPR, the number of shares subject to each option or SPR, the exercisability
thereof, and the form of consideration payable upon such exercise. In
addition, the Administrator has the authority to amend, suspend or terminate
the 1998 Plan, provided that no such action may affect any share of Company
Common Stock previously issued and sold or any option or SPR previously
granted under the 1998 Plan.

Options and SPRs granted under the 1998 Plan are generally not transferable
by the optionee, and each option and SPR is exercisable during the lifetime of
the optionee only by such optionee. Options granted under the 1998 Plan must
generally be exercised within three months after the end of an optionee's
status as an employee, director or consultant of the Company, or within twelve
months after such optionee's termination by death or disability, but in no
event later than the expiration of the option term.

In the case of SPRs, unless the Administrator determines otherwise, the
restricted stock purchase agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment or consulting relationship with the Company for any
reason (including death or disability). The purchase price for shares
repurchased pursuant to the restricted

51
<PAGE>

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 the
Company. The repurchase option shall lapse at a rate determined by the
Administrator.

The exercise price of all incentive stock options granted under the 1998
Plan must be at least equal to the fair market value of the Company Common
Stock on the date of grant. The exercise price of nonstatutory stock options
and SPRs granted under the 1998 Plan is determined by the Administrator, but
with respect to nonstatutory stock options intended to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the exercise price must be at least equal to the fair market value of
the Company Common Stock on the date of grant. With respect to any participant
who owns stock possessing more than 10% of the voting power of all classes of
the Company's outstanding capital stock, the exercise price of any incentive
stock option granted must be at least equal to 110% of the fair market value
on the grant date and the term of such incentive stock option must not exceed
five years. The term of all other options granted under the 1998 Plan may not
exceed ten years.

The 1998 Plan provides that in the event of a merger of the Company with or
into another corporation, or a sale of substantially all of the Company's
assets, each option and SPR shall be assumed or an equivalent option
substituted for by the successor corporation. If the outstanding options and
SPRs are not assumed or substituted for by the successor corporation, the
Administrator shall provide for the optionee to have the right to exercise the
option or SPR as to all of the optioned stock, including shares as to which it
would not otherwise be exercisable. If the Administrator makes an option or
SPR exercisable in full in the event of a merger or sale of assets, the
Administrator shall notify the optionee that the option or SPR shall be fully
exercisable for a period of fifteen (15) days from the date of such notice,
and the option or SPR will terminate upon the expiration of such period.

1998 EMPLOYEE STOCK PURCHASE PLAN

The Company's 1998 Employee Stock Purchase Plan (the "1998 Purchase Plan")
was adopted by the Board of Directors in August 1998 and approved by the
stockholders in November 1998. A total of 750,000 shares of Company Common
Stock has been reserved for issuance under the 1998 Purchase Plan, plus annual
increases equal to the lesser of (i) 750,000 shares, (ii) 1% of the
outstanding shares on such date, or (iii) such lesser amount as may be
determined by the Board of Directors. As of the date of this Prospectus, no
shares have been issued under the 1998 Purchase Plan.

The 1998 Purchase Plan, which is intended to qualify under Section 423 of
the Code, contains consecutive, overlapping, twenty-four month offering
periods. Each offering period includes four six-month purchase periods. The
offering periods generally start on the first trading day on or after May 1
and November 1 of each year, except for the first such offering period which
commences on the first trading day on or after the effective date of this
offering and ends on the last trading day on or before October 31, 2000.

Employees are eligible to participate if they are customarily employed by
the Company or any participating subsidiary for at least 20 hours per week and
more than five months in any calendar year. However, any employee who (i)
immediately after any grant owns stock possessing 5% or more of the total
combined voting power or value of all classes of the capital stock of the
Company or (ii) whose rights to purchase stock under all employee stock
purchase plans of the Company accrues at a rate which exceeds $25,000 worth of
stock for each calendar year may not be granted an option to purchase stock
under the 1998 Purchase Plan. The 1998 Purchase Plan permits participants to
purchase Common Stock through payroll deductions of up to 10% of the
participant's "compensation." Compensation is defined as the participant's
base straight time gross earnings and commissions, including payments for
overtime, shift premiums, incentive compensation, incentive payments,

52
<PAGE>

bonuses and other compensation. The maximum number of shares a participant may
purchase during a single purchase period is 5,000 shares.

Amounts deducted and accumulated by the participant are used to purchase
shares of Common Stock at the end of each purchase period. The price of stock
purchased under the 1998 Purchase Plan is generally 85% of the lower of the
fair market value of the Common Stock (i) at the beginning of the offering
period or (ii) at the end of the purchase period. In the event the fair market
value at the end of a purchase period is less than the fair market value at
the beginning of the offering period, the participants will be withdrawn from
the current offering period following exercise and automatically re-enrolled
in a new offering period. The new offering period will use the lower fair
market value as of the first date of the new offering period to determine the
purchase price for future purchase periods. Participants may end their
participation at any time during an offering period, and they will be paid
their payroll deductions to date. Participation ends automatically upon
termination of employment with the Company.

Rights granted under the 1998 Purchase Plan are not transferable by a
participant other than by will, the laws of descent and distribution, or as
otherwise provided under the 1998 Purchase Plan. The 1998 Purchase Plan
provides that, in the event of a merger of the Company with or into another
corporation or a sale of substantially all of the Company's assets, each
outstanding right to purchase stock may be assumed or substituted for by the
successor corporation. If the successor corporation refuses to assume or
substitute for the outstanding rights to purchase stock, the offering period
then in progress will be shortened and a new exercise date will be set.

The Board of Directors has the authority to amend or terminate the 1998
Purchase Plan, except that no such action may adversely affect any outstanding
rights to purchase stock under the 1998 Purchase Plan, provided that the Board
of Directors may terminate an offering period on any exercise date if the
Board determines that the termination of the 1998 Purchase Plan is in the best
interests of the Company and its stockholders. Notwithstanding anything to the
contrary, the Board of Directors may in its sole discretion amend the 1998
Purchase Plan to the extent necessary and desirable to avoid unfavorable
financial accounting consequences by altering the purchase price for any
offering period, shortening any offering period or allocating remaining shares
among the participants. The 1998 Purchase Plan will terminate in August 2008,
unless sooner terminated by the Board of Directors.

1998 DIRECTOR OPTION PLAN

The 1998 Director Option Plan (the "Director Plan") was adopted by the Board
of Directors in August 1998 and approved by the stockholders in November 1998.
The Director Plan provides for the grant of nonstatutory stock options to non-
employee directors who are not also partners or members of any venture capital
investor which owns securities of the Company holding more than five percent
(5%) of the total voting power of the Company's outstanding capital stock
("Outside Directors"). The Director Plan has a term of ten years, unless
terminated sooner by the Board. A total of 250,000 shares of Company Common
Stock, plus an annual increase equal to the optioned stock underlying options
granted in the immediately preceding year (or such lesser amount as may be
determined by the Board of Directors), have been reserved for issuance under
the Director Plan. As of the date of this Prospectus, no options have been
granted under the Director Plan.

The Director Plan provides that each new Outside Director shall
automatically be granted an option to purchase 40,000 shares of Company Common
Stock (the "First Option") on the date which such person first becomes a non-
employee director. In addition to the First Option, each Outside Director
shall automatically be granted an option to purchase 10,000 shares (a
"Subsequent Option") on the date which is two (2) days after the Company's
financial results for the preceding fiscal year are announced to the public,
if on such date he or she shall have served on the Board of Directors for at
least six months. Each First Option and Subsequent Option shall have a term of
10 years. The shares subject to the First Option and Subsequent Option shall
vest as to 1/4 of the optioned stock

53
<PAGE>

one year from the date of grant, and 1/48 of the optioned stock each month
thereafter, provided the person continues to serve as an Outside Director on
such dates. The exercise price of each First Option and each Subsequent Option
shall be 100% of the fair market value per share of the Company Common Stock
on the date of grant.

In the event of a merger of the Company or the sale of substantially all of
the assets of the Company, each option granted to an Outside Director under
the Director Plan shall become fully vested and exercisable for a period of
thirty (30) days from the date the Board notifies the optionee of the option's
full exercisability, after which period the option shall terminate. Options
granted under the Director Plan must be exercised within three months of the
end of the optionee's tenure as a director of the Company, or within twelve
months after such director's termination by death or disability, but in no
event later than the expiration of the option's ten year term. No option
granted under the Director Plan is transferable by the optionee other than by
will or the laws of descent and distribution, and each option is exercisable,
during the lifetime of the optionee, only by such optionee.

LIMITATION OF LIABILITY AND INDEMNIFICATION

The Company's Certificate of Incorporation provides that a director of the
Company shall not be personally liable for monetary damages to the Company or
its stockholders for a breach of fiduciary duty as a director, except for
liability as a result of (i) a breach of the director's duty of loyalty to the
Company or its stockholders, (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) an act
related to the unlawful stock repurchase or payment of a dividend under
Section 174 of the Delaware General Corporation Law or (iv) transactions from
which the director derived an improper personal benefit. Such limitation of
liability does not affect the availability of equitable remedies such as
injunctive relief or rescission.

The Company's Certificate of Incorporation also authorizes the Company to
indemnify its officers, directors and other agents to the full extent
permitted under the Delaware General Corporation Law. The Company has entered
into separate indemnification agreements with its directors and executive
officers that may, in some cases, provide broader indemnification protection
than the specific indemnification provisions contained in the Delaware General
Corporation Law. The indemnification agreements require the Company, among
other things, to indemnify such officers and directors against certain
liabilities that may arise by reason of their status or service as officers or
directors (other than liabilities arising from willful misconduct of a
culpable nature), and to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified. In addition,
these agreements extend similar indemnification arrangements to stockholders
whose representatives serve as directors of the Company.

At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened
litigation or proceeding which may result in a claim for such indemnification.

54
<PAGE>

CERTAIN TRANSACTIONS

Since July 1, 1995, there has not been any transaction or series of similar
transactions to which the Company was or is a party in which the amount
involved exceeded or exceeds $60,000 and in which any director, executive
officer, holder of more than 5% of any class of the Company's voting
securities, or any member of the immediate family of any of the foregoing
persons had or will have a direct or indirect material interest, other than
the transactions described below and under "Management--Employment Agreements
and Change of Control Arrangements" and "--Limitation of Liability and
Indemnification."

RECAPITALIZATION

On July 23, 1997, the Company completed a recapitalization (the
"Recapitalization"). Prior to the Recapitalization, the authorized capital
stock of the Company consisted of 1,000,000 shares of Common Stock of which
101,271 shares were issued and outstanding, all of which were beneficially
owned by Jing Jong Pan and Theresa Pan (the "Founders"). In connection with
the Recapitalization, the Company consummated a stock split which resulted in
the conversion of the 101,271 outstanding shares of Common Stock into
50,000,000 shares of Common Stock. The Company then (i) authorized and sold
30,000,000 shares of Convertible Preferred Stock, a controlling stake in the
Company, to certain investors for an aggregate purchase price of $120 million
and (ii) repurchased 30,000,000 shares of Common Stock from the Company's
Founders for $120 million.

The Convertible Preferred Stock has certain rights and privileges, including
the right to receive preferential dividends and participating dividends, the
right to preferential distributions upon a liquidation of the Company, the
ability to require the Company to redeem such shares in certain circumstances,
the right to approve certain actions by the Company, and the right to elect a
majority of the directors of the Company. The Convertible Preferred Stock
issued in the Recapitalization will be converted into Common Stock upon the
closing of this offering and the holders thereof will therefore forfeit any
right to receive accumulated dividends on such Convertible Preferred Stock.

In connection with the Recapitalization, the Company, the purchasers of the
Convertible Preferred Stock and the Founders also entered into a Shareholders
Agreement relating to the ongoing corporate governance of the Company,
including the composition of the Board of Directors and restrictions on
transfer of the stock of the Company, including rights of first refusal and
co-sale rights. All such restrictions will terminate upon the closing of this
offering.

In connection with Recapitalization, the Company, the purchasers of
Convertible Preferred Stock and the Founders entered into a Registration
Agreement pursuant to which such shareholders acquired certain registration
rights in respect of the shares of the Company's capital stock acquired in
connection with Recapitalization. See "Description of Capital Stock--
Registration Rights."

Pursuant to the Recapitalization, the Company entered into agreements with
the Founders and with certain other executives of the Company pursuant to
which such persons purchased shares of Common Stock of the Company with the
proceeds of a loan from the Company to such persons.

55
<PAGE>

The purchasers of Convertible Preferred Stock and Common Stock in connection
with the Recapitalization included, among others, the following directors,
executive officers and holders of more than 5% of the outstanding Common
Stock, and certain family members of the foregoing:

<TABLE>
<CAPTION>
NO. OF PURCHASE TYPE OF
NAME TITLE SHARES PRICE STOCK
- ---- ----- ---------- ------------ ---------------------
<S> <C> <C> <C> <C>
Summit/E-Tek Holdings, -- 27,000,000 $108,000,000 Convertible Preferred
L.L.C. (1).............

Ming Shih............... Senior Vice President, 1,111,111(2) 2,555,555 Common
Sales and Marketing

Kung Shih............... President of FibX 1,111,110(2) 2,555,553 Common
</TABLE>
- --------

(1) Walter G. Kortschak, Chairman of the Board of Directors of the Company,
and Peter Y. Chung, a former director who the Company expects will rejoin
the Board of Directors upon the closing of this offering, are affiliated
with Summit Ventures IV, L.P., Summit Investors III, L.P. and Summit
Subordinated Debt Fund II, L.P. (collectively, the "Summit Funds") which
are all of the members of Summit/E-Tek Holdings, L.L.C., an entity formed
by the Summit Funds for purposes of investing in the Company. See
"Management" and "Principal Stockholders."

(2) Includes 555,555 shares that are subject to a right of repurchase by the
Company which lapses periodically over a three-year period which commenced
in July 1997. Ming Shih and Kung Shih are brothers.

INDEMNIFICATION AGREEMENTS

The Company has entered into indemnification agreements with each of its
directors and executive officers. See "Management--Limitation of Liability and
Indemnification."

LOANS TO OFFICERS

From time to time the Company has made interest-free loans to certain
executive officers of the Company to fund the exercise of stock options held
by such executive officers. These loans are evidenced by promissory notes
which mature on the dates set forth below, subject to certain acceleration
events. Such promissory notes are secured by the shares of Common Stock
purchased with the proceeds of such loans, and are either full recourse or
substantial recourse against the assets of the borrower. The following table
sets forth the name and position of such officers, certain information with
respect to the promissory notes issued to evidence such loans, and the number
of shares of the Company's Common Stock purchased with the proceeds of such
loans.

<TABLE>
<CAPTION>
PRINCIPAL SHARES ISSUANCE MATURITY
NAME AND POSITION(S) AMOUNT PURCHASED DATE DATE
- -------------------- ---------- --------- -------- ----------
<S> <C> <C> <C> <C>
Michael J. Fitzpatrick................ $5,198,000 2,260,000 11/13/97 11/13/2002
President and Chief Executive Officer 1,289,500 565,000 11/13/97 11/13/2002

Sanjay Subhedar....................... 3,900,000 1,200,000 12/11/97 12/11/2002
Senior Vice President, Operations,
Chief Financial Officer and Secretary

Ming Shih............................. 1,277,776 555,555 07/23/97 07/23/2006
Senior Vice President, Sales and
Marketing 1,277,778 555,556 07/23/97 07/23/2006

Philip J. Anthony..................... 1,250,000 125,000 06/25/98 06/25/2003
Vice President, Engineering
</TABLE>

The entire principal amount on each of the loans described in the table set
forth above remains outstanding as of the date of this offering.

56
<PAGE>

For a description of certain options granted to the executive officers and
directors of the Company since January 1, 1995, see "Management--Option Grants
in Last Fiscal Year," "--Employment Agreements and Change of Control
Arrangements" and "--Stock Plans."

The Company believes that all transactions with affiliates described above,
other than the interest-free loans made to executive officers, were made on
terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, if any,
between the Company and its officers, directors, principal stockholders and
their affiliates will be approved by a majority of the Board of Directors,
including a majority of the independent and disinterested members of the Board
of Directors, and will be on terms no less favorable to the Company than could
be obtained from unaffiliated third parties.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with the following
executive officers: Michael J. Fitzpatrick, Sanjay Subhedar, Philip J.
Anthony, Jim Northington and William H. Diamond, Jr. See "Management--
Employment Agreements and Change of Control Arrangements." In addition, the
Company has entered into an employment agreement with Jing Jong Pan, dated
July 23, 1997, pursuant to which the Company has agreed to employ Mr. Pan as
an "E-Tek Fellow," and as the head of a research and development division of
the Company, for a minimum three-year period. The Company may, however,
terminate Mr. Pan's employment with the Company during such three-year period
with or without cause. During the term of the agreement, Mr. Pan will be
entitled to receive an annual base salary of at least $200,000.

