-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TDZ/bOALyW3oZ1Mkk3FogPv4xyxpjjKz8lfCNCLGfcr53Mvj/xzXC2+D7+z5Tw20 4SB4516ymer1b+vgFVuJxQ== 0000898430-96-002506.txt : 19960612 0000898430-96-002506.hdr.sgml : 19960612 ACCESSION NUMBER: 0000898430-96-002506 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19960607 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIPHASE CORP /CA/ CENTRAL INDEX KEY: 0000912093 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 942579683 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-04855 FILM NUMBER: 96578472 BUSINESS ADDRESS: STREET 1: 163 BAYPOINT PARKWAY CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4084341800 MAIL ADDRESS: STREET 1: 163 BAYPOINTE PARKWAY CITY: SAN JOSE STATE: CA ZIP: 95134 S-3/A 1 AMENDMENT NO. 1 TO FORM S-3 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 7, 1996 REGISTRATION NO. 333-04855 =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- AMENDMENT NO. 1 FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- UNIPHASE CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 94-2579683 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER) INCORPORATION OR ORGANIZATION) 163 BAYPOINTE PARKWAY SAN JOSE, CALIFORNIA 95134 (408) 434-1800 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) KEVIN N. KALKHOVEN PRESIDENT AND CHIEF EXECUTIVE OFFICER UNIPHASE CORPORATION 163 BAYPOINTE PARKWAY SAN JOSE, CALIFORNIA 95134 (408) 434-1800 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) --------------- COPIES TO: MICHAEL C. PHILLIPS, ESQ. DAVID J. SEGRE, ESQ. MORRISON & FOERSTER LLP J. ROBERT SUFFOLETTA, ESQ. 755 PAGE MILL ROAD WILSON SONSINI GOODRICH & ROSATI PALO ALTO, CA 94304-1018 PROFESSIONAL CORPORATION (415) 813-5600 650 PAGE MILL ROAD PALO ALTO, CA 94304-1050 (415) 493-9300 --------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this form are to be offered pursuant to dividend or interest reinvestment plans, please check the following box. [_] 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, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. =============================================================================== ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +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 STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED JUNE 7, 1996 2,000,000 SHARES [UNIPHASE LOGO] COMMON STOCK All of the 2,000,000 shares of Common Stock offered hereby are being sold by Uniphase Corporation ("Uniphase" or the "Company"). The Company's Common Stock is traded on the Nasdaq National Market under the symbol "UNPH." On May 29, 1996, the last reported sale price of the Common Stock on the Nasdaq National Market, after giving effect to the stock split described below, was $31.00 per share. See "Price Range of Common Stock." The Company's Board of Directors recently approved a two-for-one stock split in the form of a 100% stock dividend to be paid June 3, 1996 to holders of record on May 20, 1996 (the "Stock Split"). Share and per share data in this Prospectus have been adjusted to reflect the Stock Split. SEE "RISK FACTORS" COMMENCING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY. ----------- 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. ================================================================================
Price to Underwriting Proceeds to Public Discount (1) Company (2) - ------------------------------------------------------------------------------- Per Share............................. $ $ $ Total (3)............................. $ $ $
================================================================================ (1) See "Underwriting" for information concerning indemnification of the Underwriters and other matters. (2) Before deducting expenses payable by the Company estimated at $550,000. (3) The Company has granted to the Underwriters a 30-day option to purchase up to 300,000 additional shares of Common Stock solely to cover over- allotments, if any. If the Underwriters exercise this option in full, the Price to Public will total $ , the Underwriting Discount will total $ and the Proceeds to Company will total $ . See "Underwriting." The shares of Common Stock are offered by the several Underwriters named 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 delivery of the certificates representing such shares will be made against payment therefor at the office of Montgomery Securities on or about June , 1996. ----------- MONTGOMERY SECURITIES ALEX. BROWN & SONS INCORPORATED UNTERBERG HARRIS JOSEPHTHAL LYON & ROSS INCORPORATED June , 1996 AVAILABLE INFORMATION The Company is subject to the reporting requirements of the Exchange Act, and in accordance therewith, files, annual and quarterly reports, proxy and information statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at its office at Room 1034, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such materials can be obtained from the public reference section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Company's Common Stock is quoted on the Nasdaq National Market and reports, proxy statements and other information concerning the Company can be inspected at the National Association of Securities Dealers, Inc., 9513 Key West Avenue, Rockville, Maryland 20850. This Prospectus constitutes a part of a Registration Statement on Form S-3 (herein, together with all amendments, schedules and exhibits, referred to as the "Registration Statement") filed by the Company with the Commission under the Securities Act. This Prospectus does not contain all of the information set forth in the Registration Statement and certain parts are omitted in accordance with 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 such Registration Statement. Statements contained in this Prospectus as to the contents of any contract or other document referred to are not necessarily complete, and in each instance, reference is made to the copy of such contract or other document filed as an exhibit or incorporated by reference to the Registration Statement of which this Prospectus forms a part, each such statement being qualified in all respects by such reference. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents heretofore filed by the Company with the Commission (File No. 0-22874) pursuant to the Exchange Act are incorporated herein by reference: (1) the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995 and (2) the description of the Company's Common Stock contained in the Company's Registration Statement on Form 8-A filed with the Commission on November 15, 1993; (3) the Company's Quarterly Reports on Form 10-Q for the fiscal quarters ended September 30 and December 31, 1995, and March 31, 1996; and (4) the Company's Current Report on Form 8-K dated February 8, 1996. All reports and other documents subsequently filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the offering of the Common Stock hereunder shall be deemed to be incorporated by reference herein and to be a part hereof from the date of the filing of such reports and documents. The Company hereby undertakes to provide without charge to each person, including any beneficial owner, to whom a copy of this Prospectus is delivered, upon written or oral request of such person a copy of any or all of the foregoing documents incorporated herein by reference (exclusive of exhibits, unless such exhibits are specifically incorporated by reference into such documents). Requests for such documents should be submitted in writing to the Corporate Secretary at the corporate headquarters of the Company at 163 Baypointe Parkway, San Jose, California 95134 or by telephone at (408) 434- 1800. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document that also is or is deemed to be incorporated by reference herein modified or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of the Registration Statement or this Prospectus. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS AND OTHER SELLING GROUP MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING." 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information appearing elsewhere in this Prospectus and other information incorporated by reference herein. Unless otherwise noted, all information in this Prospectus (i) assumes no exercise of the Underwriters' over-allotment option, and (ii) has been adjusted to reflect a two-for-one stock split in the form of a 100% stock dividend to be paid on June 3, 1996 (the "Stock Split"). THE COMPANY Uniphase Corporation ("Uniphase" or the "Company") is an optoelectronics company that designs, develops, manufactures and markets laser subsystems, laser-based semiconductor wafer defect examination and analysis equipment and fiber optic telecommunications equipment products. Optoelectronics is a technology that extends the speed and capacity of conventional electronic solutions by addressing many of the constraints of the electron with the particle of light, the photon. A common source of the photon in optoelectronics is the laser. By combining electronics, photonics and software, optoelectronics has enabled new technologies such as CD-ROMs and fiber optic communication, and has created new solutions for existing markets. Since its founding, Uniphase has shipped over one million lasers and has become a leading supplier of laser subsystems for OEMs in the biotechnology, industrial process control, semiconductor wafer inspection, and graphics and printing markets. The Company focuses on selling its laser subsystems to such customers at the design-in phase of a product, creating the potential for recurring sales throughout a product's life. The Company has leveraged its expertise in gas lasers to develop smaller, more efficient solid state lasers, which the Company believes will be the primary commercial laser technology in the future. The Company's strategy is to leverage its core competencies in laser technology to develop highly focused and differentiated applications where there is a convergence of market need and optoelectronic technology. The Company's knowledge of laser technology enabled it to introduce an optoelectronics application for the semiconductor capital equipment industry, the Ultrapointe laser imaging system (the "Ultrapointe System"), in June 1993. The Ultrapointe System works in conjunction with automated inspection systems from vendors such as Tencor Instruments ("Tencor") and KLA Instruments ("KLA") to enable semiconductor manufacturers to more accurately identify and classify defects. This defect examination and analysis procedure enables semiconductor manufacturers to improve yields by identifying and containing process problems. As of March 31, 1996, the Company had sold 63 Ultrapointe Systems to leading semiconductor manufacturers worldwide. In November 1995, Tencor became the exclusive OEM reseller of the Ultrapointe System. In May 1996, the Company introduced its Identifier software product, an optional feature that provides automatic defect classification ("ADC") capability for Ultrapointe Systems. Working in conjunction with the Ultrapointe System, the Identifier software automates the defect classification process, thereby improving the precision and repeatability of defect classification. The Company extended its optoelectronic product offerings into the telecommunications equipment market by acquiring Uniphase Telecommunications Products, Inc. ("UTP") in May 1995. UTP designs, develops, manufactures and markets high-speed external modulators and transmitters for fiber optic networks in the long-haul telecommunications and cable television ("CATV") industries. In May 1996, the Company acquired two affiliated companies, GCA Fibreoptics Ltd. ("GCA") and Fiberoptic Alignment Solutions, Inc. ("FAS") which the Company intends to combine and operate under the name Uniphase Fiberoptic Products, Ltd. ("UFP") as a division of UTP. The acquisition of UFP expands the Company's presence in the optoelectronic communications market. UFP custom packages laser diodes, light emitting diodes ("LEDs") and photodetectors for OEMs for use in fiber optic networks. 3 THE OFFERING Common Stock offered........................ 2,000,000 shares Common Stock to be outstanding after the Of- fering..................................... 15,814,264 shares (1) Nasdaq National Market symbol............... UNPH Use of proceeds............................. General corporate purposes, including working capital, capital expenditures and possible acquisitions.