DIRECTOR OPTION GRANTS

In July 1998, the Company granted an option to purchase 40,000 shares of
Common Stock of the Company under the Company's 1997 Equity Incentive Plan to
each of directors David W. Dorman, Donald J. Listwin and Joseph W. Goodman.
Such options have an exercise price of $10.00 per share and vest periodically
over a four-year period.

57
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's outstanding Common Stock as of November 2, 1998,
and as adjusted to reflect the sale of the shares offered hereby, by (i) each
stockholder of the Company who is known to the Company to be the beneficial
owner of more than 5% of the Company's Common Stock, (ii) each of the
Company's directors, (iii) each of the Company's executive officers, and (iv)
all directors and executive officers of the Company as a group.

<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES BENEFICIALLY
NUMBER OF OWNED(3)(4)
SHARES ----------------------
NAME AND ADDRESS OF BENEFICIAL BENEFICIALLY BEFORE AFTER
OWNERS(1) OWNED(2) OFFERING OFFERING
------------------------------ ------------ --------- ---------
<S> <C> <C> <C>
Summit/E-Tek Holdings, L.L.C.(5)....... 27,000,000 47.0% 44.0%
c/o Summit Partners, L.P.
499 Hamilton Avenue
Suite 200
Palo Alto, California 94301
Jing Jong Pan(6)....................... 10,000,000 17.4 16.3
Theresa Pan(7)......................... 10,000,000 17.4 16.3
Peter Y. Chung(8)...................... 27,000,000 47.0 44.0
Walter G. Kortschak(9)................. 27,000,000 47.0 44.0
Michael J. Fitzpatrick................. 2,825,000 4.9 4.6
David W. Dorman(10).................... 40,000 * *
Joseph W. Goodman(10).................. 40,000 * *
Donald J. Listwin(10).................. 40,000 * *
Ming Shih(11).......................... 1,261,111 2.2 2.1
Sanjay Subhedar(12).................... 1,275,000 2.2 2.1
Philip J. Anthony...................... 125,000 * *
Jim Northington........................ -- -- --
William H. Diamond, Jr................. -- -- --
All directors and executive officers as
a group
(11 persons)(13)...................... 32,606,111 56.8 53.1
</TABLE>
- --------

* Represents beneficial ownership of less than 1% of the outstanding shares
of Common Stock of the Company.

(1) Except as otherwise noted, the address of each person listed in the table
is c/o E-Tek Dynamics, Inc., 1865 Lundy Avenue, San Jose, California
95131.

(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment
power with respect to the securities. To the knowledge of the Company,
the persons and entities named have sole voting and investment power with
respect to all shares of Common Stock of the Company beneficially owned
by them, subject to community property laws where applicable and except
as otherwise indicated in the following footnotes to the table.

(3) Percentage of shares beneficially owned is based on 57,428,649 shares of
Common Stock of the Company outstanding as of November 2, 1998 and
61,428,649 shares to be outstanding upon consummation of this offering.
Shares issuable upon the exercise of stock options or other rights to
acquire shares of Common Stock of the Company which are exercisable
within 60 days of November 2, 1998, and shares issuable upon the
conversion of all securities that are convertible into shares of Common
Stock of the Company, are deemed to be outstanding for the purpose of
computing the number of shares beneficially owned and the percentage
ownership of the person or entity holding any such shares, but are not
deemed to be outstanding for purposes of

58
<PAGE>

computing the number of shares beneficially owned or the percentage
ownership of any other person.

(4) Assumes no exercise of the Underwriters' over-allotment option.

(5) Summit/E-Tek Holdings, L.L.C. ("Holdings") is a Delaware limited
liability company formed by the Summit Funds for the purpose of investing
in the Company. Summit Ventures IV, L.P. and Summit Subordinated Debt
Fund II, L.P. are the Managers of Holdings and jointly have the power to
direct the voting and disposition of all Common Stock of the Company held
by Holdings.

(6) All such shares are held by J.J. & Theresa Pan Revocable Trust, of which
Mr. Pan and Theresa Pan are co-trustees. Mr. Pan and Theresa Pan share
voting power over the shares held by such trust. Mr. Pan is the spouse of
Theresa Pan.

(7) Excludes shares held by the J.J. & Theresa Pan Revocable Trust. See Note
(6). Ms. Pan is the spouse of Jing Jong Pan and the sister of Ming Shih.
All such shares are the separate property of Ms. Pan.

(8) Represents shares held by Holdings. Summit Subordinated Debt Fund II,
L.P. is a Manager of Holdings. Mr. Chung, who the Company anticipates
will be a director of the Company upon the closing of this offering, is a
Principal of Summit Partners SD II, L.L.C., which is a general partner of
Summit Subordinated Debt Fund II, L.P. Mr. Chung disclaims beneficial
ownership of such shares except to the extent of his pecuniary interest
therein.

(9) Represents shares held by Holdings. Summit Ventures IV, L.P. and Summit
Subordinated Debt Fund II, L.P. are the Managers of Holdings. Mr.
Kortschak, Chairman of the Board of Directors of the Company, is (i) a
general partner of Stamps, Woodsum & Co. IV, which is the general partner
of Summit Ventures IV, L.P. and (ii) a member of Summit Partners SD II,
L.L.C., which is the general partner of Summit Subordinated Debt Fund II,
L.P. Mr. Kortschak disclaims beneficial ownership of such shares except
to the extent of his pecuniary interest therein.

(10) Represents shares of Common Stock issuable upon the exercise of options.

(11) Ming Shih is the brother of Theresa Pan.

(12) Includes 75,000 shares of Common Stock issuable upon the exercise of
options.

(13) Includes shares of Common Stock of the Company issuable upon the exercise
of stock options and shares beneficially owned by Holdings, with which
Messrs. Kortschak and Chung are associated, as to which shares they
disclaim beneficial ownership, except to the extent of their pecuniary
interest therein. See Notes (8), (9), (10) and (12).

59
<PAGE>

DESCRIPTION OF CAPITAL STOCK

GENERAL

Upon the closing of this offering, the authorized capital stock of the
Company will consist of 300,000,000 shares of Common Stock, $0.001 par value,
and 25,000,000 shares of undesignated preferred stock ("Preferred Stock"),
$0.01 par value. The following description of the Company's capital stock does
not purport to be complete and is subject to, and qualified in its entirety
by, the terms of the Certificate of Incorporation and Bylaws of the Company,
copies of which have been filed with the Commission as exhibits to the
Company's Registration Statement of which this prospectus forms a part, and by
the applicable provisions of Delaware law.

COMMON STOCK

As of November 2, 1998, there were 57,428,649 shares of Common Stock of the
Company outstanding which were held of record by approximately 131
stockholders, as adjusted to reflect the conversion of all convertible
securities into shares of the Company's Common Stock upon the closing of this
offering. Assuming no exercise of the Underwriters' over-allotment option and
no exercise of options to purchase Common Stock after November 2, 1998, there
will be 61,428,649 shares of Common Stock of the Company outstanding after
giving effect to the sale of all the shares of Common Stock of the Company to
be sold in connection with the offering.

Holders of Common Stock are entitled to one vote per share on all matters to
be voted upon by the stockholders of the Company. Holders of Common Stock do
not have cumulative voting rights under the Company's Certificate of
Incorporation or Bylaws and, therefore, holders of a majority of the shares
voting for the election of directors can elect all of the directors of the
Company, subject to the classified board provisions set forth in the Company's
Certificate of Incorporation. See "Management--Executive Officers and
Directors." In such event, the holders of the remaining shares will not be
able to elect any directors. The shares of Common Stock offered in connection
with this offering, when issued, will be fully paid and nonassessable and will
not be subject to any redemption or sinking fund provisions. Holders of Common
Stock do not have any preemptive, subscription or conversion rights. Holders
of Common Stock are entitled to receive such dividends as may be declared from
time to time by the Board of Directors out of funds legally available
therefor, subject to the rights of preferred stockholders and the terms of any
existing or future agreements between the Company and its debt holders. Since
January 1, 1995, the Company has not declared or paid any cash dividends on
its Common Stock. The Company presently intends to retain future earnings, if
any, for use in the operation and expansion of its business and does not
anticipate paying cash dividends in the foreseeable future. See "Dividend
Policy." In the event of the liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all
assets legally available for distribution after payment of all debts and other
liabilities and subject to the prior rights of any holders of Preferred Stock
then outstanding.

PREFERRED STOCK

Upon the closing of this offering, the Company will be authorized to issue
25,000,000 shares of Preferred Stock. The Board of Directors has the authority
to issue the Preferred Stock in one or more series and to fix the price,
rights, preferences, privileges and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares
constituting a series or the designation of such series, without any further
vote or action by the Company's stockholders. The issuance of Preferred Stock
could have the effect of delaying, deferring or preventing a change in control
of the Company without further action by the stockholders and may adversely
affect the market price, and the voting and other rights, of the holders of
Common Stock. The issuance of Preferred Stock with voting and conversion
rights may adversely affect the voting power of the holders of Common Stock,
including

60
<PAGE>

the loss of voting control to others. The Company has no current plans to
issue any shares of Preferred Stock.

ANTI-TAKEOVER EFFECTS OF THE CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE
LAW

CERTIFICATE OF INCORPORATION AND BYLAWS

Effective upon the closing of this offering, the Company's Certificate of
Incorporation will provide that the Board of Directors will be divided into
three classes of directors with each class serving a staggered three-year
term. See "Management--Executive Officers and Directors." The classification
system of electing directors may tend to discourage a third party from making
a tender offer or otherwise attempting to obtain control of the Company and
may maintain the incumbency of the Board of Directors, as it generally makes
it more difficult for stockholders to replace a majority of the directors. The
Company's Certificate of Incorporation will also eliminate, upon the closing
of this offering, the right of stockholders to act without a meeting and does
not provide for cumulative voting in the election of directors. These and
other provisions may have the effect of deterring hostile takeovers or
delaying changes in control or management of the Company. The amendment of any
of these provisions would require approval by holders of at least two thirds
of the combined voting power of all of the outstanding Common Stock and
Preferred Stock entitled to vote, unless an amendment is approved by a
majority of the directors of the Company not affiliated with or associated
with any person or entity holding 20% or more of the voting power of the
Company's outstanding capital stock.

DELAWARE TAKEOVER STATUTE

The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that
such stockholder became an interested stockholder, unless: (i) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction that
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (x) by persons
who are directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or (iii) on or subsequent to such date, the business
combination is approved by the board of directors and authorized at an annual
or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that is
not owned by the interested stockholder.

Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii)
any sale, transfer, pledge or other disposition of 10% or more of the assets
of the corporation involving the interested stockholder; (iii) subject to
certain exceptions, any transaction that results in the issuance or transfer
by the corporation of any stock of the corporation to the interested
stockholder; (iv) any transaction involving the corporation that has the
effect of increasing the proportionate share of any class or series of stock
of the corporation beneficially owned by the interested stockholder; or (v)
the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by such entity or person.

61
<PAGE>

REGISTRATION RIGHTS

Pursuant to the terms of a Registration Agreement entered into in connection
with the Recapitalization, the holders of a majority of the shares held by
certain investors in the Company at the time of the Recapitalization
("Investors") may demand registration by the Company of all or any portion of
their shares of Common Stock of the Company in connection with the sale of
such shares by such Investors. Such demand registrations are not limited in
number, but the Company is not obligated to pay the expenses associated with
more than three demand registrations on Form S-1. The managing underwriter of
an offering involving a demand registration may limit the number of shares to
be included in such registration on the basis of market considerations.
Holders of a majority of the shares held by Investors to be included in a
demand registration are entitled to choose the managing underwriter, if any,
of the offering for which the registration is being effected. The parties to
the Registration Agreement are entitled to notice of, and to participate in,
any registration proposed by the Company (other than registrations on Form S-4
or Form S-8). The managing underwriter of such a "piggyback" registration
involving an underwritten offering may limit the number of shares of Common
Stock of the Company held by the Investors and the Founders to be included in
such registration. The Registration Agreement contains a lock-up provision
pursuant to which the holders of registrable securities agree not to sell any
securities of the Company during (i) the seven days prior to and (ii)(A) the
180 days after the effectiveness of a registration statement filed in
connection with the Company's initial public offering or (B) unless the
underwriters otherwise agree, the 90 days after the effectiveness of a
registration statement filed in connection with the Company's next registered
public offering or any underwritten registration (demand or piggyback) of
shares of the Company's Common Stock that includes shares registered pursuant
to the rights granted under the Registration Agreement.

LISTING

The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "ETEK."

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is Boston EquiServe
LP, and its telephone number is 781-575-2000.

62
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that a significant public market for the
Common Stock will develop or be sustained after this offering. Future sales of
substantial amounts of Common Stock (including shares issued upon exercise of
outstanding options) in the public market following this offering could
adversely affect market prices of the Common Stock prevailing from time to
time and could impair the Company's ability to raise capital through sale of
its equity securities. As described below, no shares currently outstanding
will be available for sale immediately after this offering because of certain
contractual restrictions on resale. Sales of substantial amounts of Common
Stock of the Company in the public market after the restrictions lapse could
adversely affect the prevailing market price and the ability of the Company to
raise equity capital in the future.

Upon completion of this offering, the Company will have outstanding an
aggregate of 61,428,649 shares of Common Stock, assuming no exercise of the
Underwriters' over-allotment option or stock options after November 2, 1998.
All of the 4,000,000 shares sold in the offering (4,600,000 shares if the
Underwriters' over-allotment option is exercised in full) will be freely
tradable without restriction or further registration under the Securities Act,
except for any shares purchased by "affiliates" of the Company as that term is
defined in Rule 144 under the Securities Act. Sales by affiliates will be
subject to certain limitations and restrictions described below.

As of November 2, 1998, there were a total of 4,652,992 shares of Common
Stock subject to outstanding options granted under the 1997 Equity Incentive
Plan and the 1997 Executive Equity Incentive Plan, 1,086,787 of which were
vested as of November 2, 1998, and an additional 192,016 of which will become
vested within 180 days of the effective date of this offering. As of November
2, 1998 no shares have been issued under the 1998 Director Option Plan, the
1998 Employee Stock Purchase Plan and the 1998 Stock Plan. The Company intends
to file a registration statement on Form S-8 under the Securities Act to
register shares of Common Stock subject to outstanding stock options or
reserved for issuance under the 1997 Equity Incentive Plan, the 1997 Executive
Equity Incentive Plan, the 1998 Stock Plan, the 1998 Employee Stock Purchase
Plan and the 1998 Director Option Plan (the "Plans") within 180 days after the
date of this Prospectus, thereby permitting the resale of such shares by
nonaffiliates in the public market without restriction under the Securities
Act, subject to restrictions in the lock-up agreements. After the effective
date of the registration statement on Form S-8, shares purchased upon exercise
of options granted or otherwise purchased under the Plans generally would be
available for resale in the public market.

Holders of 57,428,649 shares of the Company's capital stock and options to
purchase 3,151,509 shares of the Company's capital stock are subject to lock-
up agreements, including all 131 stockholders of the Company and all officers
and directors of the Company. In addition, holders of the remaining options to
purchase 1,501,483 shares of the Company's Common Stock will be required to
execute lock-up agreements in connection with any exercise of such options.
Shares covered by the lock-up agreements are subject to restrictions on resale
in the public market for a period of 180 days following the effective date of
this offering, subject, in most cases, to release, directly or indirectly, by
Goldman, Sachs & Co. Upon expiration of this lock-up period, all 57,428,649
shares will become eligible for sale in the public market, 52,606,111 of which
will be subject to the volume and other limitations of Rule 144 described
below. In addition, holders of stock options could exercise these options and
sell certain of the shares issued upon exercise as described below.

Beginning six months after the date of the offering, holders of 54,025,000
shares of Common Stock of the Company also will be entitled to certain rights
with respect to the registration of such shares for sale in the public market.
See "Description of Capital Stock--Registration Rights." 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 affiliates) immediately upon the effectiveness of such
registration.

63
<PAGE>

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least
one year is entitled to sell in "broker's transactions" or to market makers a
number of shares that does not exceed the greater of (i) one percent of the
number of shares of Common Stock then outstanding (approximately 614,286
shares immediately after this offering) or (ii) generally, the average weekly
trading volume in the Common Stock during the four calendar weeks preceding
the required filing of a Form 144 with respect to such sale. Sales under Rule
144 are generally subject to the availability of current public information
about the Company. Under Rule 144(k), a person who is not deemed to have been
an affiliate of the Company at any time during the 90 days preceding a sale,
and who has beneficially owned the shares proposed to be sold for at least two
years (including the holding period of any prior owner except an affiliate),
is entitled to sell such shares without having to comply with the manner of
sale, public information, volume limitation or notice filing provisions of
Rule 144. Under Rule 701 under the Securities Act, persons who purchase shares
upon the exercise of options granted prior to the effective date of this
offering are entitled to sell such shares 90 days after the date of this
Prospectus in reliance on Rule 144, without having to comply with the holding
period and notice filing requirements of Rule 144 and, in the case of non-
affiliates, without having to comply with the public information, volume
limitation or notice filing provisions of Rule 144. However, all such persons
(including all affiliates of the Company) have entered into lock-up agreements
restricting the sale of such shares during the 180-day period following this
offering.