SUMMARY CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED FISCAL YEARS ENDED JUNE 30, MARCH 31, ----------------------------------------------- ----------------- 1991 1992 1993 1994 1995 1995 1996 ------- ------- ------- ------- ------- -------- -------- CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net sales............... $23,480 $26,405 $27,314 $32,922 $42,282 $ 30,146 $ 47,342 Gross profit............ 8,822 9,794 9,444 12,855 18,169 12,768 22,240 Operating expenses: Research and development........... 2,031 2,381 1,986 3,058 3,710 2,707 4,093 Royalty and license.... 939 1,023 986 1,212 1,172 995 1,205 Selling, general and administrative........ 3,557 4,221 5,417 (2) 5,693 (2) 7,355 5,176 8,942 Infrequent or unusual charges: Acquired in-process research and development.......... -- -- -- -- 4,460 (3) -- -- Loss on sale of product line......... -- -- -- -- 891 (3) -- -- Litigation (4)........ -- 397 2,381 (355) -- -- -- ------- ------- ------- ------- ------- -------- -------- Total operating expenses............... 6,527 8,022 10,770 9,608 17,588 8,878 14,240 ------- ------- ------- ------- ------- -------- -------- Income (loss) from operations............. 2,295 1,772 (1,326) 3,247 581 3,890 8,000 Net income (loss)....... $ 1,456 $ 1,127 $ (798) $ 2,231 $ 735 $ 2,706 $ 5,661 Net income (loss) per share.................. $ 0.24 $ 0.19 $ (0.14) $ 0.27 $ 0.07 $ 0.27 $ 0.44 Shares used in per share calculation............ 6,080 5,888 5,510 8,274 10,082 9,966 12,962
MARCH 31, 1996 -------------------- AS ACTUAL ADJUSTED (5) ------- ------------ CONSOLIDATED BALANCE SHEET DATA: Working capital............................................ $51,033 $109,383 Total assets............................................... 96,700 155,050 Long-term obligations...................................... -- -- Total stockholders' equity................................. 86,845 145,195
- -------- (1) Based on the number of shares of Common Stock outstanding as of May 20, 1996. Excludes (i) approximately 2,411,430 shares of Common Stock reserved for issuance pursuant to the exercise of stock options outstanding under the Company's stock plans as of March 31, 1996, having a weighted average exercise price of $6.44 per share, and (ii) approximately 293,500 shares of Common Stock reserved for future grants or issuance under the Company's stock plans. (2) In fiscal 1993, includes $217,000 of expenses relating to the reorganization of the Company's international operations and $300,000 of expenses accrued for certain intellectual property matters. In fiscal 1994, it was determined that the costs related to the intellectual property matters would not have to be paid, and, accordingly, such costs were reversed. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 14 of Notes to Consolidated Financial Statements. (3) During fiscal 1995, the Company incurred charges totaling $5.4 million, primarily for acquired in-process research and development and, to a lesser extent, for the loss on the sale of the Company's diode laser product line. The acquired in-process research and development resulted primarily from the cash purchase of UTP from United Technologies Corporation for a total purchase price, including acquisition expenses, of $8.7 million. Such charges reduced net income per share for fiscal 1995 by $0.33. See Notes 10 and 11 of Notes to Consolidated Financial Statements. (4) During fiscal years 1992 and 1993, the Company accrued litigation costs of $397,000 and $2.4 million, respectively, pertaining primarily to a patent infringement action brought against the Company, and to a lesser extent in fiscal 1993, for actions against the Company by certain former employees. The patent infringement action was settled in fiscal 1993. Due to the settlement of one of the former employee actions in fiscal 1994 at a cost less than anticipated and the re-evaluation of the potential liability with respect to the remaining outstanding lawsuit, the Company reversed $355,000 of accrued legal expense in fiscal 1994. See Note 14 of Notes to Consolidated Financial Statements. (5) Adjusted to reflect the sale of 2,000,000 shares of Common Stock offered hereby, at an assumed public offering price of $31.00 per share, after deducting the underwriting discount and estimated offering expenses and receipt of the proceeds therefrom. See "Use of Proceeds" and "Capitalization." 4 RISK FACTORS In evaluating the Company's business, prospective investors should carefully consider the following factors in addition to the other information presented in this Prospectus and in the documents incorporated by reference herein. The statements contained in this Prospectus that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including but not limited to statements regarding the Company's expectations, hopes, beliefs, intentions or strategies regarding the future. Actual results could differ materially from those projected in any forward-looking statements as a result of a number of factors, including those detailed in this "Risk Factors" portion of this Prospectus as well as those set forth elsewhere in this Prospectus. The forward-looking statements are made as of the date of this Prospectus and the Company assumes no obligation to update the forward-looking statements, or to update the reasons why actual results could differ materially from those projected in the forward-looking statements. RISKS ASSOCIATED WITH THE TELECOMMUNICATIONS EQUIPMENT MARKET The Company entered the telecommunications equipment market by acquiring UTP in May 1995. UTP designs, develops, manufactures and markets high-speed external modulators and transmitters for fiber optic networks in the long-haul telecommunications and CATV industries. The CATV and telecommunications industries are characterized by rapidly evolving technology, intense competition, fluctuations in capital spending and uncertainty surrounding the level of governmental regulation. To compete successfully, the Company must design, develop, manufacture and sell new products that provide increasingly higher levels of performance and reliability. As new markets develop, the Company must successfully develop new products for these markets to remain competitive. There can be no assurance that the Company will successfully develop new products, or that new products developed by the Company will achieve market acceptance or not be rendered obsolete or uncompetitive by products of other companies. Significant competitive factors include product performance and reliability, product price, the capability to provide strong customer support and service, customer relationships and breadth of product line. There can be no assurance that the Company will be able to compete successfully in the future with respect to these or any other competitive factors or that competition in these markets will not have a material adverse effect on the Company's business and operating results. In May 1996, the Company acquired UFP. UFP custom packages laser diodes, LEDs and photodetectors for OEMs for use in fiber optic networks for local telecommunications and data communications. Prior to acquiring UFP, the Company had not been engaged in local telecommunications and data communications applications and has no experience in developing, manufacturing, selling or supporting products for these applications. No assurance can be made that the Company can successfully provide these applications for the local telecommunications or data communications markets or that it can successfully assimilate UFP into the Company's other business operations. UTP and UFP's products are designed to operate in CATV and other communications networks that use fiber optic cable to transmit signals. Thus, demand for the Company's products depends to a significant extent upon the magnitude and timing of capital spending by CATV and telecommunications operators for constructing, rebuilding or upgrading fiber optic systems which in turn directly affects purchases by CATV and telecommunications equipment suppliers. Furthermore, sales of the Company's CATV products are highly dependent on the rate at which CATV OEMS and in turn, their customers, the multiple systems operators ("MSOs"), move to adopt externally modulated products operating at 1550 nanometers ("nm") for their trunk lines. Although the Company believes that this technology offers certain advantages, there is no assurance that OEMs and MSOs will continue to migrate to this solution. In addition, the uncertainty regarding the level of governmental regulation and regulatory reform affects capital expenditures in the CATV and telecommunications industries. There can be no assurance that the Company's business and operating results will not be materially and adversely affected by these factors. See "Business--Products and Markets." 5 CYCLICALITY OF SEMICONDUCTOR INDUSTRY The Company's Ultrapointe Systems and a portion of its laser subsystems businesses depend upon capital expenditures by manufacturers of semiconductor devices, including manufacturers that are opening new or expanding existing fabrication facilities, which, in turn, depend upon the current and anticipated market demand for semiconductor devices and the products utilizing such devices. The semiconductor industry is highly cyclical, and historically has experienced periods of oversupply, resulting in significantly reduced demand for capital equipment. The semiconductor industry is currently experiencing a downturn which has led many semiconductor manufacturers to delay or cancel capital expenditures. Certain of the Company's customers have delayed or canceled purchases of the Company's Ultrapointe Systems. There can be no assurance that the Company's operating results will not be materially and adversely affected by these factors. Furthermore, there can be no assurance that the semiconductor industry will not experience further downturns or slowdowns in the future, which may materially and adversely affect the Company's business and operating results. See "Business--Sales and Marketing." DECLINING MARKET FOR GAS LASERS; DEVELOPMENT AND OTHER RISKS RELATING TO SOLID STATE LASER TECHNOLOGIES To date, a substantial portion of the Company's revenue has been derived from sales of gas laser subsystems. The market for gas lasers is mature and is expected to decline as customers transition from conventional lasers, including gas, to solid state lasers, which are currently expected to be the primary commercial laser technology in the future. In response to this transition, the Company has devoted substantial resources to developing solid state laser products and has introduced its initial solid state products. To date, sales of the Company's solid state laser products have been limited and primarily for customer evaluation purposes. Solid state laser products are still evolving, and there can be no assurance that the Company's solid state laser products will be successfully designed into customers' products or achieve commercial sales volumes. The Company believes that a number of companies are further advanced than the Company in their development efforts for solid state lasers and are competing with evaluation units for many of the same design-in opportunities that the Company is pursuing. It is anticipated that the average selling price of solid state lasers may be significantly less in certain applications than the gas laser products the Company is currently selling in these markets. If the Company is unable to successfully make this transition from gas to solid state lasers, its business, operating results and financial condition will be materially and adversely affected. The Company further believes it will be necessary to continue to reduce the cost of manufacturing and to broaden the wavelengths provided by its laser products. There can be no assurance that the Company will successfully develop new solid state laser products, or that any solid state lasers products will achieve market acceptance or not be rendered obsolete or uncompetitive by products of other companies. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Company Strategy" and "-- Laser Products." MANAGEMENT OF GROWTH; UFP ACQUISITION The Company has experienced recent growth through both increased levels of operations in its existing businesses and the acquisition of UTP in May 1995. The Company is devoting significant resources to develop new solid state lasers for OEM customers, to improve products and increase market penetration of its Ultrapointe Systems and to increase its penetration of the CATV and telecommunications industries. In addition, the Company is now increasing its marketing, customer support and administrative functions in order to support an increased level of operations from sales of its Ultrapointe Systems and its telecommunications equipment products. No assurance can be given that the Company will be successful in creating this infrastructure or that any increase in the level of such operations will justify the increased expense levels associated with these businesses. In May 1996, the Company acquired UFP. The total purchase price of $9.1 million included aggregate consideration of $8.6 million for both GCA and FAS, payable through a combination of cash and notes, and estimated direct transaction costs of $500,000. As a result of acquiring UFP, the Company has entered the local telecommunications and data communications markets in which it had no previous experience, and has expanded 6 its employee base by approximately 45 persons. The success of the UFP acquisition will be dependent on the Company's ability to integrate UFP into its existing operations as a division of UTP. UTP's ability to manage UFP will be complicated by the geographical distance between UTP's facilities in Bloomfield, Connecticut and Chalfont, Pennsylvania and UFP's locations in the United Kingdom and in Batavia, Illinois. There can be no assurance that the operations of UFP can be successfully integrated into UTP or that such integration will not strain the Company's available management, manufacturing, financial and other resources. The Company also made capital expenditures to acquire certain properties in San Jose, California totaling 109,000 square feet, which included land, building and improvements for an aggregate purchase price of approximately $11.0 million and continues to invest in property, plant and equipment needed for its business requirements, including adding to manufacturing capacity throughout the Company. Any failure to utilize these areas in an efficient manner could have a material adverse effect on the Company. The Company currently has no commitments with respect to any future acquisitions. The Company, however, frequently evaluates the strategic opportunities available to it and may in the future pursue acquisitions of additional complementary products, technologies or businesses. Such acquisitions by the Company may result in the diversion of management's attention from the day-to-day operations of the Company's business and may include numerous other risks, including difficulties in the integration of the operations and products, integration and retention of personnel of the acquired companies and certain financial risks. Future acquisitions by the Company may result in dilutive issuances of equity securities, the incurrence of additional debt, reduction of existing cash balances, amortization expenses related to goodwill and other intangible assets and other charges to operations that may materially adversely affect the Company's business, financial condition or operating results. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." VARIABILITY AND UNCERTAINTY OF QUARTERLY OPERATING RESULTS The Company has experienced and expects to continue to experience significant fluctuations in its quarterly results. The Company believes that fluctuations in quarterly results may cause the market price of its Common Stock to fluctuate, perhaps substantially. Factors which have had an influence on and may continue to influence the Company's operating results in a particular quarter include the timing of the receipt of orders from major customers, product mix, competitive pricing pressures, the relative proportions of domestic and international sales, costs associated with the acquisition or disposition of businesses, products or technologies, the Company's ability to design, manufacture and ship products on a cost effective and timely basis, the delay between incurrence of expenses to further develop marketing and service capabilities and realization of benefits from such improved capabilities, the announcement and introduction of cost-effective new products by the Company and by its competitors, and expenses associated with any intellectual property litigation. In addition, the Company's sales will often reflect orders shipped in the same quarter that they are received. Moreover, customers may cancel or reschedule shipments, and production difficulties could delay shipments. The timing of sales of the Company's Ultrapointe Systems may result in substantial fluctuations in quarterly operating results due to the substantially higher per unit price of these products relative to the Company's other products. In addition, the Company sells its telecommunications equipment products to OEMs who typically order in large quantities and therefore the timing of such sales may significantly affect the Company's quarterly results. The timing of such OEM sales can be affected by factors beyond the Company's control, including demand for the OEM's products and manufacturing issues experienced by OEMs. In this regard, the Company recently experienced a temporary rescheduling of orders by one OEM telecommunications customer. As a result of the above factors, the Company's results of operations are subject to significant variability from quarter to quarter. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Quarterly Results of Operations," "Business--Semiconductor Capital Equipment Products" and "-- Backlog." 7 The Company's operating results in a particular quarter may also be affected by the acquisition or disposition of other businesses, products or technologies by the Company. For example, in the fourth quarter of fiscal 1995, the Company incurred charges totaling $5.4 million, primarily for acquired in-process research and development in connection with the Company's acquisition of UTP, and to a lesser extent from the loss on the sale of the Company's diode laser product line. Such charges reduced net income per share for the fourth quarter of fiscal 1995 by $0.34 and for fiscal 1995 by $0.33. During the quarter ending June 30, 1996, the Company incurred a charge of approximately $3.0 million in connection with the cancellation of certain UTP options and granting of replacement options to purchase Uniphase Common Stock to UTP employees in order to operate UFP as a division of UTP. The Company will incur an additional estimated charge of $4.5 million for acquired in-process research and development in connection with the acquisition of UFP in the quarter ending June 30, 1996. As a result of this expected in-process research and development charge and the option grant related compensation expense, the Company expects to record a net loss for the quarter ending June 30, 1996. There can be no assurance that other acquisitions or dispositions of businesses, products or technologies by the Company in the future will not result in substantial charges or other expenses that may cause fluctuations in the Company's quarterly operating results. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." INTENSE INDUSTRY COMPETITION The laser, semiconductor capital equipment, CATV and telecommunications industries in which the Company sells its products are highly competitive. In each of the markets it serves, the Company faces intense competition from established competitors, many of which have substantially greater financial, engineering, research and development, manufacturing, marketing, service and support resources. The Company is a recent entrant into the semiconductor capital equipment, the CATV and telecommunications marketplaces and competes with many companies in those markets that have substantially greater resources, including greater name recognition, a larger installed base of products and longer standing customer relationships. In order to remain competitive, the Company must maintain a high level of investment in research and development, marketing, and customer service and support. There can be no assurance that the Company will be able to compete successfully in the laser, semiconductor capital equipment, CATV or telecommunications industries in the future, that the Company will have sufficient resources to continue to make such investments, that the Company will be able to make the technological advances necessary to maintain its competitive position or that its products will receive market acceptance. The semiconductor capital equipment market is frequently affected by new product introductions and new technologies that make existing production and inspection equipment obsolete. There can be no assurance that others will not introduce products which compete with the Ultrapointe System or which render the Ultrapointe System obsolete or uncompetitive based on existing or new technologies. In addition, there can be no assurance that technological changes or development efforts by the Company's competitors will not render the Company's products or technologies obsolete or uncompetitive. See "Business--Sales and Marketing" and "--Competition." DEPENDENCE ON KEY OEM RELATIONSHIPS In November 1995, the Company entered into an exclusive OEM resale agreement with Tencor pursuant to which Tencor will distribute Ultrapointe Systems through its worldwide distribution channels. As a result of such agreement, the Company currently expects that Tencor will account for a majority of Ultrapointe's net sales for the foreseeable future. In addition, one laser subsystems customer, the Applied Biosystems Division of Perkin-Elmer Corporation, accounted for approximately 11%, 12%, 12% and 13% of the Company's net sales for fiscal years 1993, 1994, 1995, and the nine months ended March 31, 1996, respectively. The loss of orders from these or other OEM relationships could have a materially adverse effect on the Company's business and operating results. ATTRACT AND RETAIN KEY PERSONNEL The future success of the Company is dependent, in part, on its ability to attract and retain certain key personnel. In particular, the Company's research and development efforts are dependent on the Company being able to hire and retain engineering staff with the requisite qualifications. Competition in recruiting highly skilled engineering personnel is extremely intense, and the Company is currently experiencing substantial difficulty in 8 identifying and hiring certain qualified engineering personnel in many areas of its business. No assurance can be given that the Company will be able to successfully hire such personnel at compensation levels that are consistent with the Company's existing compensation and salary structure. The Company's future success will also depend to a large extent on the continued contributions of its executive officers and other key management and technical personnel, none of whom has an employment agreement with the Company and each of whom would be difficult to replace. The Company maintains a key person life insurance policy on its Chief Executive Officer, but it does not maintain such insurance on any other persons. The loss of the services of one or more of the Company's executive officers or key personnel or the inability to continue to attract qualified personnel could delay product development cycles or otherwise have a material adverse effect on the Company's business and operating results. See "Business--Research and Development," "--Employees" and "Management." CONFLICTING PATENTS AND INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES; POTENTIAL INFRINGEMENT CLAIMS The laser, semiconductor capital equipment, CATV and telecommunications industries in which the Company sells its products are characterized by frequent litigation regarding patent and other intellectual property rights. Numerous patents in these industries are held by others, including academic institutions and competitors of the Company. Such patents could inhibit the Company's ability to develop new products for such markets. From time to time, the Company has received notices claiming that it has infringed third-party patents or other intellectual property rights. While in the past licenses generally have been available to the Company where third-party technology was necessary or useful for the development or production of the Company's products, there can be no assurance that licenses to third-party technology will be available on commercially reasonable terms, if at all. Generally, a license, if granted, would include payments by the Company of up-front fees, ongoing royalties or a combination thereof. There can be no assurance that such royalty or other terms would not have a significant adverse impact on the Company's operating results. The Company is a licensee of a number of third party technologies and intellectual property rights and is required to pay royalties to these third party licensors on certain of its products. During fiscal 1995 and the nine months ended March 31, 1996, the Company expensed approximately $1.2 million and $1.2 million, respectively, in license and royalty fees primarily in connection with its gas laser subsystems. In addition, there can be no assurance that third parties will not assert claims against the Company with respect to the Company's existing products or with respect to future products under development by the Company. In the event of litigation to determine the validity of any third-party claims, such litigation could result in significant expense to the Company and divert the efforts of the Company's technical and management personnel, whether or not such litigation is determined in favor of the Company. In the event of an adverse result in any such litigation, the Company could be required to expend significant resources to develop non-infringing technology or to obtain licenses to the technology which is the subject of the litigation. There can be no assurance that the Company would be successful in such development or that any such licenses would be available to the Company. In the absence of such a license, the Company could be enjoined from future sales of the infringing product or products. In fiscal years 1992 and 1993, the Company incurred substantial legal expenses in connection with a patent infringement action relating to the Company's current gas laser subsystems brought by Spectra-Physics Lasers, Inc. ("Spectra-Physics"). While the Spectra-Physics case has since been settled, no assurance can be given that, in the future, the Company will be able to avoid similar actions by competitors or others or that the Company will not be forced to initiate its own actions to protect its proprietary position. See "Business--Patents and Proprietary Rights." LIMITED PROTECTION OF INTELLECTUAL PROPERTY The Company's future success depends in part upon its intellectual property, including trade secrets, know-how and continuing technological innovation. There can be no assurance that the steps taken by the Company to protect its intellectual property will be adequate to prevent misappropriation or that others will not develop competitive technologies or products. The Company currently holds 30 U.S. patents on products or processes and certain corresponding foreign patents and has applications for certain patents currently pending. While three patents have been issued with respect to the Company's Ultrapointe Systems, no assurance can be given that competitors will not successfully challenge the validity of these patents or design products that avoid infringement of the Company's proprietary rights with respect to its Ultrapointe Systems. There can be no 9 assurance that other companies are not investigating or developing other technologies that are similar to the Company's, that any patents will issue from any application pending or filed by the Company or that, if patents do issue, the claims allowed will be sufficiently broad to deter or prohibit others from marketing similar products. In addition, there can be no assurance that any patents issued to the Company will not be challenged, invalidated or circumvented, or that the rights thereunder will provide a competitive advantage to the Company. Further, the laws of certain territories in which the Company's products are or may be developed, manufactured