CERTAIN U.S. TAX CONSIDERATIONS APPLICABLE TO

NON-U.S. HOLDERS OF THE COMMON STOCK

The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Common Stock by a
person that, for U.S. federal income tax purposes, is a non-resident alien
individual, a foreign corporation, a foreign partnership or a foreign estate
or trust as defined in the U.S. Internal Revenue Code of 1986, as amended (the
"Code") (a "non-U.S. holder"). This discussion does not consider specific
facts and circumstances that may be relevant to a particular non-U.S. holder's
tax position and does not deal with all aspects of United States federal
income and estate taxation that may be relevant to non-U.S. holders (including
special rules applicable to certain United States expatriates), or with U.S.
state and local or non-U.S. tax consequences. Furthermore, the following
discussion is based on provisions of the Code, existing and proposed
regulations promulgated thereunder, and administrative and judicial
interpretations thereof as of the date hereof, all of which are subject to
change, possibly with retroactive effect. Each prospective non-U.S. holder is
urged to consult a tax adviser with respect to the U.S. federal tax
consequences of holding and disposing of Common Stock, as well as any tax
consequences that may arise under the laws of any U.S. state, municipality or
other taxing jurisdiction.

An individual may, among other ways, be deemed to be a resident alien (as
opposed to a non-resident alien) with respect to any calendar year by virtue
of being present in the United States on at least 31 days in such calendar
year and for an aggregate of at least 183 days during the current calendar
year and the two preceding calendar years (counting for such purposes all of
the days present in the current year, one-third of the days present in the
immediately preceding year and one-sixth of the days present in the second
preceding year). Individuals who are lawful permanent residents of the United
States ("green card holders") are also considered to be resident aliens,
without regard to the number of days present in the United States during the
calendar year. Resident aliens are subject to U.S. federal tax as if they were
U.S. citizens.

DIVIDENDS

As described above, the Company does not expect to declare or pay cash
dividends in the forseeable future. In the event the Company does pay
dividends, dividends paid to a non-U.S. holder of Common Stock will be subject
to withholding of U.S. federal income tax at a rate of 30% of the gross

64
<PAGE>

amount of the dividend or such lower rate as may be specified by an applicable
income tax treaty, unless the dividends are effectively connected with the
conduct of a trade or business by the non-U.S. holder within the United
States. Dividends that are effectively connected with such holder's conduct of
a trade or business in the United States are subject to U.S. federal income
tax on a net income basis at applicable graduated individual or corporate
rates, and are not generally subject to withholding, if the holder complies
with certain certification and disclosure requirements. Any such effectively
connected dividends received by a foreign corporation may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate
or such lower rate as may be specified by an applicable income tax treaty.

Under current law, dividends paid to an address outside the United States
are presumed to be paid to a resident of the country of address (unless the
payer has knowledge to the contrary) for purposes of the withholdings
discussed above and for purposes of determining the applicability of a tax
treaty rate. Under certain recently finalized Treasury Regulations (the "New
Withholding Regulations"), a non-U.S. holder of Common Stock will be required
to satisfy certain certification and other requirements in order to claim the
benefit of a reduced withholding tax rate with respect to dividends under an
applicable treaty. In addition, under the New Withholding Regulations, in the
case of Common Stock held by a foreign partnership, the certification
requirement would generally be applied to the partners and the partnership may
be required to provide certain information, including a United States taxpayer
identification number. The New Withholding Regulations also provide look-
through rules for tiered partnerships. The New Withholding Regulations are
generally effective for payments made after December 31, 1999, subject to
certain transition rules. Non-U.S. holders are encouraged to consult with
their own tax advisors with respect to the application of the New Withholding
Regulations.

A non-U.S. holder of Common Stock that is eligible for a reduced rate of
U.S. withholding tax pursuant to an income tax treaty may obtain a refund of
any excess amounts withheld by filing an appropriate claim for refund with the
U.S. Internal Revenue Service.

GAIN ON DISPOSITION OF COMMON STOCK

A non-U.S. holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of Common Stock unless (i) the
gain is effectively connected with a trade or business of the non-U.S. holder
in the United States or, if a tax treaty applies, is attributable to a
permanent establishment maintained by the non-U.S. holder in the United
States, (ii) in the case of a non-U.S. holder who is an individual and holds
the Common Stock as a capital asset, such holder is present in the United
States for 183 or more days in the taxable year of the sale and certain other
conditions are met, or (iii) the Company is or has been a "U.S. real property
holding corporation" for federal income tax purposes at any time during the
five-year period ending on the date of the disposition and the non-U.S. holder
owned more than 5% of the Company's Common Stock at any time during such
period. The Company believes that it has not been and it is not a "U.S. real
property holding corporation" for U.S. federal income tax purposes and does
not currently anticipate becoming a "U.S. real property holding corporation."
Different tax consequences would apply to certain non-U.S. holders if the
Company were to become a "U.S. real property holding corporation." If an
individual non-U.S. holder falls under clause (i) above, he or she will be
taxed on his or her net gain derived from the sale at regular graduated U.S.
federal income tax rates. If an individual non-U.S. holder falls under clause
(ii) above, he or she will be subject to a flat 30% tax on the net gain
derived from the sale which gain may be offset by U.S. capital losses
recognized within the same taxable year of such sale. If a non-U.S. holder
that is a foreign corporation falls under clause (i) above, it will be taxed
on its gain at regular graduated U.S. federal income tax rates and, in
addition, may be subject to the branch profits tax equal to 30% of its
"effectively connected earnings and profits" within the meaning of the Code
for the taxable year, as adjusted for certain items, or at such lower rate as
may be specified by an applicable income tax treaty.

65
<PAGE>

FEDERAL ESTATE TAXES

Common Stock owned or treated as owned by a non-U.S. holder at the time of
death, or Common Stock of which the non-U.S. holder made certain lifetime
transfers, will be included in such holder's gross estate for U.S. federal
estate tax purposes, unless an applicable estate tax treaty provides
otherwise.

U.S. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX

The Company must report annually to the U.S. Internal Revenue Service and to
each non-U.S. holder the amount of dividends paid to such holder (including
the name and address of such holder) and the tax withheld with respect to such
dividends, regardless of whether withholding was required. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the non-U.S. holder
resides under the provisions of an applicable income tax treaty.

Under current law, backup withholding (which generally is a withholding tax
imposed at the rate of 31% on certain payments to persons that fail to furnish
certain information under the U.S. information reporting requirements) will
generally not apply to dividends paid to a non-U.S. holder at an address
outside the United States unless such non-U.S. holder is engaged in a trade or
business in the United States or unless the payer has knowledge that the payee
is a U.S. person. However, under the New Withholding Regulations (which are
generally effective for dividends paid after December 31, 1999), dividend
payments may be subject to backup withholding unless applicable certification
requirements are satisfied. See the discussion above with respect to rules
applicable to foreign partnerships under the New Withholding Regulations.

In general, backup withholding and information reporting will not apply to a
payment of the proceeds of a sale of Common Stock to or through a foreign
office of a broker. If, however, such broker is, for U.S. federal income tax
purposes, a U.S. person, a controlled foreign corporation, a foreign person
that derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States or, effective for payments
after December 31, 1999, a foreign partnership (i) more than 50% of the income
or capital interests of which are owned by U.S. persons or (ii) that is
engaged in a United States trade or business, such payments will not be
subject to backup withholding but will be subject to information reporting,
unless (1) such broker has documentary evidence in its records that the
beneficial owner is a non-U.S. holder and certain other conditions are met or
(2) the beneficial owner otherwise establishes an exemption.

Payment to or through a U.S. office of a broker of the proceeds of a sale of
Common Stock is generally subject to both backup withholding and information
reporting unless the beneficial owner certifies on a Form W-8 (or a suitable
substitute form) under penalties of perjury that it is a non-U.S. holder, or
otherwise establishes an exemption.

Effective for payments after December 31, 1999 (and subject to certain
transition rules), the New Withholding Regulations unify certain certification
procedures and forms and the reliance standards relating to information
reporting and backup withholding.

Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against such holder's U.S. federal income tax liability
provided the required information is furnished to the U.S. Internal Revenue
Service.

66
<PAGE>

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act (the "Registration
Statement") with respect to the Common Stock offered hereby. This Prospectus,
which constitutes a part of the Registration Statement, does not contain all
of the information set forth in the Registration Statement, certain items of
which are contained in exhibits to the Registration Statement as permitted by
the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock offered hereby, reference is made
to the Registration Statement, including the exhibits thereto. Statements made
in this Prospectus concerning the contents of any document referred to herein
are not necessarily complete. With respect to each such document filed with
the Commission as an exhibit to the Registration Statement, reference is made
to the copy of such documents filed as exhibits to the Registration Statement
for a more complete description of the matter involved, and each such document
shall be deemed qualified in its entirety by such reference. The Registration
Statement, including the exhibits thereto, as well as other information filed
with the Commission, may be inspected without charge at the Commission's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's regional offices at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New York
10048. Copies of all or any part thereof may be obtained from the Commission
upon the payment of certain prescribed fees from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission also maintains a World Wide Web site at http://www.sec.gov that
contains reports, proxy statements and other information regarding
registrants, including the Company, that file such information electronically
with the Commission.

The Company intends to furnish to its stockholders annual reports containing
audited financial statements and quarterly reports containing unaudited
interim financial information for the first three fiscal quarters of each
fiscal year of the Company.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California. Certain legal matters related to this
offering will be passed upon for the Underwriters by Venture Law Group, A
Professional Corporation, Menlo Park, California.

EXPERTS

The Consolidated Financial Statements of the Company as of June 30, 1997 and
1998, and for each of the three years in the period ended June 30, 1998,
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 auditing and accounting.

67
<PAGE>

E-TEK DYNAMICS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheet................................................. F-3
Consolidated Statement of Operations....................................... F-4
Consolidated Statement of Stockholders' Equity (Deficit)................... F-5
Consolidated Statement of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
E-Tek Dynamics, Inc.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity (deficit) and
of cash flows present fairly, in all material respects, the financial position
of E-Tek Dynamics, Inc. and its subsidiaries at June 30, 1997 and 1998 and the
results of their operations and their cash flows for each of the three years
in the period ended June 30, 1998, in conformity with generally accepted
accounting principles. 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 generally accepted auditing standards 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
July 28, 1998, except as to
Notes 8 and 12, which are as of August 14, 1998

F-2
<PAGE>

E-TEK DYNAMICS, INC.

CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, PRO FORMA
---------------- OCT. 2, 1998
1997 1998 OCT. 2, 1998 (NOTE 1)
------- -------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 8,259 $ 21,918 $ 36,584 $ 36,584
Short-term investments............................ 10,840 -- -- --
Accounts receivable............................... 16,049 15,463 15,756 15,756
Advance to joint venture.......................... -- 7,000 -- --
Inventories....................................... 4,101 6,909 9,283 9,283
Deferred tax assets............................... 3,856 7,873 7,873 7,873
Other current assets.............................. 685 343 215 215
------- -------- -------- --------
Total current assets............................ 43,790 59,506 69,711 69,711
Property and equipment, net......................... 17,970 30,872 32,573 32,573
------- -------- -------- --------
$61,760 $ 90,378 $102,284 $102,284
======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................. $ 4,714 $ 8,281 $ 5,377 $ 5,377
Accrued liabilities............................... 9,312 16,187 19,853 19,853
Income taxes payable.............................. 1,215 -- 3,489 3,489
Current portion of capital lease obligations...... 736 1,240 1,264 1,264
Current portion of long-term debt................. 107 216 1,349 1,349
------- -------- -------- --------
Total current liabilities....................... 16,084 25,924 31,332 31,332
Capital lease obligations, net of current portion... 2,035 3,557 3,247 3,247
Long-term debt, net of current portion.............. 7,542 10,251 11,604 11,604
------- -------- -------- --------
Total liabilities............................... 25,661 39,732 46,183 46,183
------- -------- -------- --------
Commitments and contingencies (Note 11)
Mandatorily Redeemable Convertible Preferred Stock,
no par value, 30,000 shares authorized, issued and
outstanding (actual); none authorized, issued and
outstanding (pro forma)............................ -- 125,144 127,544 --
------- -------- -------- --------
Stockholders' equity:
Preferred Stock, none authorized, issued or
outstanding (actual); $0.01 par value, 25,000
shares authorized, none issued and outstanding
(pro forma)...................................... -- -- -- --
Common stock, no par value, 60,000, 65,000 and
65,000 shares authorized, 50,000, 27,299, and
27,431 shares issued and outstanding (actual);
$0.001 par value, 300,000 shares authorized,
57,431 shares issued and outstanding (pro forma).. 1,963 19,468 22,159 149,703
Notes receivable from stockholders................ -- (14,215) (15,369) (15,369)
Deferred compensation............................. -- (4,753) (6,106) (6,106)
Distribution in excess of net book value.......... -- (83,901) (83,901) (83,901)
Retained earnings................................. 34,136 8,903 11,774 11,774
------- -------- -------- --------
Total stockholders' equity (deficit)............ 36,099 (74,498) (71,443) 56,101
------- -------- -------- --------
$61,760 $ 90,378 $102,284 $102,284
======= ======== ======== ========
</TABLE>

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

F-3
<PAGE>

E-TEK DYNAMICS, INC.

CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, FISCAL QUARTER ENDED
----------------------------- -----------------------
SEPT. 30, OCT. 2,
1996 1997 1998 1997 1998
-------- -------- --------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues............ $ 40,382 $ 73,076 $ 106,924 $ 27,309 $ 32,942
Cost of goods sold...... 14,712 30,599 49,063 11,893 15,989
-------- -------- --------- ---------- ----------
Gross profit.......... 25,670 42,477 57,861 15,416 16,953
-------- -------- --------- ---------- ----------
Operating expenses:
Research and
development.......... 2,444 3,953 7,702 1,655 3,076
Selling, general and
administrative....... 8,773 15,290 21,097 5,198 5,395
-------- -------- --------- ---------- ----------
Total operating
expenses........... 11,217 19,243 28,799 6,853 8,471
-------- -------- --------- ---------- ----------
Operating income........ 14,453 23,234 29,062 8,563 8,482
Interest income......... 408 962 1,992 353 588
Interest expense........ (66) (571) (988) (171) (285)
-------- -------- --------- ---------- ----------
Income before income
taxes.................. 14,795 23,625 30,066 8,745 8,785
Provision for income
taxes.................. 5,524 8,477 12,142 3,499 3,514
-------- -------- --------- ---------- ----------
Net income.............. 9,271 15,148 17,924 5,246 5,271
Convertible Preferred
Stock accretion........ -- -- 9,021 1,842 2,400
-------- -------- --------- ---------- ----------
Net income available to
Common Stockholders.... $ 9,271 $ 15,148 $ 8,903 $ 3,404 $ 2,871
======== ======== ========= ========== ==========
Net income per share:
Basic................. $ 0.19 $ 0.30 $ 0.39 $ 0.12 $ 0.13
======== ======== ========= ========== ==========
Diluted............... $ 0.19 $ 0.30 $ 0.32 $ 0.10 $ 0.09
======== ======== ========= ========== ==========
Shares used in net
income per share
calculations:
Basic................. 50,000 50,000 22,970 28,073 22,037
======== ======== ========= ========== ==========
Diluted............... 50,000 50,000 55,561 51,922 58,573
======== ======== ========= ========== ==========
</TABLE>

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

F-4
<PAGE>

E-TEK DYNAMICS, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)