or sold, including Asia, Europe or Latin America, may not protect the Company's products and intellectual property rights to the same extent as the laws of the United States. See "Business--Patents and Proprietary Rights." DEPENDENCE ON SOLE AND LIMITED SOURCE SUPPLIERS Various components included in the manufacture of the Company's products are currently obtained from single or limited source suppliers. A disruption or loss of supplies from these companies or an increase in price of these components would have a material adverse effect on the Company's results of operations, product quality and customer relationships. For example, the Company obtains all the robotics, workstations and many optical components used in its Ultrapointe Systems from Equipe Technologies, Silicon Graphics, Inc., and Olympus Corporation, respectively. The Company currently utilizes a sole source for the crystal semiconductor chip sets incorporated in the Company's solid state microlaser products and acquires its pump diodes for use in its solid state laser products from SDL, Inc., Opto Power Corporation and GEC. The Company also obtains lithium niobate wafers and specialized fiber components used in its UTP products primarily from Crystal Technology Inc. and Fujikura, Ltd., respectively. The Company does not have long-term or volume purchase agreements with any of these suppliers, and no assurance can be given that these components will be available in the quantities required by the Company, if at all. Further, UTP depends on relatively specialized components and it cannot be assured that its respective suppliers will be able to continue to meet UTP's requirements. See "Business--Manufacturing". DIFFICULTIES IN MANUFACTURE OF THE COMPANY'S PRODUCTS The manufacture of the Company's products involves highly complex and precise processes, requiring production in highly controlled and clean environments. Changes in the Company's or its suppliers' manufacturing processes or the inadvertent use of defective or contaminated materials by the Company or its suppliers could adversely affect the Company's ability to achieve acceptable manufacturing yields and product reliability. In addition, UTP has previously experienced certain manufacturing yield problems that have materially and adversely affected both UTP's ability to deliver products in a timely manner to its customers and its operating results. The Company recently began manufacturing UTP products at its newly constructed clean room at UTP's Bloomfield, Connecticut facility and in May 1996 vacated the clean room space leased from UTP's former parent corporation. No assurance can be given that the Company will be successful in manufacturing UTP products in the future at performance or cost levels necessary to meet its customer needs, if at all. In addition, UTP established a new transmitter production facility in Chalfont, Pennsylvania in March 1996 and consolidated the transmitter production line previously located in Bloomfield, Connecticut into this facility in April 1996. The Company has no assurance that this facility will be able to deliver the planned production quantities of transmitters to customers specifications at the cost and yield levels required. To the extent the Company or UTP does not achieve and maintain yields or product reliability, the Company's operating results and customer relationships will be adversely affected. See "Business--Manufacturing." FUTURE CAPITAL REQUIREMENTS The Company is devoting substantial resources to the development of new products for the solid state laser, semiconductor capital equipment, CATV and telecommunications markets. Although the Company believes that the net proceeds from the sale of the Common Stock in this offering, together with existing cash balances, cash flow from operations and available lines of credit, will be sufficient to meet its capital requirements at least through the end of calendar year 1997, the Company may be required to seek additional equity or debt financing to compete effectively in these markets. The timing and amount of such capital requirements cannot be precisely 10 determined at this time and will depend on several factors, including the Company's acquisitions and the demand for the Company's products and products under development. There can be no assurance that such additional financing will be available when needed, or, if available, will be on terms satisfactory to the Company. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." VOLATILITY OF COMMON STOCK PRICE The market price of the Company's Common Stock has recently been and is likely to continue to be highly volatile and significantly affected by factors such as fluctuations in the Company's operating results, announcements of technological innovations or new products by the Company or its competitors, governmental regulatory action, developments with respect to patents or proprietary rights, general market conditions and other factors. Further, the Company's net sales or operating results in future quarters may be below the expectations of public market securities analysts and investors. In such event, the price of the Company's Common Stock would likely decline, perhaps substantially. In addition, the stock market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. See "Price Range of Common Stock." RISKS ASSOCIATED WITH INTERNATIONAL SALES International sales accounted for approximately 31.8%, 28.9%, 30.3% and 25.2% of the Company's net sales in fiscal years 1993, 1994, 1995 and the nine months ended March 31, 1996, respectively, and the Company expects that international sales will continue to account for a significant portion of the Company's net sales. The Company may continue to expand its operations outside of the United States and to enter additional international markets, both of which will require significant management attention and financial resources. International sales are subject to inherent risks, including unexpected changes in regulatory requirements, tariffs and other trade barriers, political and economic instability in foreign markets, difficulties in staffing and management and integration of foreign operations, longer payment cycles, greater difficulty in accounts receivable collection, currency fluctuations and potentially adverse tax consequences. Since substantially all of the Company's foreign sales are denominated in U.S. dollars, the Company's products may also become less price competitive in countries in which local currencies decline in value relative to the U.S. dollar. The Company's business and operating results may also be materially and adversely affected by lower sales levels which typically occur during the summer months in Europe and certain other overseas markets. Furthermore, the sales of many of the Company's OEM customers are dependent on international sales and, consequently, this further exposes the Company to the risks associated with such international sales. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations" and "Business--Marketing and Sales." ISSUANCE OF PREFERRED STOCK; POTENTIAL ANTI-TAKEOVER EFFECTS OF DELAWARE LAW The Board of Directors has the authority to issue up to 1,000,000 shares of undesignated Preferred Stock and to determine the powers, preferences and rights and the qualifications, limitations or restrictions granted to or imposed upon any wholly unissued shares of undesignated Preferred Stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by the Company's shareholders. The Preferred Stock could be issued with voting, liquidation, dividend and other rights superior to those of the holders of Common Stock. The issuance of Preferred Stock under certain circumstances could have the effect of delaying, deferring or preventing a change in control of the Company. The Company is subject to the provisions of Section 203 of the Delaware General Corporation Law prohibiting publicly-held Delaware corporations from engaging in business combinations with certain stockholders for a specified period of time without the approval of substantially all of its outstanding voting stock. Such provisions could delay or impede the removal of incumbent directors and could make more difficult a merger, tender offer or proxy contest involving the Company, even if such events could be beneficial, in the 11 short term, to the interests of the stockholders. In addition, such 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 Company's Certificate of Incorporation and Bylaws contain provisions relating to the limitations of liability and indemnification of its directors and officers, dividing its Board of Directors into three classes of directors serving three-year terms and providing that its stockholders can take action only at a duly called annual or special meeting of stockholders. These provisions also may have the effect of deterring hostile takeovers or delaying changes in control or management of the Company. SUBSTANTIAL NUMBER OF SHARES ELIGIBLE FOR FUTURE SALE Based on shares outstanding as of May 20, 1996, the Company will have 15,814,264 shares of Common Stock outstanding upon completion of this offering. Subject to the lock-up agreements noted below, virtually all of these outstanding shares will be available for immediate resale without restriction following the completion of this offering. For a period of 90 days from the date of this Prospectus, all executive officers and directors have agreed not to sell or otherwise dispose of any of their shares of Common Stock (plus an additional approximately 86,658 shares of Common Stock exercisable under stock options vested as of 90 days from the date of this Prospectus) without the prior written consent of Montgomery Securities. In addition, upon completion of the offering, and based on options outstanding as of May 20, 1996, there will be outstanding options to purchase a total of approximately 2,520,016 shares of the Company's Common Stock under the stock option plans of the Company. Sale of substantial amounts of such shares in the public market or the prospect of such sales could adversely affect the market price of the Company's Common Stock. See "Principal Stockholders" and "Underwriting." 12 RECENT DEVELOPMENTS In November 1995, the Company entered into a three-year agreement with Tencor under which Tencor became the exclusive OEM reseller for the Company's Ultrapointe Systems and the Identifier, the Company's ADC software product. Under the agreement, Tencor will distribute the Ultrapointe System under its own label worldwide and has the responsibility for installation and service of the systems it sells. The Company retains the right to distribute its products through its direct sales force and other channels. The agreement includes a license providing Tencor with certain ADC technology and payments to the Company to accelerate ADC development. In connection with the agreement, Tencor acquired 665,568 shares of the Company's Common Stock for a net purchase price of approximately $12.3 million. In May 1996, the Company acquired UFP. The total purchase price of $9.1 million included aggregate consideration of $8.6 million, payable through a combination of cash and notes, and estimated direct transaction costs of $500,000. UFP custom packages laser diodes, LEDs and photodetectors for OEMs for use in fiber optic networks for local telecommunications and data communications. The Company intends to operate UFP as a division of UTP. The Company expects to incur an estimated charge of $4.5 million for acquired in- process research and development in connection with the acquisition of UFP in the quarter ending June 30, 1996. In addition, in order to operate UFP as a division of UTP, management believes it was necessary to cancel options to purchase UTP stock previously granted to UTP employees and to grant replacement options to such employees to purchase Common Stock of the Company. As a result, the Company will incur compensation expense totaling $4.4 million in connection with such option grants which were effective on May 15, 1996. Of this total, $3.0 million relating to options which have vested to date will be charged to expense during the quarter ending June 30, 1996, and the remaining $1.4 million will be charged to expense over the remaining three-year vesting period. As a result of the expected in-process research and development charge in connection with the UFP acquisition and the compensation expense in connection with the option grants to UTP employees, the Company expects to record a net loss for the quarter ending June 30, 1996. USE OF PROCEEDS The net proceeds to the Company from the sale of the 2,000,000 shares of Common Stock offered by it hereby are estimated to be $58.4 million ($67.2 million if the Underwriters' over-allotment option is exercised in full), based on an assumed public offering price of $31.00 per share and after deducting the underwriting discount and estimated offering expenses. The Company intends to use the net proceeds of this offering for general corporate purposes, including working capital, research, development and engineering expenses, capital expenditures and possible acquisitions of complementary businesses, products or technologies. The manner in which the Company may determine to pursue these activities may vary, and may take the form of joint ventures or other arrangements with third parties or internal development. Although the Company frequently reviews potential acquisition opportunities, there are no present plans, agreements or commitments with respect to any such transaction, and the Company is not currently engaged in any negotiation with respect to any such acquisition. The Company anticipates that its capital expenditures for fiscal 1997 will be approximately $4.0 million and that these expenditures will be used to support the expansion of its current operations, including the expansion into additional facilities. Pending the uses described above, the net proceeds of this offering will be invested in short-term, income producing investments. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." 13 PRICE RANGE OF COMMON STOCK The Common Stock trades on the Nasdaq National Market under the symbol UNPH. The following table sets forth for the periods indicated the high and low sale prices for the Common Stock as reported on the Nasdaq National Market, which prices reflect the Stock Split.
HIGH LOW ---- --- FISCAL YEAR 1994 Second Quarter (from November 17, 1993).................... $ 4 5/8 $ 4 Third Quarter.............................................. 5 3/8 4 1/4 Fourth Quarter............................................. 4 5/8 3 3/8 FISCAL YEAR 1995 First Quarter.............................................. 5 1/2 3 7/8 Second Quarter............................................. 8 1/8 5 1/4 Third Quarter.............................................. 10 6 3/8 Fourth Quarter............................................. 12 1/8 8 7/8 FISCAL YEAR 1996 First Quarter.............................................. 19 1/16 10 3/8 Second Quarter............................................. 19 12 1/2 Third Quarter.............................................. 21 1/4 14 7/8 Fourth Quarter (through May 29, 1996)...................... 32 1/2 18 5/8
On May 29, 1996, the last reported sale price of the Common Stock on the Nasdaq National Market was $31.00 per share. As of May 29, 1996, there were approximately 55 holders of record of the shares of outstanding Common Stock. DIVIDEND POLICY The Company has never declared or paid cash dividends on its Common Stock. The Company currently intends to retain all future earnings for use in the operation of its business, and, therefore, does not anticipate paying any cash dividends in the foreseeable future. In addition, the Company's existing bank line of credit prohibits the payment of cash dividends on shares of its capital stock. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" and Note 4 of Notes to Consolidated Financial Statements. 14 CAPITALIZATION The following table sets forth the capitalization of the Company at March 31, 1996 and as adjusted to reflect the sale of 2,000,000 shares of Common Stock by the Company at an assumed public offering price of $31.00 per share, after deducting the underwriting discount and estimated offering expenses, and the application of the proceeds therefrom. This table should be read in conjunction with the Consolidated Financial Statements of the Company, including the related notes thereto, appearing elsewhere in this Prospectus.
MARCH 31, 1996 -------------------- ACTUAL AS ADJUSTED -------- ----------- (IN THOUSANDS) Long-term debt............................................ $ -- $ -- -------- -------- Stockholders' equity: Preferred stock, $0.001 par value; 1,000,000 shares authorized, none issued and outstanding................ -- -- Common Stock, $0.001 par value; 20,000,000 shares authorized, 13,694,138 shares issued and outstanding, actual; and 15,694,138 shares issued and outstanding, as adjusted (1)........................................ 14 16 Additional paid-in capital.............................. 72,188 130,536 Retained earnings....................................... 14,608 14,608 Foreign currency translation adjustment................. 35 35 -------- -------- Total stockholders' equity............................ 86,845 145,195 -------- -------- Total capitalization................................. $ 86,845 $145,195 ======== ========
- -------- (1) Excludes (i) approximately 2,411,430 shares of Common Stock issuable upon exercise of stock options outstanding at March 31, 1996, at a weighted average exercise price of $6.44 per share under the Company's stock option plans, (ii) approximately 48,526 shares of Common Stock reserved for future issuances pursuant to the Company's stock option plans and (iii) approximately 244,974 shares of Common Stock reserved for future issuance under the Company's stock purchase plan. See Notes 7 and 8 of Notes to Consolidated Financial Statements. 15 SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated statement of operations data presented below for the years ended June 30, 1991 and 1992 and the consolidated balance sheet data as of June 30, 1991, 1992 and 1993 are derived from audited consolidated financial statements of the Company, which have been audited by Ernst & Young LLP but are not contained in this Prospectus. The selected consolidated statement of operations data presented below for each of the three years in the period ended June 30, 1995 and the consolidated balance sheet data as of June 30, 1994 and 1995 are derived from consolidated financial statements of the Company, which have been audited by Ernst & Young LLP, independent auditors, and are contained elsewhere in this Prospectus. The unaudited selected consolidated statement of operations data presented below for the nine months ended March 31, 1995 and 1996 and the unaudited consolidated balance sheet data as of March 31, 1996 have been prepared on the same basis as the information derived from audited financial statements and, in the opinion of management, contains all adjustments, consisting only of normal recurring accruals, necessary for the fair presentation of the results of operations and financial position for such periods. The selected consolidated financial data set forth below is qualified in its entirety by, and should be read in conjunction with, the Company's Consolidated Financial Statements and related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations," which are included elsewhere in this Prospectus.
NINE MONTHS ENDED FISCAL YEARS ENDED JUNE 30, MARCH 31, ------------------------------------------------- ----------------- 1991 1992 1993 1994 1995 1995 1996 ------- ------- ------- ------- ------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net sales............... $23,480 $26,405 $27,314 $32,922 $42,282 $ 30,146 $ 47,342 Cost of sales........... 14,658 16,611 17,870 20,067 24,113 17,378 25,102 ------- ------- ------- ------- ------- -------- -------- Gross profit........... 8,822 9,794 9,444 12,855 18,169 12,768 22,240 Operating expenses: Research and development........... 2,031 2,381 1,986 3,058 3,710 2,707 4,093 Royalty and license.... 939 1,023 986 1,212 1,172 995 1,205 Selling, general and administrative........ 3,557 4,221 5,417 (1) 5,693 (1) 7,355 5,176 8,942 Infrequent or unusual charges: Acquired in-process research and development.......... -- -- -- -- 4,460 (2) -- -- Loss on sale of product line......... -- -- -- -- 891 (2) -- -- Litigation (3)........ -- 397 2,381 (355) -- -- -- ------- ------- ------- ------- ------- -------- -------- Total operating expenses............... 6,527 8,022 10,770 9,608 17,588 8,878 14,240 ------- ------- ------- ------- ------- -------- -------- Income (loss) from operations............. 2,295 1,772 (1,326) 3,247 581 3,890 8,000 Other income (expense), net.................... (7) (9) 139 212 550 404 887 ------- ------- ------- ------- ------- -------- -------- Income (loss) before income taxes........... 2,288 1,763 (1,187) 3,459 1,131 4,294 8,887 Income tax expense (benefit).............. 832 636 (389) 1,228 396 1,588 3,226 ------- ------- ------- ------- ------- -------- -------- Net income (loss)....... $ 1,456 $ 1,127 $ (798) $ 2,231 $ 735 $ 2,706 $ 5,661 ======= ======= ======= ======= ======= ======== ======== Net income (loss) per share.................. $ 0.24 $ 0.19 $ (0.14) $ 0.27 $ 0.07 $ 0.27 $ 0.44 ======= ======= ======= ======= ======= ======== ======== Shares used in per share calculation............ 6,080 5,888 5,510 8,274 10,082 9,966 12,962
JUNE 30, --------------------------------------- MARCH 31, 1991 1992 1993 1994 1995 1996 ------- ------- ------- ------- ------- --------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Working capital............. $ 3,928 $ 5,642 $ 5,002 $18,943 $17,316 $51,033 Total assets................ 10,148 11,563 11,785 26,214 31,910 96,700 Long-term obligations....... 43 268 132 -- -- -- Total stockholders' equity.. 6,148 7,427 6,731 21,331 24,808 86,845
- ------- (1) In fiscal 1993, includes $217,000 of expenses relating to the reorganization of the Company's international operations and $300,000 of expenses accrued for certain intellectual property matters. In fiscal 1994, it was determined that the costs related to the intellectual property matters would not have to be paid, and, accordingly, such costs were reversed. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 14 of Notes to Consolidated Financial Statements. (2) During fiscal 1995, the Company incurred charges totaling $5.4 million, primarily for acquired in-process research and development and, to a lesser extent, the loss on the sale of the Company's diode laser product line. The acquired in-process research and development primarily resulted from the cash purchase of UTP from United Technologies Corporation for a total purchase price, including acquisition expenses, of $8.7 million. Such charges reduced net income per share for fiscal 1995 by $0.33. See Notes 10 and 11 of Notes to Consolidated Financial Statements. (3) During fiscal years 1992 and 1993, the Company accrued litigation costs of $397,000 and $2.4 million, respectively, pertaining primarily to a patent infringement action brought against the Company, and to a lesser extent in fiscal 1993, for actions against the Company by certain former employees. The patent infringement action was settled in fiscal 1993. Due to the settlement of one of the former employee actions in fiscal 1994 at a cost less than anticipated and the re-evaluation of the potential liability with respect to the remaining outstanding lawsuit, the Company reversed $355,000 of accrued legal expense in fiscal 1994. See Note 14 of Notes to Consolidated Financial Statements. 16 UNAUDITED COMBINED PRO FORMA FINANCIAL INFORMATION The Company has entered into a definitive stock purchase agreement with the shareholders of FAS and GCA to acquire 100% of the outstanding shares of FAS and GCA, respectively. The total purchase price is estimated to be approximately $9.1 million which includes the aggregate consideration of $8.6 million for both GCA and FAS, payable through a combination of cash and notes, and estimated direct transaction costs of approximately $500,000. The Company intends to combine GCA and FAS and operate them under the name Uniphase Fiberoptic Products, Ltd. (UFP). The Unaudited Pro Forma Combined Financial Information gives effect to the acquisition of GCA and FAS under the purchase method of accounting using the assumptions and adjustments described in the accompanying Notes to Pro Forma Combined Financial Information and should be read in conjunction with the historical financial statements of the Company and the historical combined financial statements of GCA and FAS included elsewhere herein. The pro forma information does not purport to be indicative of the results which would have been reported if the above transaction had been in effect for the periods presented or which may result in the future. The Unaudited Pro Forma Condensed Combined Balance Sheet is presented to give effect to the acquisition of GCA and FAS as if it had occurred on March 31, 1996 and combines the balance sheet of the Company as of March 31, 1996 with the combined balance sheet of GCA and FAS as of April 30, 1996. The Unaudited Pro Forma Condensed Combined Statements of Income assumes the transaction occurred at the beginning of each period presented and combines the statements of income of the Company for the year ended June 30, 1995 and the nine months ended March 31, 1996 with the combined statements of income of GCA and FAS for the twelve months ended July 31, 1995 and the nine months ended April 30, 1996. See accompanying notes to unaudited pro forma condensed combined financial statements.