<TABLE>
<CAPTION>
NOTES DISTRIBUTION TOTAL
COMMON STOCK RECEIVABLE IN EXCESS OF STOCKHOLDERS'
---------------- FROM DEFERRED NET BOOK RETAINED EQUITY
SHARES AMOUNT STOCKHOLDERS COMPENSATION VALUE EARNINGS (DEFICIT)
------- ------- ------------ ------------ ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30,
1995................... 50,000 $ 1,963 $ -- $ -- $ -- $ 9,717 $ 11,680
Net income.............. -- -- -- -- -- 9,271 9,271
------- ------- -------- ------- -------- -------- ---------
Balance at June 30,
1996................... 50,000 1,963 -- -- -- 18,988 20,951
Net income.............. -- -- -- -- -- 15,148 15,148
------- ------- -------- ------- -------- -------- ---------
Balance at June 30,
1997................... 50,000 1,963 -- -- -- 34,136 36,099
Repurchase of Common
Stock.................. (30,000) (1,963) -- -- (83,901) (34,136) (120,000)
Exercise of Common Stock
options for cash....... 88 210 -- -- -- -- 210
Exercise of Common Stock
options for Notes
Receivable from
stockholders........... 7,211 18,215 (13,615) (4,600) -- -- --
Deferred compensation
related to Common Stock
options................ -- 1,043 -- (1,043) -- -- --
Amortization of deferred
compensation related to
Common Stock options... -- -- -- 290 -- -- 290
Imputed interest and
compensation expense
related to Notes
Receivable............. -- -- (600) 600 -- -- --
Convertible Preferred
Stock accretion........ -- -- -- -- -- (9,021) (9,021)
Net income.............. -- -- -- -- -- 17,924 17,924
------- ------- -------- ------- -------- -------- ---------
Balance at June 30,
1998................... 27,299 19,468 (14,215) (4,753) (83,901) 8,903 (74,498)
======= ======= ======== ======= ======== ======== =========
Exercise of Common Stock
options for cash
(unaudited)............ 20 49 -- -- -- -- 49
Exercise of Common Stock
options for Notes
Receivable from
stockholders
(unaudited)............ 125 1,250 (934) (316) -- -- --
Repurchase of Common
Stock (unaudited)...... (13) (21) 21 -- -- -- --
Deferred compensation
related to Common Stock
options (unaudited).... -- 1,413 -- (1,413) -- -- --
Amortization of deferred
compensation related to
Common Stock options
(unaudited)............ -- -- -- 135 -- -- 135
Imputed interest and
compensation expense
related to Notes
Receivable
(unaudited)............ -- -- (241) 241 -- -- --
Convertible Preferred
Stock Accretion
(unaudited)............ -- -- -- -- -- (2,400) (2,400)
Net income (unaudited).. -- -- -- -- -- 5,271 5,271
------- ------- -------- ------- -------- -------- ---------
Balance at October 2,
1998 (unaudited)....... 27,431 $22,159 $(15,369) $(6,106) $(83,901) $ 11,774 $ (71,443)
======= ======= ======== ======= ======== ======== =========
</TABLE>

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

F-5
<PAGE>

E-TEK DYNAMICS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FISCAL QUARTER
FISCAL YEAR ENDED JUNE 30, ENDED
---------------------------- ------------------
SEPT. 30, OCT. 2,
1996 1997 1998 1997 1998
------- -------- --------- --------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income................... $ 9,271 $ 15,148 $ 17,924 $ 5,246 $ 5,271
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation................. 1,422 3,086 6,148 960 2,409
Stock compensation........... -- -- 890 100 376
Imputed interest income...... -- -- (600) (100) (241)
Changes in assets and
liabilities:
Accounts receivable......... (366) (9,977) 586 930 (293)
Inventories................. (30) (2,519) (2,808) (320) (2,374)
Deferred tax assets......... (479) (2,478) (4,017) (220) --
Other current assets........ (602) 160 342 (222) 128
Accounts payable............ 7 3,273 3,567 49 (2,904)
Accrued liabilities......... 647 5,909 6,875 871 3,666
Income taxes payable........ 361 854 (1,215) 3,436 3,489
------- -------- --------- --------- -------
Net cash provided by
operating activities........ 10,231 13,456 27,692 10,730 9,527
------- -------- --------- --------- -------
Cash flows from investing
activities:
Additions to property and
equipment................... (1,703) (15,284) (16,267) (4,253) (4,110)
Payment from (advance to)
joint venture............... -- -- (7,000) -- 7,000
Maturities and sale of short-
term investments............ -- 354 14,983 165 --
Purchase of short-term
investments................. (3,068) (6,426) (4,143) -- --
------- -------- --------- --------- -------
Net cash provided by (used
in) investing activities.. (4,771) (21,356) (12,427) (4,088) 2,890
------- -------- --------- --------- -------
Cash flows from financing
activities:
Repurchase of Common Stock... -- -- (120,000) (120,000) --
Proceeds from issuance of
Mandatorily Redeemable
Convertible Preferred
Stock....................... -- -- 116,123 116,123 --
Payment to stockholder for
note........................ (1,184) (200) -- -- --
Proceeds from issuance of
Common Stock................ -- -- 210 35 49
Principal repayments by
stockholders of note
receivable.................. -- 1,384 -- -- --
Principal payments on capital
lease obligations........... (242) (700) (757) (185) (286)
Borrowing on long-term debt.. -- 7,700 3,000 3,000 5,440
Payments on long-term debt... -- (51) (182) (29) (2,954)
------- -------- --------- --------- -------
Net cash provided by (used
in) financing activities.. (1,426) 8,133 (1,606) (1,056) 2,249
------- -------- --------- --------- -------
Net increase in cash and cash
equivalents.................. 4,034 233 13,659 5,586 14,666
Cash and cash equivalents at
beginning of period.......... 3,992 8,026 8,259 8,259 21,918
------- -------- --------- --------- -------
Cash and cash equivalents at
end of period................ $ 8,026 $ 8,259 $ 21,918 $ 13,845 $36,584
======= ======== ========= ========= =======
Supplemental disclosure of
cash flow information:
Interest paid................ $ 66 $ 514 $ 1,036 $ 261 $ 286
Income taxes paid............ $ 5,616 $ 10,103 $ 17,549 $ 284 $ 25
Non-cash investing and
financing activities:
Acquisition of property and
equipment through capital
leases...................... $ 193 $ 2,918 $ 2,783 $ -- $ --
</TABLE>

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

F-6
<PAGE>

E-TEK DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

THE COMPANY AND DESCRIPTION OF BUSINESS

E-Tek Dynamics, Inc. (the "Company") designs, packages, manufactures and
sells high quality passive components for fiber optic networks.

Until July 23, 1997, the Company was owned by two founders ("the Founders").
In July 1997, the Company underwent a recapitalization in which it sold a
controlling stake in the Company for $120 million in Mandatorily Redeemable
Class A Convertible Preferred Stock ("Convertible Preferred Stock") which has
significant rights and preferences over the Common Stock including rights to
elect a majority of the Company's directors, cumulative dividends and a
liquidation preference. In connection with the recapitalization, the Company
also repurchased $120 million in Common Stock from the Company's Founders. The
redemption was accounted for as a recapitalization and, accordingly, no change
in the accounting basis of the Company's net assets has been made in the
accompanying consolidated financial statements. The amount of cash paid to the
stockholders exceeded the net assets of the Company at the time of the
redemption by $83,901,000. This amount has been recorded in the equity section
as distribution in excess of net book value.

Pursuant to the recapitalization, the Company amended its Articles of
Incorporation to change its authorized number of shares to 90,000,000, of
which 30,000,000 have been designated as Convertible Preferred Stock and
60,000,000 have been designated as Common Stock. Also as of that date, there
was a stock split in which each outstanding share of Common Stock was
converted into 493.72476 shares of Common Stock. All shares and per share
amounts have been restated to reflect the stock split.

On June 18, 1998, the Company amended its Articles of Incorporation again to
increase authorized shares of Common Stock to 65,000,000 shares.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the 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.

PRINCIPLES OF CONSOLIDATION

All intercompany transactions and accounts have been eliminated.

REVENUE RECOGNITION

Revenue from product sales is recognized at the time the product is shipped,
with provisions established for estimated product returns and allowances.
Revenue is deferred on shipments of new products as to which customer
acceptance is considered to be uncertain.

WARRANTY EXPENSE

At the time of product shipment, the Company provides for the estimated
costs that may be incurred under warranties for the product shipped.

F-7
<PAGE>

E-TEK DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

The Company considers all liquid investments purchased with an original
maturity of three months or less to be cash equivalents and those with
original maturities greater than three months to be short-term investments.

The Company's short-term investments at June 30, 1997 consisted of
marketable debt securities (more specifically, municipal bonds and corporate
securities) and mutual funds. The Company has classified all such investments
as available-for-sale. At June 30, 1997, the estimated fair value approximated
the cost of the marketable securities.

INVENTORIES

Inventories are valued at the lower of cost or market, cost being determined
using the first-in, first-out basis.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based upon the estimated useful lives of the assets,
which is twenty-five years for buildings and range from three to five years
for other property and equipment.

IMPAIRMENT OF LONG-LIVED ASSETS

Pursuant to Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-lived Assets to be
Disposed of" ("SFAS 121"), the Company reviews long-lived assets based upon a
gross cash flow basis and will reserve for impairment whenever events or
changes in circumstances indicate the carrying amount of the assets may not be
fully recoverable. Based on its most recent analysis, the Company believes
that there was no impairment of its property and equipment as of June 30,
1998.

RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred.

INCOME TAXES

Deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax bases of assets and
liabilities and the amounts reported for financial reporting purposes.

STOCK-BASED COMPENSATION

The Company accounts for its stock-based awards using the intrinsic value
method in accordance with Accounting Principles Board No. 25, "Accounting for
Stock Issued to Employees." The Company provides additional pro forma
disclosures as required under Statement of Financial Accounting Standard No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123").

PRO FORMA BALANCE SHEET (UNAUDITED)

Upon consummation of the offering, all shares of Convertible Preferred Stock
outstanding will convert into an aggregate of 30,000,000 shares of Common
Stock. The effect of this conversion and the effect of the Company's plan to
reincorporate in Delaware have been reflected in the accompanying unaudited
pro forma consolidated balance sheet as of October 2, 1998.

F-8
<PAGE>

E-TEK DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

INTERIM RESULTS (UNAUDITED)

The accompanying consolidated balance sheet as of October 2, 1998, the
consolidated statements of operations and of cash flows for the quarters ended
September 30, 1997 and October 2, 1998 and the consolidated statement of
stockholders' deficit for the quarter ended October 2, 1998 are unaudited. In
the opinion of management, such unaudited financial statements have been
prepared on the same basis as the audited financial statements referred to
above and include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the Company's results of
operations for the interim periods. The data disclosed in the notes to the
consolidated financial statements as of such dates and for such periods are
unaudited.

CHANGE IN FISCAL QUARTER

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1997, the Financial Accounting Standards Board issued two new
Statements of Financial Accounting Standards ("SFAS"). SFAS 130, "Reporting
Comprehensive Income," establishes standards for reporting and display of
comprehensive income within a financial statement. This Statement requires the
Company to report additional information on comprehensive income to supplement
the reporting of income. SFAS 130 is effective for fiscal years beginning
after December 15, 1997. Comparative financial statements provided for earlier
periods are required to be reclassified so that comprehensive income is
displayed in a comparative format for all periods presented. SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information,"
establishes standards for reporting information about operating segments in
annual and interim financial statements. This Statement also establishes
standards for related disclosures about products and services, geographic
areas and major customers. SFAS 131 is effective for financial statements for
fiscal years beginning after December 15, 1997. The Company adopted SFAS 130
for the interim period of fiscal 1999. The adoption of SFAS 130 did not have a
material effect on the Company's presentation of its consolidated financial
statements. The Company will adopt SFAS 131 at the end of fiscal 1999 and is
currently studying its provisions.

In June 1998, the Financial Accounting Standards Board issued SFAS 133
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities and is effective for all quarters of fiscal years
beginning after June 15, 1999. The Company does not expect the adoption of
SFAS 133 to have a material impact on the Company's results of operations.

F-9
<PAGE>

E-TEK DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 2--BALANCE SHEET DETAIL (IN THOUSANDS):

<TABLE>
<CAPTION>
JUNE 30,
---------------- OCTOBER 2,
1997 1998 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accounts receivable:
Trade receivables.............................. $17,699 $20,358 $21,345
Less: Allowances for doubtful accounts and
sales returns................................. (1,650) (4,895) (5,589)
------- ------- -------
$16,049 $15,463 $15,756
======= ======= =======
Inventories:
Raw materials.................................. $ 2,873 $ 5,359 $ 6,998
Work in process................................ 2,441 3,419 4,579
Finished goods................................. 504 1,884 1,911
------- ------- -------
5,818 10,662 13,488
Less: Inventory reserves....................... (1,717) (3,753) (4,205)
------- ------- -------
$ 4,101 $ 6,909 $ 9,283
======= ======= =======
Property and equipment:
Machinery and equipment........................ $10,892 $22,429 $23,589
Computers and software......................... 656 2,008 1,766
Furniture and fixtures......................... 256 470 723
Automobiles.................................... 233 138 138
Leasehold improvements......................... 693 4,734 6,986
Land and buildings............................. 11,109 11,610 11,609
------- ------- -------
23,839 41,389 44,811
Less: Accumulated depreciation................. (5,869) (10,517) (12,238)
------- ------- -------
$17,970 $30,872 $32,573
======= ======= =======
Accrued liabilities:
Accrued compensation........................... $ 3,708 $ 7,408 $ 7,010
Accrued warranty............................... 2,303 3,735 4,138
Accrued commissions............................ 1,463 2,151 2,009
Deferred revenues.............................. -- 1,000 4,280
Other.......................................... 1,838 1,893 2,416
------- ------- -------
$ 9,312 $16,187 $19,853
======= ======= =======
</TABLE>

NOTE 3--JOINT VENTURES:

FIBX

During fiscal 1998, the Company entered into an agreement with a Taiwanese
company to form a joint venture in Taiwan to develop, manufacture and
distribute fiber optic components and products. The Company and the other
investor each contributed $7,000,000 in cash for a 50% interest in the joint
venture. Under the joint venture agreement and a related license agreement,
the Company is to receive $7,000,000 from the joint venture for certain
technology of the Company that was licensed to the joint venture. This amount,
which was recorded as an advance to the joint venture as of June 30, 1998, was
subsequently collected. The joint venture agreement does not require the
Company to provide any additional financing to the joint venture.

F-10
<PAGE>

E-TEK DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The $7,000,000 cash contributed by the Company and the $7,000,000 receivable
from the joint venture offset so that in substance, the Company received a 50%
interest in the joint venture in exchange for a technology license that had no
carrying value in the Company's financial statements. In accordance with
Emerging Issues Task Force Consensus No. 89-7, the Company did not record any
gain on the exchange and, therefore, the carrying value in the Company's
investment in the joint venture as of June 30, 1998 was nil. The joint
venture, which is to supply certain components to the Company, had not
commenced significant operations as of October 2, 1998.

ADVA

During fiscal 1995, the Company contributed $250,000 for a 40% ownership
interest in a German company ("ADVA") that develops and manufactures fiber
optic components and products. The other 60% interest is held by the Company's
German distributor, AMS Opto Tech GmbH ("AMS"). Because of losses incurred by
ADVA during fiscal 1995, the Company provided a full valuation allowance
against its investment. ADVA continued to incur losses through its most recent
fiscal year ended December 31, 1997 and had negative net worth as of that
date. The Company continues to sell products through AMS. Certain trade
receivables from AMS amounting to $1,100,000 as of October 2, 1998 were not
collected pending discussions regarding additional capital contributions to
ADVA. The Company provided a full allowance against those receivables as of
October 2, 1998. The Company does not have any obligation to make additional
contributions to ADVA, and the net carrying amount of the investment is nil.

NOTE 4--BORROWINGS:

COMMERCIAL LINE OF CREDIT

In September 1996, the Company entered into a loan agreement with a
financial institution for a $6,000,000 commercial line of credit. In September
1997, the Company re-negotiated the line, which resulted in an increase in the
line of credit to $15,000,000. This line of credit bears interest at a rate of
LIBOR plus 1.5% per annum (7.3% as of June 30, 1998). This agreement requires
that the Company maintain certain financial ratios, levels of tangible net
worth and profitability. At June 30, 1998, the Company was in compliance with
these requirements. This line of credit is secured by the Company's accounts
receivable, inventories and equipment and expires on December 31, 1998. As of
June 30, 1998, there were no borrowings on this line of credit.

NOTES PAYABLE

In November 1996, the Company obtained a $7,700,000 term loan from a
financial institution, which bears interest at a rate of 7.85% per annum.
Monthly principal and interest payments are $59,000, with a final payment of
all remaining unpaid principal and interest on December 1, 2001. This loan is
secured by the Company's land and building.

In September 1997, the Company obtained a $3,000,000 term loan from a bank,
which bears interest at a rate of LIBOR plus 1.7% per annum (7.5% as of June
30, 1998). Monthly principal and interest payments amounted to $27,000, with a
final payment of all remaining unpaid principal and interest on September 30,
2000. This loan is secured by the Company's accounts receivable, inventories
and equipment.

F-11
<PAGE>

E-TEK DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Future principal payments under long-term debts are as follows (in
thousands):

<TABLE>
<CAPTION>
FISCAL YEAR ENDING JUNE 30,
---------------------------
<S> <C>
1999............................................................. $ 216
2000............................................................. 225
2001............................................................. 2,861
2002............................................................. 7,165
-------
Total principal payments......................................... 10,467
Less: Current portion............................................ 216
-------
Long-term portion of principal payments.......................... $10,251
=======
</TABLE>

NOTE 5--INCOME TAXES:

The provision for income taxes was as follows (in thousands):

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
------------------------------
1996 1997 1998
-------- --------- ---------
<S> <C> <C> <C>
Current
Federal............................... $5,077 $ 9,492 $ 14,216
State................................. 926 1,463 1,943
-------- --------- ---------
6,003 10,955 16,159
-------- --------- ---------
Deferred
Federal............................... (411) (2,170) (3,500)
State................................. (68) (308) (517)
-------- --------- ---------
(479) (2,478) (4,017)
-------- --------- ---------
$5,524 $ 8,477 $ 12,142
======== ========= =========
Tax rate reconciliation:
Federal income tax statutory rate..... 35.0% 35.0% 35.0%
State taxes, net of federal tax
benefit.............................. 3.7 2.9 2.6
Permanent differences related to joint
venture.............................. -- -- 4.7
Foreign sales corporation benefit..... (3.0) (2.7) (4.2)
Research and development credit....... -- (0.7) (1.0)
Other................................. 1.6 1.4 3.3
-------- --------- ---------
37.3% 35.9% 40.4%
======== ========= =========
</TABLE>

Deferred tax assets were comprised of the following (in thousands):

<TABLE>
<CAPTION>
JUNE 30,
-------------
1997 1998
------ ------
<S> <C> <C>
Inventory reserves......................................... $ 663 $1,444
Uniform cost capitalization for inventory.................. 516 789
Sales return and bad debt reserves......................... 638 2,268
Warranty reserves.......................................... 890 1,437
Vacation and other accruals................................ 173 657
State taxes................................................ 494 693
Other...................................................... 482 585
------ ------
$3,856 $7,873
====== ======
</TABLE>

F-12
<PAGE>

E-TEK DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 6--MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:

The holders of the Convertible Preferred Stock have various rights and
preferences as follows:

VOTING

Each share of Convertible Preferred Stock has voting rights equal to an
equivalent number of shares of Common Stock into which it is convertible and
votes together as one class with the Common Stock. Holders of Convertible
Preferred Stock have the right to elect three of the five members of the Board
of Directors.

As long as any shares of the Convertible Preferred Stock remain outstanding,
the Company must obtain approval from a majority of the holders of Convertible
Preferred Stock in order to alter the Articles of Incorporation as related to
the Convertible Preferred Stock, change the authorized number of shares of
Convertible Preferred Stock, repurchase any shares of Common Stock other than
shares subject to the right of repurchase by the Company, change the
authorized number of Directors, authorize a dividend for any class or series
other than the Convertible Preferred Stock, create a new class of stock or
effect a merger, liquidate, dissolve or effect a recapitalization or
reorganization in any form, or sell or transfer more than 25% of the assets of
the Company.

CUMULATIVE DIVIDENDS

Dividends on each share of Convertible Preferred Stock shall accrue at a
rate of 8% per annum of the liquidation value of $4.00 per share. Such
dividends shall accrue whether or not they have been declared and whether or
not there are profits or other funds of the Company legally available for the
payment of dividends, and such dividends shall be cumulative. The accrued and
unpaid dividends should not cause the aggregate stock liquidation value to
exceed $8.00 per share. For the year ended June 30, 1998, the Company recorded
$9,021,000 for the accretion of the value of the Convertible Preferred Stock
related to the 8% dividend per annum on the $120,000,000 liquidation value of
the Convertible Preferred Stock.

The holders of the Convertible Preferred Stock will also be entitled to
participate in dividends on Common Stock, when and if declared by the Board of
Directors, based on the number of shares of Common Stock held on an as-if
converted basis.

The Board of Directors from inception through June 30, 1998 has declared no
other dividends on the capital stock.

LIQUIDATION

In the event of any liquidation, dissolution or winding up of the Company,
the holders of the Convertible Preferred Stock are entitled to receive the
greater of (i) an amount of $4.00 per share, plus any unpaid dividends prior
to and in preference to any distribution to the holders of Common Stock or
(ii) the consideration per share payable to holders of Common Stock assuming
conversion to Common Stock of all outstanding Convertible Preferred Stock,
plus any unpaid dividends prior to liquidation. Should the Company's legally
available assets be insufficient to satisfy the liquidation preferences, the
funds will be distributed pro rata among the holders of the Convertible
Preferred Stock.

REDEMPTION

The holders of the Convertible Preferred Stock have the option to redeem the
stock at the then liquidation value if there is a change in ownership of the
company.

F-13
<PAGE>

E-TEK DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

REGISTRATION RIGHTS

The holders of a majority of Convertible Preferred Stock may demand
registration of all or a portion of their shares. Demand registrations are not
limited in number.

CONVERSION AND ANTIDILUTION PROTECTION

Each share of the Convertible Preferred Stock is convertible into the number
of Common Stock shares computed by multiplying the number of shares to be
converted by $4.00 and dividing the result by the conversion price then in
effect. The conversion price at June 30, 1998 is $4.00, and the basis of
conversion is subject to adjustment on a weighted average basis in the event
of dilution issuance. Each share of Convertible Preferred Stock converts into
the number of shares of Common Stock into which such shares are convertible at
the then effective conversion ratio upon the consent of two-thirds of the
Convertible Preferred Stock holders. Provided that the value of the Common
Stock to be received upon conversion is in excess of $8.00 per share, no
dividends would be paid on Convertible Preferred Stock upon conversion.

At June 30, 1998, the Company reserved 30,000,000 shares of Common Stock for
the conversion of the Convertible Preferred Stock.

NOTE 7--EARNINGS PER SHARE:

Basic net income per share is computed by dividing net income available to
Common Stockholders by the weighted average number of common shares
outstanding during the period. Diluted net income per share is calculated
using the weighted average number of outstanding shares of Common Stock plus
dilutive Common Stock equivalents. For all periods presented, Common Stock
equivalents consist of Convertible Preferred Stock, unvested Common Stock
subject to repurchase and Common Stock options using the treasury stock method
based on the average stock price for the period.

F-14
<PAGE>

E-TEK DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except per share data):

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, FISCAL QUARTER ENDED
-------------------------- ---------------------------
1996 1997 1998 SEPT. 30, 1997 OCT. 2, 1998
-------- -------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Numerator:
Net income............ $ 9,271 $ 15,148 $ 17,924 $ 5,246 $ 5,271
Convertible Preferred
Stock accretion...... -- -- 9,021 1,842 2,400
-------- -------- -------- ------- -------
Net income available
to Common
Stockholders
(Basic).............. 9,271 15,148 8,903 3,404 2,871
Convertible Preferred
Stock accretion...... -- -- 9,021 1,842 2,400
-------- -------- -------- ------- -------
Net income available
to Common
Stockholders and
assumed conversions
(Diluted)............ $ 9,271 $ 15,148 $ 17,924 $ 5,246 $ 5,271
======== ======== ======== ======= =======
Denominator:
Denominator for basic
earnings per share--
weighted average
common shares........ 50,000 50,000 22,970 28,073 22,037
Effect of dilutive
securities
Common Stock
options............ -- -- 296 -- 1,151
Unvested Common
Stock subject to
repurchase......... -- -- 4,104 1,049 5,385
Convertible
Preferred Stock.... -- -- 28,191 22,800 30,000
-------- -------- -------- ------- -------
Denominator for
dilutive earnings per
share--adjusted
weighted average
common shares and
assumed conversions.. 50,000 50,000 55,561 51,922 58,573
Basic earnings per
share.................. $ 0.19 $ 0.30 $ 0.39 $ 0.12 $ 0.13
-------- -------- -------- ------- -------
Diluted earnings per
share.................. $ 0.19 $ 0.30 $ 0.32 $ 0.10 $ 0.09
======== ======== ======== ======= =======
</TABLE>

NOTE 8--RESTRICTED STOCK AND STOCK OPTIONS PLANS:

RESTRICTED STOCK

During fiscal 1998, under the Company's stock option plans, the Company
issued 7,211,000 shares of Common Stock to employees and officers of the
Company in exchange for promissory notes in an aggregate principal amount of
$18,215,000. These notes, which are secured by the shares of Common Stock, are
generally payable five years from the purchase date or upon termination from
the Company, whichever comes first. Because these notes receivable do not bear
interest, the $18,215,000 face value was discounted using a six percent
interest rate to $13,615,000, with the difference recorded as deferred
compensation cost. During fiscal 1998, the Company recognized $600,000 of
compensation expense and $600,000 of interest income related to this imputed
interest income. These shares sold in exchange for the promissory notes are
subject to a right of repurchase by the Company, subject to vesting, which is
generally over a four year period from the grant date, until vesting is
complete. At June 30, 1998, there were 5,868,000 shares subject to repurchase.

F-15
<PAGE>

E-TEK DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In addition, under the Company's stock option plans, the Company issued
88,000 shares of Common Stock to employees of the Company for $210,000 in
cash. These shares sold are subject to a right of repurchase by the Company,
subject to vesting, which is generally over a four year period from the date
of grant, until vesting is complete. At June 30, 1998, there were 13,000
shares subject to repurchase.

1997 EQUITY INCENTIVE PLAN

In July 1997, the Company adopted the 1997 Equity Incentive Plan (the
"Equity Plan") which provides for granting of incentive stock options and non-
statutory stock options to employees, officers and consultants of the Company
for up to 10,556,000 shares of Common Stock.

Under the Equity Plan, incentive stock options are granted at a price that
is not less than 100% of the fair market value of the stock on the date of
grant, as determined by the Board of Directors. Non-statutory stock options
are granted at a price that is not to be less than 85% of the fair market
value of the stock on the date of grant, as determined by the Board of
Directors. The exercise price of any option granted to a 10% stockholder will
not be less than 110% of the fair market value of the stock on the date of
grant, as determined by the Board of Directors.

Options are exercisable immediately subject to repurchase options held by
the Company which generally lapse over a maximum period of four years at such
times and under such conditions as determined by the Board of Directors.

1997 EXECUTIVE EQUITY INCENTIVE PLAN

In October 1997, the Company adopted the 1997 Executive Equity Incentive
Plan (the "Executive Plan") which provides for granting of incentive stock
options and non-statutory stock options to officers or directors of the
Company for up to 4,444,000 shares of Common Stock.

Under the Executive Plan, incentive stock options are granted at a price
that is not less than 100% of the fair market value of the stock on the date
of grant, as determined by the Board of Directors. Non-statutory stock options
are granted at a price that is not to be less than 85% of the fair market
value of the stock on the date of grant, as determined by the Board of
Directors. The exercise price of any option granted to a 10% stockholder will
not be less than 110% of the fair market value of the stock on the date of
grant, as determined by the Board of Directors.

The following table summarizes activities under the plans:

<TABLE>
<CAPTION>
WEIGHTED
OPTIONS AVERAGE
AVAILABLE OUTSTANDING EXERCISE
FOR GRANT SHARES PRICE
-------------- -------------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C>
Shares authorized................... 15,000 -- $ --
Granted............................. (10,525) 10,525 2.97
Exercised........................... -- (7,299) 2.52
Cancelled........................... 176 (176) 2.41
------- ------
Outstanding at June 30, 1998........ 4,651 3,050 4.05
======= ======
Granted (unaudited)................. (1,460) 1,460 10.06
Exercised (unaudited)............... -- (145) 8.95
Repurchased (unaudited)............. 13 -- 3.00
Cancelled (unaudited)............... 51 (51) 3.12
------- ------
Outstanding at October 2, 1998
(unaudited)........................ 3,255 4,314 $ 5.94
======= ======
</TABLE>

F-16
<PAGE>

E-TEK DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Options are exercisable immediately subject to repurchase options held by
the Company which generally lapse over a period of four years at such times
and under such conditions as determined by the Board of Directors. At June 30,
1998, 3,050,000 options with a weighted average exercise price of $4.05 were
outstanding and exercisable, of which 581,000 options with a weighted average
exercise price of $2.85 were vested.

During fiscal 1998 and the quarter ended October 2, 1998, the Company
granted options for the purchase of 10,525,000 shares and 1,460,000 shares
(unaudited), respectively, of Common Stock to employees and officers at a
weighted average exercise price of $2.97 per share and $10.06 per share
(unaudited), respectively. Management calculated deferred compensation of
$1,043,000 and $1,413,000 (unaudited) related to these option grants during
fiscal 1998 and the quarter ended October 2, 1998, respectively. Such deferred
compensation will be amortized over the vesting period, which is generally 48
months. For fiscal 1998, amortization expense was approximately $290,000.

For the quarter ended October 2, 1998, amortization expense was
approximately $135,000 (unaudited).

Option groups outstanding at June 30, 1998 and related exercise price and
contractual life information are as follows:

<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
OPTIONS OUTSTANDING AT JUNE 30, 1998 AT JUNE 30, 1998
----------------------------------------------- -----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- -------- --------------- ------------ ------------- -------------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$ 2.30-
2.30 1,049 9.11 $ 2.30 1,049 $ 2.30
3.25-
3.25 1,338 9.60 3.25 1,338 3.25
4.20-
6.00 173 9.78 5.38 173 5.38
8.00-
8.00 114 9.91 8.00 114 8.00
10.00-
10.00 376 9.99 10.00 376 10.00
------------ -----
$ 2.30-
10.00 3,050 9.50 $ 4.05 3,050 $ 4.05
============ =====
</TABLE>

F-17
<PAGE>

E-TEK DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FAIR VALUE DISCLOSURES

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 under a
method prescribed by SFAS No. 123, the Company's net income and pro forma net
income per share would have been decreased to the pro forma amounts indicated
below (in thousands, except per share data):

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JUNE 30, 1998
-----------------
<S> <C>
Net income:
As reported............................................ $17,924
=======
Pro forma.............................................. $16,681
=======
Net income available for Common Stockholders:
As reported............................................ $ 8,903
=======
Pro forma.............................................. $ 7,660
=======
Net income per share:
As reported:
Basic............................................... $ 0.39
=======
Diluted............................................. $ 0.32
=======
Pro forma:
Basic............................................... $ 0.33
=======
Diluted............................................. $ 0.30
=======
</TABLE>

The Company calculated the fair value of each option grant on the date of
grant using the minimum value method with the following assumptions: dividend
yield at 0%; weighted average expected option term of five years; risk free
interest rate of 6% for the year ended June 30, 1998. The weighted average
fair value of options granted per share during fiscal 1998 was $0.75.

Because additional option grants are expected to be made each year, the
above pro forma disclosures are not representative of pro forma effects of
reported net income for future years.

NOTE 9--EMPLOYEE BENEFIT PLAN:

The Company sponsors a 401(k) Savings Plan (the "Plan"). All employees are
eligible to participate in the Plan following certain minimum eligibility
requirements. Under the Plan, employees may elect to contribute up to 15% of
their pre-tax compensation to the Plan, subject to annual limitations.
Matching employer contributions are 25% of the employees' contributions but
limited to the first 10% of the employees' deferral. Employer contributions
are vested over five years after employees' two years of services and employee
contributions are 100% vested at all times. The Company's contribution to the
plan was $177,000, $211,000 and $313,000 for fiscal 1996, 1997 and 1998,
respectively.

F-18
<PAGE>

E-TEK DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 10--MAJOR CUSTOMERS AND CONCENTRATION OF RISKS:

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash equivalents,
investments and trade accounts receivable. The Company invests primarily in
money market accounts and marketable securities and places its investments
with high quality financial, government or corporate institutions. The Company
sell its products to original equipment manufacturers. The Company performs
ongoing credit evaluations of its customers' financial condition and maintains
an allowance for uncollectible accounts receivable based upon the expected
collectibility of all accounts receivable. At June 30, 1997, three customers
and their affiliates accounted for 39%, 13%, and 13% of accounts receivable.
At June 30, 1998, two customers and their affiliates accounted for 43% and 11%
of accounts receivable.

During fiscal 1996, three customers and their affiliates accounted for 25%,
16% and 15% of total revenues. During fiscal 1997, three customers and their
affiliates accounted for 27%, 22% and 12% of total revenues. During fiscal
1998, three customers and their affiliates accounted for 30%, 16% and 14% of
total revenues. The Company has no foreign operations. However, export sales
were approximately 37%, 42% and 53% of total net sales for fiscal 1996, 1997
and 1998, respectively.

Sales by geographic area are as follows (in thousands):

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Europe......................................... $ 9,896 $ 27,107 $ 49,251
Asia/Pacific................................... 4,933 3,437 6,949
United States.................................. 25,553 42,532 50,724
</TABLE>

NOTE 11--COMMITMENTS AND CONTINGENCIES:

LEASES

The Company has entered into a number of noncancelable lease agreements
involving machinery and equipment and automobiles. The principal portions of
the minimum rentals have been capitalized and the related assets and
obligations recorded using the interest rates implicit in the respective
leases.

Future minimum payments under all noncancelable capital leases are as
follows (in thousands):

<TABLE>
<CAPTION>
CAPITAL
YEAR ENDING JUNE 30, LEASES
-------------------- -------
<S> <C>
1999.............................................................. $1,568
2000.............................................................. 1,508
2001.............................................................. 1,508
2002.............................................................. 546
2003.............................................................. 417
------
Total minimum lease payments...................................... 5,547
Less: Amount representing interest................................ 750
------
Present value of capitalized lease obligations.................... 4,797
Less: Current portion............................................. 1,240
------
Long-term portion of capitalized lease obligations................ $3,557
======
</TABLE>

F-19
<PAGE>

E-TEK DYNAMICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

At June 30, 1997 and June 30, 1998, the cost of machinery and equipment and
automobiles under capital leases, net of accumulated depreciation, was
$2,385,000 and $4,025,000, respectively.

Total rent expense on all operating leases was $528,000, $283,000 and
$472,000 for fiscal 1996, 1997 and 1998, respectively.