YEAR ENDED JUNE 30, 1995 NINE MONTHS ENDED MARCH 31, 1996 ---------------------------------------- ---------------------------------------- PRO PRO PRO FORMA FORMA PRO FORMA FORMA UNIPHASE UFP ADJUSTMENTS COMBINED UNIPHASE UFP ADJUSTMENTS COMBINED -------- ------ ----------- -------- -------- ------ ----------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS: Net sales............... $42,282 $5,822 $48,104 $47,342 $4,458 $51,800 Cost of sales........... 24,113 3,489 27,602 25,102 3,035 28,137 ------- ------ ------- ------- ------ ------- Gross profit............ 18,169 2,333 20,502 22,240 1,423 23,663 Operating expenses: Research and development........... 3,710 162 3,872 4,093 119 4,212 Royalty and license.... 1,172 1,172 1,205 -- 1,205 Selling, general and administrative........ 7,355 1,639 784 (A) 10,528 8,942 1,193 587 (A) 11,162 750 (B) 440 (B) Acquired in-process research and development........... 4,460 -- 4,460 -- -- -- Loss on sale of product line.......... 891 -- 891 -- -- -- ------- ------ ------- ------- ------- ------ ------ ------- Total operating expenses............ 17,588 1,801 1,534 20,923 14,240 1,312 1,027 16,579 ------- ------ ------- ------- ------- ------ ------ ------- Income (loss) on operations............. 581 532 (1,534) (421) 8,000 111 (1,027) 7,084 Other income (expense), net.................... 550 (81) (360) (A) 109 887 (66) (270) (A) 551 ------- ------ ------- ------- ------- ------ ------ ------- Net income (loss) before income taxes........... 1,131 451 (1,894) (312) 8,887 45 (1,297) 7,635 Income tax expense (benefit).............. 396 108 (667) (C) (163) 3,226 25 (451) (C) 2,800 ------- ------ ------- ------- ------- ------ ------ ------- Net income (loss)....... $ 735 $ 343 $(1,227) $ (149) $ 5,661 $ 20 $ (846) $ 4,835 ======= ====== ======= ======= ======= ====== ====== ======= Net income (loss) per share.................. $ 0.07 $ (0.01) $ 0.44 $ 0.37 ======= ======= ======= ======= Number of weighted average shares used in per share amounts...... 10,082 10,082 12,962 12,962 ======= ======= ======= =======
17
UNIPHASE UFP PRO FORMA PRO FORMA MARCH 31, 1996 APRIL 30, 1996 ADJUSTMENTS COMBINED -------------- -------------- ----------- --------- (IN THOUSANDS) UNAUDITED PRO FORMA CON- DENSED COMBINED BALANCE SHEET ASSETS: Current assets: Cash and cash equivalents.......... $18,581 $ 28 $(3,100) (A) $ 15,509 Short-term investments.......... 18,287 -- 18,287 Accounts receivable, net.................. 12,824 779 13,603 Inventories........... 8,810 1,064 9,874 Deferred income taxes and other current assets............... 2,215 123 2,338 ------- ------ ------- -------- Total current assets............. 60,717 1,994 (3,100) 59,611 Long-term investments... 14,900 -- 14,900 Property, plant and equipment, net......... 17,019 886 17,905 Intangible assets....... 3,002 -- 5,477 (A) 8,479 Other assets............ 1,062 3 1,065 ------- ------ ------- -------- Total assets........ $96,700 $2,883 $ 2,377 $101,960 ======= ====== ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable...... $ 3,308 $ 973 $ 4,281 Accrued liabilities... 6,376 355 6,731 Notes payable......... -- 451 451 Current portion of long-term debt and lease obligations.... -- 161 161 ------- ------ ------- -------- Total current liabilities........ 9,684 1,940 11,624 Long-term debt, less current portion........ -- 159 6,000 6,159 Capital lease obligation, less current portion........ -- 96 96 Other non-current liabilities............ 171 -- 171 Deferred income taxes... -- -- 1,565 (A) 1,565 Stockholders' equity: Common stock.......... 14 3 (3) (A) 14 Other stockholders' equity............... 86,831 685 (685) (A) 82,331 (4,500) (A) ------- ------ ------- -------- Total stockholders' equity............. 86,845 688 (5,188) (A) 82,345 ------- ------ ------- -------- Total liabilities and stockholders' equity........... $96,700 $2,883 $ 2,377 $101,960 ======= ====== ======= ========
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION (A) The Company has entered into a definitive stock purchase agreement with the shareholders of FAS and GCA to acquire 100% of the outstanding shares of FAS and GCA, respectively. The total purchase price is estimated to be approximately $9.1 million which includes aggregate consideration of $8.6 million for both GCA and FAS, payable through a combination of cash and notes, and estimated direct transaction costs of approximately $500,000. The Company expects that an estimated $4.5 million of the total purchase price will be allocated to in-process research and development and immediately charged to expense. This amount is an estimate and is subject to change based on the completion of an independent valuation which is currently in process. Since such amount is a non-recurring charge, it has not been included as a pro forma adjustment to the Unaudited Pro Forma Condensed Combined Statements of Income. However, this amount has been included as a pro forma adjustment to the Unaudited Pro Forma Condensed Combined Balance Sheet. It is anticipated that the remaining $4.6 million of the total purchase price will be allocated to specifically identifiable assets acquired and goodwill. It is estimated that the intangible assets acquired of $3.9 million (net of a deferred tax liability) will be amortized over a weighted average life of seven years. The related amortization is reflected as a pro forma adjustment to the Unaudited Pro Forma Condensed Combined Statements of Income. Such amounts are estimates and are also subject to change pending completion of the independent valuation. 18 Interest expense related to the proposed aggregate consideration in the form of notes has been included in the Unaudited Pro Forma Condensed Combined Statements of Operations. (B) The Company intends to combine GCA and FAS and operate them under the name Uniphase Fiberoptic Products, Ltd. (UFP). UFP will operate as a division of UTP. In order to operate UFP as a division of UTP, management believes it was necessary to cancel options to purchase UTP stock previously granted to UTP employees and to grant replacement options to such employees to purchase stock of the Company. The Company will incur compensation expense totaling $4.4 million in connection with such option grants which were effective on May 15, 1996. Of this total, $3.0 million, which relates to options which have vested to date, will be charged to expense during the quarter ending June 30, 1996. This amount has been included as a pro forma adjustment to the Unaudited Pro Forma Condensed Combined Balance Sheet but has not been included as a pro forma adjustment to the Unaudited Pro Forma Condensed Combined Statements of Income because it is a non-recurring charge. The remaining $1.4 million will be charged to expense over the remaining vesting period of three years and the related proportional amounts have been included as a pro forma adjustment to the Unaudited Pro Forma Condensed Combined Statements of Income. (C) The pro forma combined provisions for income taxes do not represent the amounts that would have resulted had Uniphase and GCA and FAS filed consolidated income tax returns during the periods presented. The pro forma adjustments have been tax effected at the Company's incremental tax rate of approximately 40%. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The Company designs, develops, manufactures and markets laser subsystems, laser-based semiconductor wafer defect examination and analysis equipment and fiber optic telecommunications equipment products. The Company's laser division designs, develops, manufactures and markets laser subsystems for a broad range of OEM applications which include biotechnology, industrial process control and measurement, graphics and printing, and semiconductor equipment. In 1992, the Company established its Ultrapointe subsidiary, which designs, develops, manufactures and markets advanced laser-based systems for semiconductor wafer defect examination and analysis and shipped its first Ultrapointe System in fiscal 1994. The Company entered the telecommunications and CATV markets when it acquired UTP in May 1995. UTP designs, develops, manufactures and markets high-speed external modulators and transmitters for fiber optic networks in the CATV and long-haul telecommunications industries. The acquisition was accounted for as a purchase and, accordingly, historical financial information of the Company includes the results of UTP from the date of the purchase. In May 1996, the Company acquired UFP for a total purchase price of $9.1 million which included a proposed aggregate consideration of $8.6 million payable through a combination of cash and notes and estimated direct transaction costs of $500,000. UFP custom packages laser diodes, LEDs and photodetectors for OEMs for use in fiber optic networks for local telecommunications and data communications. During the quarter ending June 30, 1996, the Company incurred a charge of approximately $3.0 million in connection with the cancellation of certain UTP options and granting of replacement options to purchase Uniphase Common Stock to UTP employees in order to operate UFP as a division of UTP. The Company will incur an additional estimated charge of $4.5 million for acquired in-process research and development in connection with the acquisition of UFP in the quarter ending June 30, 1996. As a result of this expected in-process research and development charge and the option grant related compensation expense, the Company expects to record a net loss for the quarter ending June 30, 1996. See Note 15 of Notes to Consolidated Financial Statements. QUARTERLY RESULTS OF OPERATIONS The following table sets forth unaudited results for each of the seven consecutive quarters in the period ended March 31, 1996. This information is derived from unaudited consolidated financial statements and, in the opinion of management, includes all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation when read in conjunction with the financial statements of the Company included elsewhere in this Prospectus.