CONTINGENCIES

The Company is party to litigation matters and claims which are normal in
the course of its operations. While the results of such litigations and claims
cannot be predicted with certainty, the Company believes that the final
outcome of such matters will not have a materially adverse effect on the
Company's financial position and results of operations or cash flows.

NOTE 12--SUBSEQUENT EVENTS:

1998 STOCK OPTION PLAN

On August 14, 1998, the Company's Board of Directors adopted the 1998 Stock
Plan (the "1998 Plan") subject to stockholder approval. The 1998 Plan provides
for the grant of incentive stock options to employees (including officers and
employee directors) and for the grant of non-statutory stock options and stock
purchase rights to employees, directors and consultants. A total of (i)
3,000,000 shares of the Company's Common Stock (plus shares which have been
reserved but unissued under the Company's 1997 Plan), (ii) any share returned
to the 1997 Plan as a result of termination of options or repurchase of shares
by the Company, (iii) plus annual increases equal to the lesser of 3,000,000
shares, or 4% of the outstanding shares, are currently reserved for issuance
pursuant to the 1998 Plan. To date, no shares have been issued under the 1998
Plan.

DIRECTORS' STOCK OPTION PLAN

On August 14, 1998, the Company's Board of Directors adopted the 1998
Director Option Plan (the "Director Plan") subject to stockholder approval. A
total of 250,000 shares of the Company's Common Stock, plus an annual increase
equal to the optioned stock underlying options granted in the immediately
preceding year, have been reserved for issuance under the Director Plan. To
date, no shares have been issued under the Director Plan.

EMPLOYEE STOCK PURCHASE PLAN

On August 14, 1998, the Company's Board of Directors adopted the 1998
Employee Stock Purchase Plan (the "1998 Purchase Plan") subject to stockholder
approval. A total of 750,000 shares of Common Stock has been reserved for
issuance under the 1998 Purchase Plan, plus annual increases equal to the
lesser of (i) 750,000 shares, (ii) 1% of the outstanding shares on such date.
To date, no shares have been issued under the 1998 Purchase Plan, or (iii)
such lesser amount as may be determined by the Board of Directors.

CONVERSION OF CONVERTIBLE PREFERRED STOCK

On August 14, 1998 holders of in excess of two-thirds of Convertible
Preferred Stock consented to the conversion of all outstanding shares of
Convertible Preferred Stock subject to the closing of the offering.

F-20
<PAGE>

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below (the
"Underwriters"), and each of such Underwriters, for whom Goldman, Sachs & Co.,
Morgan Stanley & Co. Incorporated, Dain Rauscher Wessels, a division of Dain
Rauscher Incorporated ("Dain Rauscher Wessels"), and NationsBanc Montgomery
Securities LLC are acting as representatives, has severally agreed to purchase
from the Company, the respective number of shares of Common Stock set forth
opposite its name below:

<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
----------- ------------
<S> <C>
Goldman, Sachs & Co. ...........................................
Morgan Stanley & Co. Incorporated...............................
Dain Rauscher Wessels...........................................
NationsBanc Montgomery Securities LLC...........................
---------
Total......................................................... 4,000,000
=========
</TABLE>

Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.

The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at
such price less a concession of $ per share. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time
to time be varied by the representatives.

The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 600,000
additional shares of Common Stock solely to cover over-allotments, if any. If
the Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 4,000,000 shares of Common
Stock offered.

The Company and substantially all of the stockholders of the Company have
agreed that, during the period beginning from the date of this Prospectus and
continuing to and including the date 180 days after the date of this
Prospectus, not to offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock or any securities of the Company which are
substantially similar to the shares of Common Stock including but not limited
to any securities that are convertible into, or exchangeable for, or that
represent the right to receive Common Stock, or securities which are
substantially similar to the shares of Common Stock, without the prior written
consent of Goldman, Sachs & Co., except that the Company may issue securities
pursuant to employee stock plans and currently outstanding options.

The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of shares
of Common Stock offered by them.

Prior to this offering, there has been no public market for the shares. The
initial public offering price will be negotiated between the Company and the
representatives of the Underwriters. Among the factors to be considered in
determining the initial public offering price of the Common Stock, in addition
to prevailing market conditions, will be the Company's historical performance,
estimates of the business potential and earnings prospects of the Company, an
assessment of the Company's

U-1
<PAGE>

management and the consideration of the above factors in relation to market
valuation of companies in related businesses.

In connection with the offering, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Common Stock, and syndicate share positions involve
the sale by the Underwriters of a greater number of shares of Common Stock
than they are required to purchase from the Company in this offering. The
Underwriters also may impose a penalty bid, whereby selling concessions
allowed to syndicate members or other broker-dealers in respect of the Common
Stock sold in this offering for their account may be reclaimed by the
syndicate if such securities are repurchased by the syndicate in stabilizing
or covering transactions. These activities may stabilize, maintain or
otherwise affect the market price of the Common Stock, which may be higher
than the price that might otherwise prevail in the open market, and these
activities, if commenced, may be discontinued at any time. These transactions
may be effected on the Nasdaq National Market in the over-the-counter market
or otherwise.

At the request of the Company, an aggregate of up to 300,000 shares of the
Common Stock offered hereby have been reserved for purchase from the
Underwriters through a directed share program. Such sales will be at the
initial public offering price and will be made to employees, customers,
suppliers, distributors and friends of the Company. The number of shares of
Common Stock available for sale to the general public in the offering will be
reduced to the extent such persons purchase the reserved shares. Any reserved
shares not so purchased will be offered by the Underwriters to the general
public on the same terms as the other shares offered hereby.

Each Underwriter has also agreed that (a) it has not offered or sold and
prior to the date six months after the date of issue of the shares of Common
Stock will not offer or sell any shares of Common Stock to persons in the
United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in circumstances that
have not resulted and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations
1995, (b) it has complied, and will comply, with all applicable provisions of
the Financial Services Act of 1986 of Great Britain with respect to anything
done by it in relation to the shares of Common Stock in, from or otherwise
involving the United Kingdom, and (c) it has only issued or passed on and will
only issue or pass on in the United Kingdom any document received by it in
connection with the issuance of the shares of Common Stock to a person who is
of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 of Great Britain or is a
person to whom the document may otherwise lawfully be issued or passed on.

There are restrictions on the offer and sale of the shares of Common Stock
offered hereby in the United Kingdom. All applicable provisions of the
Financial Services Act 1986 and the Public Offers of Securities Regulations
1995 with respect to anything done by any person in relation to the shares of
Common Stock offered hereby in, from or otherwise involving the United Kingdom
must be complied with.

Buyers of shares of Common Stock offered hereby may be required to pay stamp
taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the initial public offering price.

Sales of shares of Common Stock made outside of the United States will be
effected through selling agents of the Underwriters. No shares of Common Stock
offered hereby have been registered for the purpose of sales outside the
United States, as any such sales will be made in reliance on Regulation S
under the Securities Act of 1993, as amended.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.

U-2
<PAGE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFOR-
MATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

----------------

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 5
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Dilution................................................................. 21
Selected Consolidated Financial Data..................................... 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 23
Business................................................................. 33
Management............................................................... 43
Certain Transactions..................................................... 55
Principal Stockholders................................................... 58
Description of Capital Stock............................................. 60
Shares Eligible for Future Sale.......................................... 63
Certain Tax Considerations............................................... 64
Additional Information................................................... 67
Legal Matters............................................................ 67
Experts.................................................................. 67
Index to Consolidated Financial Statements............................... F-1
Underwriting............................................................. U-1
</TABLE>

THROUGH AND INCLUDING , 1998 (THE 25TH DAY AFTER THE DATE OF THIS PRO-
SPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPEC-
TUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

4,000,000 SHARES

E-TEK DYNAMICS, INC.

COMMON STOCK
(PAR VALUE $0.001 PER SHARE)

----------------

[LOGO OF E-TEK DYNAMICS]

----------------

GOLDMAN, SACHS & CO.
MORGAN STANLEY DEAN WITTER
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
NATIONSBANC MONTGOMERY
SECURITIES LLC

REPRESENTATIVES OF THE UNDERWRITERS

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than the
underwriting discounts and commissions, payable by the Registrant in
connection with the sale of the Common Stock being registered. All amounts
shown are estimates except for the SEC registration fee, the NASD filing fee
and the Nasdaq National Market listing fee.

<TABLE>
<S> <C>
SEC registration fee.......................................... $ 26,461
NASD filing fee............................................... 9,470
Nasdaq National Market listing fee............................ 25,000
Blue Sky qualification fees and expenses...................... 15,000
Printing and engraving expenses............................... 150,000
Legal fees and expenses....................................... 400,000
Accounting fees and expenses.................................. 200,000
Transfer agent fees........................................... 5,000
Miscellaneous fees and expenses............................... 169,069
----------
Total..................................................... $1,000,000
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

As permitted by Section 145 of the Delaware General Corporation Law (the
"DGCL"), the Registrant's Certificate of Incorporation provides that each
person who is or was or who had agreed to become a director or officer of the
Registrant or who had agreed at the request of the Registrant's Board of
Directors or an officer of the Registrant to serve as an employee or agent of
the Registrant or as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall be
indemnified by the Registrant to the full extent permitted by the DGCL or any
other applicable laws. Such Certificate of Incorporation also provides that
the Registrant may enter into one or more agreements with any person which
provides for indemnification greater or different than that provided in such
Certificate, and that no amendment or repeal of such Certificate shall apply
to or have any effect on the right to indemnification permitted or authorized
thereunder for or with respect to claims asserted before or after such
amendment or repeal arising from acts or omissions occurring in whole or in
part before the effective date of such amendment or repeal.

The Registrant's Bylaws provide that the Registrant shall indemnify to the
full extent authorized by law any person made or threatened to be made a party
to an action or a proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that he, his testator or intestate was or
is a director, officer or employee of the Registrant or any predecessor of the
Registrant or serves or served any other enterprise as a director, officer or
employee at the request of the Registrant or any predecessor of the
Registrant.

The Registrant has entered into indemnification agreements with its
directors and certain of its officers.

The Registrant intends to purchase and maintain insurance on behalf of any
person who is a director or officer against any loss arising from any claim
asserted against him and incurred by him in any such capacity, subject to
certain exclusions.

See also the undertakings set out in response to Item 17 herein.

II-1
<PAGE>

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since July 1, 1995, the Registrant has sold and issued the following
securities which were not registered under the Security Act of 1933, as
amended (the "Securities Act"):

1. On July 23, 1997, the Registrant issued 30,000,000 shares of its Class
A Convertible Preferred Stock for an aggregate purchase price of
$120,000,000, or $4.00 per share, to a group of 8 investors.

2. On July 23, 1997, the Registrant issued 1,111,111 shares of its Common
Stock for an aggregate purchase price of $2,555,555.30, or $2.30 per share,
to an executive officer of the Registrant.

3. On July 23, 1997, the Registrant issued 1,111,110 shares of its Common
Stock for an aggregate purchase price of $2,555,553.00, or $2.30 per share,
to an employee of the Registrant.

4. From July 1, 1995 to June 30, 1998, the Registrant issued to
employees, officers, directors and consultants of the Registrant options to
purchase an aggregate of 10,525,641 shares of Common Stock of the
Registrant, at exercise prices ranging from $2.30 per share to $10.00 per
share, pursuant to the Registrant's 1997 Equity Incentive Plan and 1997
Executive Equity Incentive Plan.

5. From July 1, 1995 to June 30, 1998, the Registrant issued an aggregate
of 7,299,252 shares of Common Stock of the Registrant upon the exercise of
options at exercise prices ranging from $2.30 to $10.00 per share.

6. Since June 30, 1998, the Registrant has issued to employees, officers,
and directors of the Registrant options to purchase approximately 1.8
million shares of Common Stock of the Registrant, at an exercise price
ranging from $10.00 to $12.00 per share, pursuant to the Registrant's 1997
Equity Incentive Plan and 1997 Executive Equity Incentive Plan.

7. Since June 30, 1998, the Registrant issued an aggregate of 145,877
shares of Common Stock of the Registrant upon the exercise of options at
exercise prices ranging from $2.30 to $10.00 per share.

The issuances described in paragraphs 1-3 above were deemed to be exempt
from registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving a public offering.
In addition, the sale of securities described in Paragraphs 5 and 7 above was
deemed to be exempt from the registration requirements of the Securities Act
in reliance on Rule 701 promulgated under Section 3(b) of the Securities Act
as transactions by an issuer pursuant to compensatory benefit plans and
contracts relating to compensation as provided under such Rule 701. The
recipients of securities in each such transaction represented their intention
to acquire the securities for investment only and not with a view to or for
sale in connection with any distribution thereof and appropriate legends were
affixed to the share certificates and other instruments issued in such
transactions. The granting of stock options described in paragraph 4 and 6
above did not require registration under the Securities Act, or an exemption
therefrom, insofar as such grants did not involve a "sale" of securities as
such term is used in Section 2(3) of the Securities Act. All recipients either
received adequate information about the Registrant or had access, through
employment or other relationships, to information about the Registrant.

II-2
<PAGE>

ITEM 16. EXHIBITS

(A) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Form of Certificate of Incorporation of the Registrant (to be filed
immediately after the closing of this offering).
3.2 Bylaws of the Registrant.
4.1* Specimen Stock Certificate of the Registrant.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1* Form of Indemnification Agreement for directors and officers of the
Company.
10.2* Employment Agreement, as amended, dated July 23, 1997, by and
between the Registrant and Jing Jong Pan.
10.3* Employment Agreement, dated October 1, 1997, by and between the
Registrant and Michael J. Fitzpatrick.
10.4* Employment Agreement, dated December 2, 1997, by and between the
Registrant and Sanjay Subhedar.
10.5* Employment Letter Agreement, dated May 26, 1998, by and between the
Registrant and Philip Anthony.
10.6* Employment Letter Agreement, dated July 21, 1998, by and between the
Registrant and Jim Northington.
10.7* Executive Agreement, dated June 27, 1997 and April 1, 1998, by and
between the Registrant and Ming Shih.
10.8* Executive Agreement, dated June 27, 1997 and April 1, 1998, by and
between the Registrant and Kung Shih.
10.9 Intentionally omitted.
10.10* 1998 Stock Plan.
10.11* 1998 Employee Stock Purchase Plan.
10.12* 1998 Director Option Plan.
10.13* 1997 Equity Incentive Plan.
10.14* 1997 Executive Equity Incentive Plan.
10.15* Recapitalization Agreement, as amended, dated June 27, 1997, by and
between the Registrant, the Purchasers named therein, Theresa Stone
Pan, Jing Jong Pan and the Trusts named therein.
10.16* Shareholders Agreement, dated July 23, 1997, by and between the
Registrant and the Shareholders named therein.
10.17* Registration Agreement, as amended, dated July 23, 1997, by and
among the Registrant, the Investors named therein, Theresa Stone
Pan, Jing Jong Pan and the J.J. & Theresa Pan Revocable Trust.
10.18* Purchase and Sale Agreement for Real Property and Escrow
Instructions, dated August 28, 1996, by and between the Registrant
and TR Brell Cal Corp.
10.19* Purchase and Sale Agreement and Escrow Instructions, dated July 11,
1997, by and between the Registrant and Nexus Properties, Inc.
10.20* Standing Loan Agreement, dated November 8, 1996, by and between the
Registrant and Bank of America National Trust and Savings
Association.
10.21* Business Loan Agreement, as amended, dated September 30, 1997, by
and between the Registrant and Bank of America National Trust and
Savings Association.
10.22* Design and Construction Contract, as amended, dated March 30, 1998,
by and between the Registrant and Rudolph and Sletten, Inc.
10.23* Joint Venture Agreement, dated March 3, 1998, by and between the
Registrant and Walsin Lihwa Corporation.
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.24* Distributorship Agreement, dated March 3, 1998, by and between the
Registrant and Walsin Lihwa Corporation.
10.25* Supply Agreement, dated March 3, 1998, by and between the Registrant
and Walsin Lihwa Corporation.
10.26* Mutual Confidentiality Agreement, dated September 2, 1997, by and
between the Registrant and Walsin Lihwa Corporation.
10.27* Technical Licensing Agreement on Fiberoptic Products, dated December
17, 1997, by and between the Registrant and Walsin Lihwa
Corporation.
10.28 Employment Agreement, dated September 21, 1998, by and between the
Registrant and William H. Diamond, Jr.
11.1* Statement of Computation of Net Income per Share.
23.1 Consent of Independent Accountants.
23.2* Consent of Wilson Sonsini Goodrich & Rosati (See Exhibit 5.1).
24.1* Power of Attorney.
27.1 Financial Data Schedule.
99.1* Consent of Peter Y. Chung.
</TABLE>
- --------
*Previously filed.

(B) FINANCIAL STATEMENT SCHEDULES

Schedules have been omitted because the information required to be set forth
therein is not applicable or is readily available in the financial statements
or notes thereto.

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred 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 such director, officer or controlling person in
connection with the securities being registered hereunder, 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 whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of 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) For the purpose 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 such securities at the time shall be
deemed to be the initial bona fide offering thereof.

II-4
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS 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 9TH DAY OF NOVEMBER, 1998.

E-Tek Dynamics, Inc.

/s/ Michael J. Fitzpatrick
By: _________________________________
MICHAEL J. FITZPATRICK
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND DIRECTOR

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON
THE DATE INDICATED.

<TABLE>
<S> <C>
SIGNATURES TITLE
DATE

/s/ Michael J. Fitzpatrick President, Chief November 9, 1998
- ------------------------------------- Executive Officer
MICHAEL J. FITZPATRICK and Director
(Principal
Executive Officer)

* Senior Vice November 9, 1998
- ------------------------------------- President,
SANJAY SUBHEDAR Operations, Chief
Financial Officer
and Secretary
(Principal
Financial Officer
and Principal
Accounting Officer)

* Chairman of the November 9, 1998
- ------------------------------------- Board of Directors
WALTER G. KORTSCHAK

* Director November 9, 1998
- -------------------------------------
DAVID W. DORMAN

* Director November 9, 1998
- -------------------------------------
JOSEPH W. GOODMAN

* Director November 9, 1998
- -------------------------------------
DONALD J. LISTWIN

*By: /s/ Michael J. Fitzpatrick
----------------------------------
MICHAEL J. FITZPATRICK
ATTORNEY-IN-FACT
</TABLE>

II-5
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.25* Supply Agreement, dated March 3, 1998, by and between the Registrant
and Walsin Lihwa Corporation.
10.26* Mutual Confidentiality Agreement, dated September 2, 1997, by and
between the Registrant and Walsin Lihwa Corporation.
10.27* Technical Licensing Agreement on Fiberoptic Products, dated December
17, 1997, by and between the Registrant and Walsin Lihwa
Corporation.
10.28 Employment Agreement, dated September 21, 1998, by and between the
Registrant and William H. Diamond, Jr.
11.1* Statement of Computation of Net Income per Share.
23.1 Consent of Independent Accountants.
23.2* Consent of Wilson Sonsini Goodrich & Rosati (See Exhibit 5.1).
24.1* Power of Attorney.
27.1 Financial Data Schedule.
99.1* Consent of Peter Y. Chung.
</TABLE>
- --------
* Previously filed.

<PAGE>

Exhibit 3.2

BYLAWS

E-TEK DYNAMICS, INC.
A DELAWARE CORPORATION
<PAGE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>

PAGE
----
<S> <C>
ARTICLE I CORPORATE OFFICES..............................................1
1.1 REGISTERED OFFICE.............................................1
1.2 OTHER OFFICES.................................................1

ARTICLE II MEETINGS OF STOCKHOLDERS......................................1
2.1 PLACE OF MEETINGS.............................................1
2.2 ANNUAL MEETING................................................1
2.3 SPECIAL MEETING...............................................1
2.4 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE..................2
2.5 QUORUM........................................................2
2.6 ADJOURNED MEETING; NOTICE.....................................2
2.7 VOTING........................................................2
2.8 WAIVER OF NOTICE..............................................3
2.9 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING....................3
2.10 NOTICE OF STOCKHOLDERS BUSINESS AND NOMINATIONS...............3
2.11 PROXIES.......................................................6
2.12 LIST OF STOCKHOLDERS ENTITLED TO VOTE.........................6

ARTICLE III DIRECTORS....................................................6
3.1 POWERS........................................................6
3.2 NUMBER OF DIRECTORS...........................................6
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.......7
3.4 RESIGNATION AND VACANCIES.....................................7
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE......................8
3.6 FIRST MEETINGS................................................8
3.7 REGULAR MEETINGS..............................................8
3.8 SPECIAL MEETINGS; NOTICE......................................9
3.9 QUORUM........................................................9
3.10 WAIVER OF NOTICE..............................................9
3.11 ADJOURNED MEETING; NOTICE.....................................9
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING............10
3.13 FEES AND COMPENSATION OF DIRECTORS...........................10
3.14 APPROVAL OF LOANS TO OFFICERS................................10
3.15 REMOVAL OF DIRECTORS.........................................10

ARTICLE IV COMMITTEES...................................................11
4.1 COMMITTEES OF DIRECTORS......................................11
4.2 COMMITTEE MINUTES............................................11
4.3 MEETINGS AND ACTION OF COMMITTEES............................11
</TABLE>
<PAGE>

<S> <C>
ARTICLE V OFFICERS......................................................12
5.1 OFFICERS.....................................................12
5.2 ELECTION OF OFFICERS.........................................12
5.3 SUBORDINATE OFFICERS.........................................12
5.4 REMOVAL AND RESIGNATION OF OFFICERS..........................12
5.5 VACANCIES IN OFFICES.........................................13
5.6 AUTHORITY AND DUTIES OF OFFICERS.............................13
5.7 LIMITATIONS ON POWERS AND DUTIES OF OFFICERS.................13

ARTICLE VI INDEMNITY....................................................13
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS....................13
6.2 INDEMNIFICATION OF OTHERS....................................14
6.3 INSURANCE....................................................14
6.4 PREPAYMENT OF EXPENSES.......................................14
6.5 CLAIMS.......................................................14
6.6 NON-EXCLUSIVITY OF RIGHTS....................................15
6.7 OTHER INDEMNIFICATION........................................15
6.8 AMENDMENT OR REPEAL..........................................15

ARTICLE VII GENERAL MATTERS.............................................15
7.1 CHECKS.......................................................15
7.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.............15
7.3 STOCK CERTIFICATES; PARTLY PAID SHARES.......................16
7.4 SPECIAL DESIGNATION ON CERTIFICATES..........................16
7.5 LOST CERTIFICATES............................................17
7.6 CONSTRUCTION; DEFINITIONS....................................17
7.7 DIVIDENDS....................................................17
7.8 FISCAL YEAR..................................................17
7.9 SEAL.........................................................17
7.10 TRANSFER OF STOCK............................................18
7.11 STOCK TRANSFER AGREEMENTS....................................18
7.12 REGISTERED STOCKHOLDERS......................................18
7.13 REPRESENTATION OF SHARES OF OTHER CORPORATIONS...............18

ARTICLE VIII AMENDMENTS.................................................18
</TABLE>
<PAGE>

BYLAWS
OF
E-TEK DYNAMICS, INC.
A DELAWARE CORPORATION

ARTICLE I
CORPORATE OFFICES

1.1 REGISTERED OFFICE
-----------------

The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust Company.

1.2 OTHER OFFICES
-------------

The Board of Directors may at any time establish other offices at any place
or places where the corporation is qualified to do business.

ARTICLE II
MEETINGS OF STOCKHOLDERS

2.1 PLACE OF MEETINGS
-----------------

Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the Board of Directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered office
of the corporation.

2.2 ANNUAL MEETING
--------------

The annual meeting of stockholders shall be held each year on a date and at
a time designated by the Board of Directors. At the meeting, directors shall be
elected and any other proper business may be transacted.

2.3 SPECIAL MEETING
---------------

Special meetings of stockholders for any purpose or purposes may be called
at any time by the Board of Directors or by a committee of the Board of
Directors which has been duly designated by the Board of Directors and whose
powers and authority, as expressly provided in a resolution of the Board of
Directors, include the power to call such meetings, but such special meetings
may not be called by any other person or persons.
<PAGE>

2.4 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------

Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein. If mailed, such notice
shall be deemed to be given when deposited in the mail, postage prepaid,
directed to the stockholder at his address as it appears on the records of the
corporation.

2.5 QUORUM
------

The holders of at least one-third of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the Certificate of
Incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present or represented. At such adjourned meeting at
which a quorum is present or represented, any business may be transacted that
might have been transacted at the meeting as originally noticed.

2.6 ADJOURNED MEETING; NOTICE
-------------------------

When a meeting is adjourned to another time or place, unless these Bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.

2.7 VOTING
------

The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.11 of these Bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).

Except as provided in the last paragraph of this Section 2.8, or as may be
otherwise provided in the Certificate of Incorporation, each stockholder shall
be entitled to one vote for each share of capital stock held by such
stockholder.

-2-
<PAGE>

2.8 WAIVER OF NOTICE
----------------

Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the Certificate of Incorporation or these
Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the Certificate of Incorporation or these Bylaws.

2.9 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
------------------------------------------

In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.

If the Board of Directors does not so fix a record date:

(i) The record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held.

(ii) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.

A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.

2.10 NOTICE OF STOCKHOLDERS BUSINESS AND NOMINATIONS
-----------------------------------------------

A. Annual Meetings of Stockholders.
-------------------------------

(1) Nominations of persons for election to the Board of
Directors of the corporation and the proposal of business to be considered by
the stockholders may be made at an annual meeting of stockholders (a) pursuant
to the corporation's notice of meeting delivered pursuant

-3-
<PAGE>

to Section 2.4 of these Bylaws; (b) by or at the direction of the Chairman of
the Board or the Board of Directors; or (c) by any stockholder of the
corporation who is entitled to vote at the meeting, who complied with the notice
procedures set forth in clauses (2) and (3) of this paragraph (A) of this Bylaw
and who was a stockholder of record at the time such notice is delivered to the
Secretary of the corporation.

(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(A)(1) of this Bylaw, the stockholder must have given timely notice thereof in
writing to the Secretary of the corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the corporation not less than seventy days nor more than
ninety days prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
meeting is advanced by more than twenty days, or delayed by more than seventy
days from such anniversary date, notice by the stockholder to be timely must be
so delivered not earlier than the ninetieth day prior to such annual meeting and
not later than the close of business on the later of the seventieth day prior to
such annual meeting or the seventh day following the day on which public
announcement of the date of such meeting is first made. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule 14a-11 thereunder, including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected; (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the corporation's books, and of
such beneficial owner, (ii) the class and number of shares of the corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner and (iii) whether the stockholder or the beneficial owner
intends or is part of a group which intends to solicit proxies from other
stockholders in support of such nomination or proposal. In no event shall the
public announcement of an adjournment of an annual meeting commence a new time
period for the giving of a stockholder's notice as described above.

(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this Bylaw to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the corporation is
increased and there is no public announcement naming all of the nominees for
director or specifying the size of the increased Board of Directors made by the
corporation at least eighty days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this Bylaw shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary

-4-
<PAGE>

at the principal executive offices of the corporation not later than the close
of business on the tenth day following the day on which such public announcement
is first made by the corporation.

B. Special Meetings of Stockholders. Only such business shall be
--------------------------------
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the corporation's notice of meeting pursuant to Section
2.4 of these Bylaws. Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the corporation's notice of meeting (a) by or at
the direction of the Board of Directors or (b) by any stockholder of the
corporation who is entitled to vote at the meeting, who complies with the notice
procedures set forth in this Bylaw and who is a stockholder of record at the
time such notice is delivered to the Secretary of the corporation. In the event
the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as are specified in the corporation's Notice of Meeting, if the
stockholder's notice as required by paragraph (A)(2) of this Bylaw shall be
delivered to the Secretary at the principal executive offices of the corporation
not earlier than the ninetieth day prior to such special meeting and not later
than the close of business on the later of the seventieth day prior to such
special meeting or the tenth day following the day on which public announcement
is first made of the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting. In no event shall the
public announcement of an adjournment of a special meeting commence a new time
period for the giving of a stockholder's notice as described above.

C. General.
-------

(1) Only persons who are nominated in accordance with the
procedures set forth in this Bylaw shall be eligible to serve as directors and
only such business shall be conducted at a meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this Bylaw. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, the chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set forth
in this Bylaw and, if any proposed nomination or business is not in compliance
with this Bylaw, to declare that such defective proposal or nomination shall be
disregarded.

(2) Notwithstanding the foregoing provisions of this Bylaw, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect any rights
of stockholders to request inclusion of proposals in the corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.

-5-
<PAGE>

2.11 PROXIES
-------

Each stockholder entitled to vote at a meeting of stockholders may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.

2.12 LIST OF STOCKHOLDERS ENTITLED TO VOTE
-------------------------------------

The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.

ARTICLE III
DIRECTORS

3.1 POWERS
------

Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the Certificate of Incorporation or these Bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the Board of Directors.

3.2 NUMBER OF DIRECTORS
-------------------

The authorized number of directors which constitute the entire Board of
Directors shall be six (6). The number of directors constituting the entire
Board of Directors may be changed by an amendment to this Bylaw duly adopted by
resolution of the Board of Directors in accordance with these Bylaws. No
reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.

-6-
<PAGE>

3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
-------------------------------------------------------

Except as provided in Section 3.4 of these Bylaws and unless otherwise
provided in the Certificate of Incorporation, directors shall be elected at each
annual meeting of stockholders to hold office until the next annual meeting.
Directors need not be stockholders unless so required by the Certificate of
Incorporation or these Bylaws, wherein other qualifications for directors may be
prescribed. Each director, including a director elected to fill a vacancy,
shall hold office until his successor is elected and qualified or until his
earlier resignation or removal.

Elections of directors need not be by written ballot.

3.4 RESIGNATION AND VACANCIES
-------------------------

Any director may resign at any time upon written notice to the corporation.
When one or more directors so resigns and the resignation is effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become effec
tive, and each director so chosen shall hold office as provided in this section
in the filling of other vacancies.

Unless otherwise provided in the Certificate of Incorporation or these
Bylaws:

(i) Vacancies and newly created directorships resulting from any increase
in the authorized number of directors elected by all of the stockholders having
the right to vote as a single class may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director.

(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
Certificate of Incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.

If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the Certificate of Incorporation or these Bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.

If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole Board
of Directors (as constituted immediately

-7-
<PAGE>

prior to any such increase), then the Court of Chancery may, upon application of
any stockholder or stockholders holding at least ten (10) percent of the total
number of the shares at the time outstanding having the right to vote for such
directors, summarily order an election to be held to fill any such vacancies or
newly created directorships, or to replace the directors chosen by the directors
then in office as aforesaid, which election shall be governed by the provisions
of Section 211 of the General Corporation Law of Delaware as far as applicable.

Any and all directors may be removed without cause if the removal is
approved by the affirmative vote of a majority of the outstanding shares of the
corporation entitled to vote. Such approval shall include the affirmative vote
of a majority of the outstanding shares of each class and series entitled to
vote as a class or series on the subject matter being voted upon and shall also
include the affirmative vote of such greater proportion (including all) of the
outstanding shares of any class or series if such greater proportion is required
by the corporation's Certificate of Incorporation or by applicable laws.

3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------

The Board of Directors of the corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.

Unless otherwise restricted by the Certificate of Incorporation or these
Bylaws, members of the Board of Directors, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.

3.6 FIRST MEETINGS
--------------

The first meeting of each newly elected Board of Directors shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected Board of Directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors, or as shall be specified in a written waiver signed by all
of the directors.

3.7 REGULAR MEETINGS
----------------

Regular meetings of the Board of Directors may be held without notice at
such time and at such place as shall from time to time be determined by the
Board of Directors.

-8-
<PAGE>

3.8 SPECIAL MEETINGS; NOTICE
------------------------

Special meetings of the Board of Directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors.

Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telecopy, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.

3.9 QUORUM
------

At all meetings of the Board of Directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the Board of Directors, except as may be
otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum is not present at any meeting of the Board of
Directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.

3.10 WAIVER OF NOTICE
----------------

Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the Certificate of Incorporation or these
Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the Certificate of
Incorporation or these Bylaws.

3.11 ADJOURNED MEETING; NOTICE
-------------------------

-9-
<PAGE>

If a quorum is not present at any meeting of the Board of Directors, then
the directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present.

3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------

Unless otherwise restricted by the Certificate of Incorporation or these
Bylaws, any action required or permitted to be taken at any meeting of the Board
of Directors, or of any committee thereof, may be taken without a meeting if all
members of the Board of Directors or committee, as the case may be, consent
thereto in writing and the writing or writings are filed with the minutes of
proceedings of the Board of Directors or committee.

3.13 FEES AND COMPENSATION OF DIRECTORS
----------------------------------

Unless otherwise restricted by the Certificate of Incorporation or these
Bylaws, the Board of Directors shall have the authority to fix the compensation
of directors.

3.14 APPROVAL OF LOANS TO OFFICERS
-----------------------------

The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.

3.15 REMOVAL OF DIRECTORS
--------------------

Unless otherwise restricted by statute, by the Certificate of Incorporation
or by these Bylaws, any director or the entire Board of Directors may be removed
with or without cause, by the holders of a majority of the shares then entitled
to vote at an election of directors.

No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of such director's term of office.