FISCAL YEAR ENDED JUNE 30, 1995 NINE MONTHS ENDED MARCH 31, 1996 -------------------------------- -------------------------------- SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 -------- ------- ------- ------- ----------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales............... $9,083 $9,941 $11,122 $12,136 $ 12,793 $ 15,673 $ 18,876 Cost of sales........... 5,248 5,846 6,284 6,735 6,974 8,310 9,818 ------ ------ ------- ------- ---------- ---------- ---------- Gross profit............ 3,835 4,095 4,838 5,401 5,819 7,363 9,058 Operating expenses: Research and development............ 809 896 1,002 1,003 911 1,548 1,634 Royalty and license..... 333 331 331 177 363 387 455 Selling, general and administrative......... 1,703 1,636 1,837 2,179 2,632 3,033 3,277 Infrequent or unusual charges: Acquired in-process research and development............ -- -- -- 4,460 (1) -- -- -- Loss on sale of product line................... -- -- -- 891 (1) -- -- -- ------ ------ ------- ------- ---------- ---------- ---------- Total operating expenses............... 2,845 2,863 3,170 8,710 3,906 4,968 5,366 ------ ------ ------- ------- ---------- ---------- ---------- Income (loss) from operations............. 990 1,232 1,668 (3,309) 1,913 2,395 3,692 Other income, net....... 116 172 116 146 48 390 449 ------ ------ ------- ------- ---------- ---------- ---------- Income (loss) before income taxes........... 1,106 1,404 1,784 (3,163) 1,961 2,785 4,141 Income tax expense (benefit).............. 409 519 660 (1,192) 745 893 1,588 ------ ------ ------- ------- ---------- ---------- ---------- Net income (loss)....... $ 697 $ 885 $ 1,124 $(1,971) $ 1,216 $ 1,892 $ 2,553 ====== ====== ======= ======= ========== ========== ========== OTHER DATA: Income from operations before infrequent of unusual charges (2).... $ 990 $1,232 $ 1,668 $ 2,042 $ 1,913 $ 2,395 $ 3,692
20
FISCAL YEAR ENDED JUNE 30, 1995 NINE MONTHS ENDED MARCH 31, 1996 -------------------------------- ------------------------------------- SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 -------- ------- ------- ------- ----------- ---------- ---------- AS A PERCENTAGE OF NET SALES: Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales........... 57.8 58.8 56.5 55.5 54.5 53.0 52.0 ----- ----- ----- ----- ---------- ---------- ---------- Gross profit........... 42.2 41.2 43.5 44.5 45.5 47.0 48.0 Operating expenses: Research and development........... 8.9 9.0 9.0 8.2 7.1 9.9 8.6 Royalty and license.... 3.7 3.3 3.0 1.4 2.8 2.5 2.4 Selling, general and administrative........ 18.7 16.5 16.5 18.0 20.6 19.3 17.4 Infrequent or unusual charges: Acquired in-process research and development........... -- -- -- 36.8 (1) -- -- -- Loss on sale of product line.................. -- -- -- 7.3 (1) -- -- -- Litigation............. -- -- -- -- -- -- -- ----- ----- ----- ----- ---------- ---------- ---------- Total operating expenses............... 31.3 28.8 28.5 71.7 30.5 31.7 28.4 ----- ----- ----- ----- ---------- ---------- ---------- Income (loss) from operations............. 10.9 12.4 15.0 (27.2) 15.0 15.3 19.6 Other income, net...... 1.3 1.7 1.0 1.2 0.3 2.5 2.3 ----- ----- ----- ----- ---------- ---------- ---------- Income (loss) before income taxes........... 12.2 14.1 16.0 (26.0) 15.3 17.8 21.9 Income tax expense (benefit)............. 4.5 5.2 5.9 (9.8) 5.8 5.7 8.4 ----- ----- ----- ----- ---------- ---------- ---------- Net income (loss)....... 7.7% 8.9% 10.1% (16.2)% 9.5% 12.1% 13.5% ===== ===== ===== ===== ========== ========== ========== OTHER DATA: Income from operations before infrequent or unusual charges (2)................... 10.9% 12.4% 15.0% 16.8% 15.0% 15.3% 19.6%
- ------- (1) During fiscal 1995, the Company incurred charges totaling $5.4 million, primarily for acquired in-process research and development and, to a lesser extent, for the loss on the sale of the Company's diode laser product line. The acquired in-process research and development primarily resulted from the cash purchase of UTP from United Technologies Corporation for a total purchase price, including acquisition expenses, of $8.7 million. See Notes 10 and 11 of Notes to Consolidated Financial Statements. (2) Other data is presented as supplemental information and should not be construed as a substitute, or better indicator of, results of operations than income from operations or net income determined in accordance with generally accepted accounting principles. The Company has experienced and expects to continue to experience significant fluctuations in its quarterly results. The Company believes that fluctuations in quarterly results may cause the market price of its Common Stock to fluctuate, perhaps substantially. Factors which have had an influence on and may continue to influence the Company's operating results in a particular quarter include the timing of receipt of orders from major customers, product mix, competitive pricing pressures, the relative proportions of domestic and international sales, costs associated with the acquisition or disposition of businesses, products or technologies, the Company's ability to design, manufacture and ship products on a cost effective and timely basis, the delay between incurrence of expenses to further develop marketing and service capabilities and realization of benefits from such improved capabilities, the announcement and introduction of cost-effective new products by the Company and by its competitors, and expenses associated with any intellectual property litigation. In addition, the Company's sales will often reflect orders shipped in the same quarter that they are received. Moreover, customers may cancel or reschedule shipments, and production difficulties could delay shipments. The timing of sales of the Company's Ultrapointe Systems may result in substantial fluctuations in quarterly operating results due to the substantially higher per unit price of these products relative to the Company's other products. In addition, the semiconductor industry is highly cyclical and historically has experienced periods of oversupply, resulting in significantly reduced demand for capital equipment. The semiconductor industry is currently experiencing a downturn which may materially and adversely affect the Company's business and operating results. 21 RESULTS OF OPERATIONS The following table sets forth for the periods indicated certain financial data as a percentage of net sales:
NINE MONTHS ENDED FISCAL YEARS ENDED JUNE 30, MARCH 31, ------------------------------------- -------------------- 1993 1994 1995 1995 1996 --------- --------- --------- ------- ------- Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales........... 65.4 61.0 57.0 57.6 53.0 --------- --------- --------- ------ ------ Gross profit........... 34.6 39.0 43.0 42.4 47.0 Operating expenses: Research and development........... 7.3 9.3 8.8 9.0 8.6 Royalty and license.... 3.6 3.6 2.8 3.3 2.5 Selling, general and administrative........ 19.8 (1) 17.3 (1) 17.4 17.2 18.9 Infrequent or unusual charges: Acquired in-process research and development.......... -- -- 10.5 (2) -- -- Loss on sale of product line......... -- -- 2.1 (2) -- -- Litigation (3)........ 8.7 (1.1) -- -- -- --------- --------- --------- ------ ------ Total operating expenses............... 39.4 29.1 41.6 29.5 30.0 --------- --------- --------- ------ ------ Income (loss) from operations............. (4.8) 9.9 1.4 12.9 17.0 Other income, net...... 0.5 0.6 1.3 1.3 1.8 --------- --------- --------- ------ ------ Income (loss) before income taxes........... (4.3) 10.5 2.7 14.2 18.8 Income tax expense (benefit)............. (1.4) 3.7 1.0 5.2 6.8 --------- --------- --------- ------ ------ Net income (loss)....... (2.9)% 6.8% 1.7% 9.0% 12.0% ========= ========= ========= ====== ====== OTHER DATA: Income from operations before infrequent or unusual charges (4)... 3.9% 8.8% 14.0% 12.9% 17.0%
- -------- (1) In fiscal 1993, includes $217,000 of expenses relating to the reorganization of the Company's international operations and $300,000 of expenses accrued for certain intellectual property matters. In fiscal 1994, it was determined that the costs related to the intellectual property matters would not have to be paid, and, accordingly, such costs were reversed. See Note 14 of Notes to Consolidated Financial Statements. (2) During fiscal 1995, the Company incurred charges totaling $5.4 million, primarily for acquired in-process research and development and, to a lesser extent, for the loss on the sale of the Company's diode laser product line. The acquired in-process research and development resulted primarily from the cash purchase of UTP from United Technologies Corporation for a total purchase price, including acquisition expenses, of $8.7 million. Such charges reduced net income per share for fiscal 1995 by $0.33. See Notes 10 and 11 of Notes to Consolidated Financial Statements. (3) During fiscal 1993, the Company accrued litigation costs of $2.4 million pertaining primarily to a patent infringement action brought against the Company, which was settled in fiscal 1993, and to a lesser extent, to actions against the Company by certain former employees. Due to the settlement of one of the former employee actions in fiscal 1994 at a cost less than anticipated and the re-evaluation of the potential liability with respect to the remaining outstanding lawsuit, the Company reversed $355,000 of accrued legal expense in fiscal 1994. See Note 14 of Notes to Consolidated Financial Statements. (4) Other data is presented as supplemental information and should not be construed as a substitute, or better indicator of, results of operations than income from operations or net income determined in accordance with generally accepted accounting principles. 22 Nine Months Ended March 31, 1995 and 1996 Net Sales. For the first nine months of fiscal 1996, net sales were $47.3 million, which represented a $17.2 million or 57.0% increase over net sales of $30.1 million in the same period of fiscal 1995. The increase was primarily due to the increased sales of the Company's Ultrapointe Systems which accounted for $7.4 million of the increase in net sales, and the inclusion of revenues of $8.8 million from UTP, which was acquired in a purchase transaction in May 1995. For the first nine months of fiscal 1996, net sales of laser subsystems increased $945,000 primarily due to an increase in sales of the Company's argon gas lasers and to a lesser extent solid state lasers, which together offset the decline in the sales of the Company's mature He-Ne product line principally in the bar code scanning market, as most customers are now using semiconductor diode lasers to satisfy bar code scanning applications. Gross Profit. For the first nine months of fiscal 1996, gross profit increased 74.2% to $22.2 million or 47.0% of net sales compared with $12.8 million or 42.4% of net sales in the same period of fiscal 1995. Gross profit increased in absolute dollars and as a percentage of net sales in the first nine months of fiscal 1996 primarily due to the increased sales volumes of Ultrapointe Systems and the addition of the Company's UTP product line, both of which currently experience higher gross margins than the Company's laser subsystems. In addition, improved economies of scale resulting from higher production and purchasing volumes of components in Ultrapointe Systems had a favorable impact on gross margin. The increasing proportion of higher margin argon gas laser subsystems relative to lower margin He-Ne subsystems in the Company's sales mix of its laser products also contributed to the improvement in gross margin. There can be no assurance that these trends will continue and that the Company will be able to sustain its gross margin at current levels. The Company expects that there will continue to be periodic fluctuations in its gross margin resulting from changes in its sales and product mix, competitive pricing pressures, manufacturing yields, inefficiencies associated with new product introductions and a variety of other factors. In addition, certain of UFP's products provide gross margins below those of the Company's current telecommunications product lines. As a result, the acquisition of UFP could have the effect of modestly reducing the Company's overall gross margins as sales from UFP products grow as a proportion of the Company's total net sales. Research and Development Expense. In the first nine months of fiscal 1996, research and development expense was $4.1 million or 8.6% of net sales which represented a $1.4 million or 51.2% increase over the same period of fiscal 1995. The increase in research and development expense was primarily due to the addition of UTP expenses which included increased expenditures associated with the development of transmitters. For the nine months ended March 31, 1996, laser subsystems experienced a decrease in expenditures primarily due to the sale of its diode laser product line in June 1995, the redeployment of certain engineering support and increased reimbursements on expenses from a certain cooperative agreement with the federal government. This agreement is scheduled to end on December 31, 1996. The Company is committed to continuing its significant research and development expenditures and expects that the absolute dollar amount of research and development expense will increase as it invests in developing new products and in expanding and enhancing its existing product lines, although such expenses may vary as a percentage of net sales from year to year. Royalty and License Expense. For the first nine months of fiscal 1996, royalty and license expense increased $210,000 to $1.2 million from $995,000 in the same period of fiscal 1995 and decreased as a percentage of sales to 2.5% from 3.3% in the same period of fiscal 1995. The decrease as a percentage of net sales was due to the increasing proportion of revenues that the Company derived from Ultrapointe Systems, which bear a lower royalty rate than laser subsystems, and from royalty-free UTP products. The Company continues to develop its solid state laser technology. There are numerous patents on solid state laser technologies that are held by others, including academic institutions and competitors of the Company. Such patents could inhibit the Company's ability to develop, manufacture and sell products in this area. A number of the patents are conflicting. If there is conflict