-10-
<PAGE>

ARTICLE IV
COMMITTEES

4.1 COMMITTEES OF DIRECTORS
-----------------------

The Board of Directors may, by resolution passed by a majority of the whole
Board of Directors, designate one or more committees, with each committee to
consist of one or more of the directors of the corporation. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors or in the Bylaws of the
corporation, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority to (i) amend the Certificate of Incorporation (except that a committee
may, to the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the Board of Directors as provided in
Section 151(a) of the General Corporation Law of Delaware, fix any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation), (ii) adopt an agreement of merger or consolidation under Sections
251 or 252 of the General Corporation Law of Delaware, (iii) recommend to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, (iv) recommend to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or (v) amend
these Bylaws of the corporation; and, unless the Board of Directors resolution
establishing the committee, these Bylaws or the Certificate of Incorporation
expressly so provide, no such committee shall have the power or authority to
declare a dividend, to authorize the issuance of stock, or to adopt a
certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.

4.2 COMMITTEE MINUTES
-----------------

Each committee shall keep regular minutes of its meetings and report the
same to the Board of Directors when required.

4.3 MEETINGS AND ACTION OF COMMITTEES
---------------------------------

Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these Bylaws, Section 3.5
(place of meetings and meetings by telephone), Section 3.7 (regular meetings),
Section 3.8 (special meetings and notice), Section 3.9

-11-
<PAGE>

(quorum), Section 3.10 (waiver of notice), Section 3.11 (adjournment and notice
of adjournment), and Section 3.12 (action without a meeting), with such changes
in the context of those Bylaws as are necessary to substitute the committee and
its members for the Board of Directors and its members; provided, however, that
the time of regular meetings of committees may also be called by resolution of
the Board of Directors and that notice of special meetings of committees shall
also be given to all alternate members, who shall have the right to attend all
meetings of the committee. The Board of Directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
Bylaws.

ARTICLE V
OFFICERS

5.1 OFFICERS
--------

The officers of the corporation shall be a president, one or more vice
presidents, a secretary, and a treasurer. The corporation may also have, at the
discretion of the Board of Directors, a chairman of the Board of Directors, one
or more assistant vice presidents, assistant secretaries, assistant treasurers,
and any such other officers as may be appointed in accordance with the
provisions of Section 5.3 of these Bylaws. Any number of offices may be held by
the same person.

5.2 ELECTION OF OFFICERS
--------------------

The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Sections 5.3 or 5.5 of these Bylaws, shall
be chosen by the Board of Directors, subject to the rights, if any, of an
officer under any contract of employment.

5.3 SUBORDINATE OFFICERS
--------------------

The Board of Directors may appoint, or empower the president to appoint,
such other officers and agents as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these Bylaws or as the Board of Directors may
from time to time determine.

5.4 REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------

Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the Board of Directors at any regular or
special meeting of the Board of Directors or, except in the case of an officer
chosen by the Board of Directors, by any officer upon whom such power of removal
may be conferred by the Board of Directors.

Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in

-12-
<PAGE>

that notice; and, unless otherwise specified in that notice, the acceptance of
the resignation shall not be necessary to make it effective. Any resignation is
without prejudice to the rights, if any, of the corporation under any contract
to which the officer is a party.

5.5 VACANCIES IN OFFICES
--------------------

Any vacancy occurring in any office of the corporation shall be filled by
the Board of Directors.

5.6 AUTHORITY AND DUTIES OF OFFICERS
--------------------------------

The officers of the corporation shall have such powers and duties in the
management of the corporation as may be prescribed by the Board of Directors
and, to the extent not so provided, as generally pertain to their respective
offices, subject to the control of the Board of Directors. The Board of
Directors may require any officer, agent or employee to give security for the
faithful performance of his duties.

5.7 LIMITATIONS ON POWERS AND DUTIES OF OFFICERS
--------------------------------------------

No officer shall take any action, enter into any agreement, make any
representation or, by purposeful inaction, effect any of the actions or
decisions which the Board of Directors is prohibited or restricted from enacting
pursuant to these Bylaws or the Certificate of Incorporation and their further
amendments.

ARTICLE VI
INDEMNITY

6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------

The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware, indemnify each of its directors and
officers against expenses (including attorneys' fees), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of the corporation. For purposes of this Section 6.1, a "director" or
"officer" of the corporation includes any person (i) who is or was a director or
officer of the corporation, (ii) who is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was a director or officer of
the corporation which was a predecessor corporation of the corporation or of
another enterprise at the request of such predecessor corporation.

-13-
<PAGE>

6.2 INDEMNIFICATION OF OTHERS
-------------------------

The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of the
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.

6.3 INSURANCE
---------

The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of the State of Delaware.

6.4 PREPAYMENT OF EXPENSES
----------------------

The corporation shall pay the expenses incurred in defending any proceeding
in advance of its final disposition, provided, however, that the payment of
expenses incurred by a director or officer in advance of the final disposition
of the proceeding shall be made only upon receipt of an undertaking by the
director or officer to repay all amounts advanced if it should be ultimately
determined that the director or officer is not entitled to be indemnified under
this Article or otherwise.

6.5 CLAIMS
------

If a claim for indemnification or payment of expenses under this Article is
not paid in full within sixty days after a written claim therefor has been
received by the corporation the claimant may file suit to recover the unpaid
amount of such claim and, if successful in whole or in part, shall be entitled
to be paid the expense of prosecuting such claim. In any such action the
corporation shall have the burden of proving that the claimant was not entitled
to the requested indemnification or payment of expenses under applicable law.

-14-
<PAGE>

6.6 NON-EXCLUSIVITY OF RIGHTS
-------------------------

The rights conferred on any person by this Article 6 shall not be exclusive
of any other rights which such person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, these Bylaws, agreement,
vote of stockholders or disinterested directors or otherwise.

6.7 OTHER INDEMNIFICATION
---------------------

The corporation's obligation, if any, to indemnify any person who was or is
serving at its request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, enterprise or non-profit entity
shall be reduced by any amount such person may collect as indemnification from
such other corporation, partnership, joint venture, trust, enterprise or non-
profit enterprise.

6.8 AMENDMENT OR REPEAL
-------------------

Any repeal or modification of the foregoing provisions of this Article 6
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.

ARTICLE VII
GENERAL MATTERS

7.1 CHECKS
------

From time to time, the Board of Directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.

7.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
------------------------------------------------

The Board of Directors, except as otherwise provided in these Bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.

-15-
<PAGE>

7.3 STOCK CERTIFICATES; PARTLY PAID SHARES
--------------------------------------

The shares of the corporation shall be represented by certificates,
provided that the Board of Directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the corporation. Notwithstanding the adoption of such a resolution by the Board
of Directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the Board of Directors, or the president or vice-president, and by the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of such
corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate has ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.

The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.

7.4 SPECIAL DESIGNATION ON CERTIFICATES
-----------------------------------

If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.

-16-
<PAGE>

7.5 LOST CERTIFICATES
-----------------

Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.

7.6 CONSTRUCTION; DEFINITIONS
-------------------------

Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these Bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both the corporation and a natural
person.

7.7 DIVIDENDS
---------

The directors of the corporation, subject to any restrictions contained in
the Certificate of Incorporation, may declare and pay dividends upon the shares
of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the corporation's
capital stock.

The directors of the corporation may set apart out of any of the funds of
the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.

7.8 FISCAL YEAR
-----------

The fiscal year of the corporation shall be fixed by resolution of the
Board of Directors and may be changed by the Board of Directors.

7.9 SEAL
----

The seal of the corporation shall be such as from time to time may be
approved by the Board of Directors.

-17-
<PAGE>

7.10 TRANSFER OF STOCK
-----------------

Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.

7.11 STOCK TRANSFER AGREEMENTS
-------------------------

The corporation shall have power to enter into and perform any agreement
with any number of stockholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.

7.12 REGISTERED STOCKHOLDERS
-----------------------

The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.

7.13 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------

The chairman of the Board of Directors, the president, any vice president,
the treasurer, the secretary or assistant secretary of this corporation, or any
other person authorized by the Board of Directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.

ARTICLE VIII
AMENDMENTS

The original or other Bylaws of the corporation may be adopted, amended or
repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its Certificate of Incorporation, confer the power to adopt,
amend or repeal Bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal Bylaws.

-18-

<PAGE>

Exhibit 10.28

September 21, 1998

Mr. William H. Diamond, Jr.
2 Regent Circle
Basking Ridge, NJ 07920

Dear Bill,

E-Tek Dynamics (the "Company") is very pleased to offer you a position as
Vice President of Marketing and an officer of E-Tek. You will have
responsibility for all of the Company's promotional and marketing activities, on
the terms set forth in this letter agreement, effective upon your acceptance by
execution of a counterpart copy of this letter where indicated below.

1. Reporting Duties and Responsibilities: Employment at Will. In this
---------------------------------------------------------
position, you will report to the Sr. Vice President, Marketing & Sales of
the Company. This offer is for a full time position, located at the offices
of the Company, except as reasonable travel to other locations may be
necessary to fulfill your responsibilities. Your employment with the
Company is on an "at will" basis, and either you or the Company may
terminate your employment with the Company at any time, for any or no
reason.

2. Severance Payments upon Termination. If the Company terminates your
-----------------------------------
employment (i) for any reason other than Cause; or (ii) you resign for
"Good Reason", (A) the Company will pay you an agreed upon severance in an
amount equal to your then base salary for the lesser of (i) twelve months;
or (ii) the number of months before you obtain a position with another firm
and (B) the vesting for all options held by you shall be accelerated by
twelve months as of such termination of employment.

"Cause" shall mean (i) gross negligence or willful misconduct in the
performance of duties to the Company after one written warning detailing
the concerns and offering you opportunities to cure; (ii) material and
willful violation of any federal or state law; (iii) commission of any act
of fraud with respect to the Company; (iv) commission of a felony or a
crime causing material harm to the standing and reputation of the Company;
or (v) intentional and improper disclosure of the Company's confidential or
proprietary information.

Resignation for "Good Reason" shall occur if you voluntarily resign from
employment because of (i) a material adverse change in your position with
the Company which materially reduces your responsibility, without Cause and
without your written consent; (ii) a material reduction in your
compensation without your written consent; or (iii) a relocation of your
place of employment outside of the seven (7) Bay Area counties, without
your written consent.
<PAGE>

William H. Diamond, Jr.
September 21, 1998
Page 2 of 4
- -----------

You agree that the payments set forth in this offer letter constitute all
payments that you shall be entitled to, and under any theory, in the event
of any termination of employment.

3. Salary; Bonus; Benefits and Vacation. Your base salary will be $15,000
------------------------------------
($180,000) per month, subject to annual review, payable in accordance with
the Company's customary payroll practice as in effect from time to time.
You will also be eligible to earn an annual target bonus in the amount of
30% of your salary ($60,000) based on the achievement of certain marketing,
business and financial objectives that you and the Company's Sr. Vice
President, Marketing & Sales will mutually determine in good faith. The
objectives for your first year will be determined promptly after your
acceptance of this letter; objectives for future years will be determined
promptly after the beginning of each fiscal year of the Company. You will
also receive the Company's standard employee benefits package (including
directors' and officers' insurance and medical and life insurance), and
will be subject to the Company's vacation policy, as such package and
policy are in effect from time to time.

4. Relocation Bonus. You will receive a bonus of $50,000 payable within thirty
----------------
(30) days of your first month of employment. Up to an additional $30,000
maximum will be provided should actual expenses exceed $50,000. This bonus,
up to $80,000, will be the full and entire compensation for temporary
living expenses, flights and any and all relocation expenses. Our offer, &
this bonus, is based on your permanent relocation to the San Jose area in
California within nine (9) months.

5. Stock Option. You will be granted a stock option, subject to Board
------------
approval, to purchase up to 250,000 shares of the Company Common Stock
pursuant to the Company's Stock Option Plan. The option will have an
exercise price equal to the then-current fair market value of the Company
Common Stock when approved by the Board. The option will be immediately
exercisable, subject to an optional repurchase by the Company (at your
original purchase price) on termination of employment that will lapse over
a four-year vesting schedule with a twelve (12) month cliff vesting at the
rate of 62,500 shares vesting at the end of your first twelve months of
service and 5,208 shares vesting in each of the next succeeding 36 months,
at the close of each such month during which you remain employed with the
Company.
<PAGE>

William H. Diamond, Jr.
September 21, 1998
Page 3 of 4
- -----------

6. Loan. You will be eligible for an interest free loan of $300,000 from the
----
Company payable within six (6) months of your starting date and the term of
the loan is for a period of one (1) year. Because this loan does not bear
interest, the face value will have interest accrued based on an interest
rate provided by the Internal Revenue Services, and this amount will be
added to your annual W2. Should you terminate employment with E-Tek, either
voluntarily or for cause, you will be responsible for payment in full of
the loan immediately upon termination.

7. Confidential Information. As an employee of the Company, you will have
------------------------
access to certain Company confidential information and you may, during the
course of your employment, develop certain information or inventions that
will be the property of the Company. To protect the interest of the
Company, you will need to sign the Company's standard "Employee Proprietary
and Inventions Agreement" as a condition of your employment. We wish to
impress upon you that we do not wish you to bring with you any confidential
or proprietary material of any former employer or to violate any other
obligation to your former employers.

8. At-Will Employment. While we look forward to a long and profitable
------------------
relationship, should you decide to accept our offer, you will be an at-will
employee of the Company, which means the employment relationship can be
terminated by either of us for any reason at any time, with or without
cause or advance notice. Any statements or representations to the contrary
(and, indeed, any statements contradicting any provision in this letter)
should be regarded by you as ineffective. Further, your participation in
any stock option or benefit program is not to be regarded as assuring you
of continuing employment for any particular period time.

9. Authorization to Work. Because of Federal regulations adopted in the
---------------------
Immigration Reform and Control Act of 1986, you will need to present
documentation demonstrating that you have authorization to work in the
United States. If you have any questions about this requirement, which
applies to U.S. citizens and non-U.S. citizens alike, please contact our
human resources department.
<PAGE>

William H. Diamond, Jr.
September 21, 1998
Page 4 of 4
- -----------

10. Term of Offer. This offer will remain open until October 2, 1998. If you
-------------
decide to accept our offer, and I hope that you will, please sign the
enclosed copy of this letter in the space indicated and return to me. Upon
your signature below, this will become our binding agreement with respect
to the subject matter of this letter, superseding in their entirety all
other or prior written or oral agreements by you with the Company as to the
specific subjects of this letter, and will be binding upon and inure to the
benefit of our respective successors and assigns, and your heirs,
administrators and executors, will be governed by California law, and may
only be amended in a writing signed by you and the Company.

11. Dispute Resolution. If a legal action or other proceeding is brought for
------------------
enforcement of this Agreement because of an alleged dispute, breach,
default, or misrepresentation in connection with any of the provisions of
this Agreement, the successful or prevailing party shall be entitled to
recover reasonable attorney's fees and costs incurred, both before and
after judgment, in addition to any other relief to which they may be
entitled.

We are very excited to have you, Sue and the boys join us at E-Tek Dynamics
and look forward to working with you.

Sincerely,
E-TEK DYNAMICS

/s/ Michael J. Fitzpatrick
____________________________________
Michael J. Fitzpatrick
President and Chief Executive Officer

Acknowledged, Accepted and Agreed

/s/ William H. Diamond, Jr.
______________________________
William H. Diamond, Jr.

Date:

cc: Ming Shih

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated July 28, 1998, except
as to Notes 8 and 12 which are as of August 14, 1998, relating to the
consolidated financial statements of E-Tek Dynamics, Inc. which appears in
such Prospectus. We also consent to the references to us under the headings
"Expert" and "Selected Financial Data" in such Prospectus. However, it should
be noted that PricewaterhouseCoopers LLP has not prepared or certified such
"Selected Financial Data."

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Jose, California

November 9, 1998

<PAGE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF E-TEK DYNAMICS, INC. AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS AND
REGISTRATION STATEMENTS ON FORM S-1
</LEGEND>
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1999
<PERIOD-START> JUL-01-1997 JUL-01-1998
<PERIOD-END> JUN-30-1998 OCT-02-1998
<CASH> 21,918 36,584
<SECURITIES> 0 0
<RECEIVABLES> 20,358 21,345
<ALLOWANCES> (5,895) (5,589)
<INVENTORY> 6,909 9,283
<CURRENT-ASSETS> 58,506 69,711
<PP&E> 41,389 44,811
<DEPRECIATION> (10,517) (12,238)
<TOTAL-ASSETS> 89,378 102,284
<CURRENT-LIABILITIES> 24,924 31,332
<BONDS> 10,251 14,851
125,144 127,544
0 0
<COMMON> 19,468 22,159
<OTHER-SE> (93,966) (93,602)
<TOTAL-LIABILITY-AND-EQUITY> 89,378 102,284
<SALES> 106,924 32,942
<TOTAL-REVENUES> 106,924 32,942
<CGS> 49,063 15,989
<TOTAL-COSTS> 49,063 15,989
<OTHER-EXPENSES> 28,199 8,471
<LOSS-PROVISION> 245 0
<INTEREST-EXPENSE> 988 303
<INCOME-PRETAX> 30,066 8,785
<INCOME-TAX> 12,142 3,514
<INCOME-CONTINUING> 17,924 5,271
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 17,924 5,271
<EPS-PRIMARY> 0.39 0.13
<EPS-DILUTED> 0.32 0.09

</TABLE>