between a competitor's patents or products and those of the Company, it could be very costly for the Company to enforce its rights in an infringement action or defend 23 such an action brought by another party. In addition, the Company may need to obtain license rights to certain patents and may be required to make substantial payments, including continuing royalties, in exchange for such license rights. There can be no assurance that licenses to third party technology, if needed, will be available on commercially reasonable terms. Selling, General and Administrative Expense. In the first nine months of fiscal 1996, selling, general and administrative expense was $8.9 million or 18.9% of net sales which represented a $3.8 million or 72.8% increase over selling, general and administrative expense of $5.2 million or 17.2% of net sales in the same period of fiscal 1995. The increase was attributable to the addition of UTP expenditures (which included increased expenditures to support the transmitter product line and the amortization of acquired intangible assets), sales commissions on increased sales volume of Ultrapointe Systems, increased staffing levels and increased selling expenses to support the Company's product lines. The Company expects the dollar amount of its selling, general and administrative expenditures to increase in the future, although such expenses may vary as a percentage of net sales from year to year. Other Income (Expense), Net. For the first nine months of fiscal 1996, interest and other income, net increased to $887,000 from $404,000 in the same period of fiscal 1995. The increase was primarily due to the additional interest income earned on the net proceeds received from the Company's public offering of Common Stock in October 1995 and from the sale of Common Stock to Tencor in November 1995. Income Tax Expense. As stated in Note 3 of Notes to Consolidated Financial Statements, the effective tax rate for the nine month period ended March 31, 1996 of fiscal year 1996 was 36% compared to 37% for the same period of fiscal 1995. The decrease in the tax rate is primarily due to non-taxable interest income from the Company's increased investments. Years Ended June 30, 1993, 1994 and 1995 Net Sales. Net sales increased 28.4% to $42.3 million in fiscal 1995 from $32.9 million in fiscal 1994. This increase was primarily attributable to higher unit volume shipments of the Company's Ultrapointe Systems and its laser subsystems. Ultrapointe Systems sales increased to approximately $7.4 million or 17.6% of the Company's net sales in fiscal 1995 from $2.4 million or 7.2% of the Company's net sales in fiscal 1994. Net sales of the Company's laser subsystems increased $3.3 million year to year due primarily to increased sales of the Company's argon gas lasers, principally for use in biotechnology and semiconductor applications. These sales more than offset a decline in sales of certain of the Company's gas laser subsystems from its mature He-Ne product line. Use of He-Ne gas lasers has substantially declined as most customers are now using semiconductor diode lasers to satisfy bar code scanning applications. Net sales of the Company's telecommunications products since the acquisition in May 1995 of UTP were approximately $1.0 million or 2.4% of the Company's net sales in fiscal 1995. The Company's international sales accounted for approximately 30.3%, 28.9% and 31.8% of total net sales for fiscal years 1995, 1994 and 1993, respectively. Net sales increased 20.5% to $32.9 million in fiscal 1994 from $27.3 million in fiscal 1993. The increase in net sales was primarily attributable to increased sales of argon laser subsystems and sales of Ultrapointe Systems. The $3.3 million increase in net sales of laser subsystems from year to year was supported by strong demand for products from both the biotechnology and semiconductor equipment markets. Several new customer design-ins using the Company's argon gas lasers also contributed to this growth in laser subsystems sales. The increased sales of argon gas laser subsystems more than offset the decline in sales of He-Ne gas laser subsystems in certain markets primarily because of a shift in technologies used in some customer applications to semiconductor diode lasers. Gross Profit. Gross profit increased 41.3% to $18.2 million or 43.0% of net sales in fiscal 1995 from $12.9 million or 39.0% of net sales in fiscal 1994. Gross profit increased in absolute dollars and as a percentage of net sales due to several factors, including the higher sales volume of Ultrapointe Systems, which carry higher gross margins than the Company's laser subsystems. In addition, improved economies of scale resulting from higher 24 production and purchasing volumes of Ultrapointe Systems had a favorable impact on gross margin. The increasing proportion of higher margin argon gas laser subsystems relative to lower margin He-Ne gas laser subsystems in the Company's sales mix of its laser products subsystems also contributed to the improvement in gross margin. There can be no assurance that these trends will continue and that the Company will be able to sustain its gross margin at current levels. Gross profit increased 36.1% to $12.9 million or 39.0% of net sales in fiscal 1994 from $9.4 million or 34.6% of net sales in fiscal 1993. Gross profit increased in absolute dollars and as a percentage of net sales due to several factors, including a continuing shift in the mix of laser products to higher margin laser subsystems, first year sales of Ultrapointe Systems, improved economies of scale, and a reduction of workers' compensation and health insurance expenses. Research and Development Expense. Research and development expense in fiscal 1995 was $3.7 million or 8.8% of net sales compared with $3.1 million or 9.3% of net sales in fiscal 1994. The absolute dollar increase in research and development expense in fiscal 1995 was primarily attributable to the continued development of solid state lasers and costs associated with improving and enhancing the Ultrapointe Systems product line. Research and development expense in fiscal 1994 was $3.1 million or 9.3% of net sales compared with $2.0 million or 7.3% of net sales in fiscal 1993. The increase in research and development expense in fiscal 1994 was primarily due to the development of solid state lasers and diode lasers, which accounted for approximately 47.4% of Uniphase's total research and development expenses in fiscal 1994. The diode laser product line was sold by the Company in fiscal 1995. The dollar amount of research and development expense related to the further development of Ultrapointe Systems decreased slightly from fiscal 1993 to 1994 as the product transitioned from the laboratory stage to production. Royalty and License Expense. Royalty and license expense was relatively constant from fiscal 1994 to 1995 and decreased as a percentage of net sales to 2.8% in fiscal 1995 from 3.6% in fiscal 1994. Royalty expense decreased as a percentage of net sales due in part to lower royalty rates applicable to higher volume sales and international sales of gas laser subsystems. Increased sales of Ultrapointe Systems, which bear a lower royalty rate than laser subsystems, also contributed to the decrease. Royalty and license expense increased to $1.2 million in fiscal 1994 from $1.0 million in fiscal 1993, and remained relatively constant as a percentage of net sales. The increase in royalty and license expenses was attributable to the royalties assessed on the shipments of Ultrapointe Systems and licensing fees paid to certain universities for patent use rights. Increased fiscal 1994 royalty and license expenses were partially offset by lower royalty rates on gas laser subsystems that apply to both higher sales volumes and international sales. Selling, General and Administrative Expense. Selling, general and administrative expense in fiscal 1995 was $7.4 million or 17.4% of net sales compared with $5.7 million or 17.3% of net sales in fiscal 1994. The increase in selling, general and administrative expense in fiscal 1995 resulted from increased staffing levels, selling expenses to support the Company's laser products and new product introductions, sales commissions on higher sales volume of Ultrapointe Systems, increased business development, investor relations and stockholder communications activities. Selling, general and administrative expense increased to $5.7 million in fiscal 1994 from $5.4 million in fiscal 1993, but decreased as a percentage of net sales to 17.3% in fiscal 1994 from 19.8% in fiscal 1993. During fiscal 1994, it was determined that certain third party patent costs accrued in fiscal 1993 would not have to be paid. As a result, the related accrued expenses of $300,000 were reversed in fiscal 1994. Selling, general and administrative expenses were also reduced by positive effects from cost reduction programs. These decreases were primarily offset by higher domestic distributor commissions, which were recognized as a selling expense. Infrequent or Unusual Charges. During fiscal years 1993, 1994 and 1995, the Company incurred certain infrequent or unusual charges. Accordingly, such charges were set forth as separate line items of operating 25 expenses. These charges consist of acquired in-process research and development, loss on sale of product line and litigation expense. The acquired in-process research and development expense in fiscal 1995 was $4.5 million or 10.5% of net sales which was primarily attributable to the Company's purchase of UTP from United Technologies Corporation in May 1995. See Note 10 of Notes to Consolidated Financial Statements. The Company incurred a loss of $891,000 on the sale of its diode laser product line in June 1995. In connection with this sale, the Company also obtained a limited non-exclusive sublicense to a solid state technology patent at a reduced royalty rate. The Company sold its diode laser product line due to the commercial availability of low-cost diode laser component parts from third party manufacturers and its determination that these external sources will provide sufficient supply of the components for the foreseeable future. See Note 11 of Notes to Consolidated Financial Statements. During fiscal 1993, the Company accrued litigation costs of $2.4 million, pertaining primarily to a patent infringement action brought against the Company and, to a lesser extent, to actions against the Company by certain former employees. The patent infringement action was settled in fiscal 1993. Due to the settlement of one of the former employee actions in fiscal 1994 at a cost less than anticipated and the re-evaluation of the potential liability with respect to the remaining outstanding lawsuit, the Company reversed $355,000 of accrued legal expenses in fiscal 1994. Other Income, Net. Other income, net increased to $550,000 in fiscal 1995 from $212,000 in fiscal 1994 and $139,000 in fiscal 1993. The increase in fiscal 1995 resulted primarily from increased interest income earned on the Company's short-term investments and, to a lesser extent, net gains on foreign currency transactions. The increase in fiscal 1994 was primarily attributable to increased interest income earned on net proceeds from the Company's initial public offering in November 1993. Income Tax Expense (Benefit). The Company's effective tax rate was 35.0% in fiscal 1995 as compared to 35.5% in fiscal 1994. A substantial portion of the Company's net deferred tax assets of $2.2 million related to the charge for acquired in-process research and development. A valuation allowance has not been provided for such net deferred tax assets since the Company believes that it is more likely than not that such net deferred tax assets will be realized from the Company's ongoing operations. The Company's effective tax rate was 35.5% in fiscal 1994 compared to a tax benefit equal to 32.8% of the pretax loss in fiscal 1993. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1996, the Company's combined balance of cash, cash equivalents and investments was $51.8 million. The Company has met its liquidity needs to date primarily through cash generated from operations and sales of its equity securities. Cash generated from operations was $2.6 million in the first nine months of fiscal year 1996, compared with $1.4 million in the first nine months of fiscal 1995. Cash generated from operations for the first nine month period of fiscal 1996 resulted primarily from increases in income before depreciation and amortization expense and in accounts payable which together offset increases in inventories and accounts receivable. This increase in inventory levels reflected increased purchases of components associated with higher sales. Cash used in investing activities was $43.4 million in the first nine months of fiscal 1996 compared with $1.7 million in the first nine months of fiscal 1995. The Company's cash used in investing activities increased primarily due to the investment of excess cash from the proceeds of sales of common stock. The Company also made capital expenditures to acquire certain properties in San Jose, California totaling 109,000 square feet, which included land, building and improvements for an aggregate purchase price of approximately $11.0 million. The 26 remaining increase was primarily due to expenditures associated with constructing a clean room and adding a second lithium niobate wafer processing line to the Company's current fabrication facility in Connecticut and expanding the Pennsylvania optical transmitter facility in order to support the current demand for UTP's products. The Company continued to invest in property, plant and equipment needed for its business requirements, including manufacturing capacities throughout the Company. In July 1995, the Company also acquired the remaining outstanding shares of I.E. Optomech, Ltd. In May 1996, the Company acquired UFP and expended $9.1 million, which included a proposed aggregate consideration of $8.6 million for both GCA and FAS and estimated direct transaction costs of $500,000. In October 1995, the Company completed an underwritten public offering of shares of Common Stock for net proceeds of approximately $40.5 million. In November 1995, Tencor agreed to become the exclusive OEM reseller of the Ultrapointe Systems and the Identifier, the Company's ADC software product, and in connection therewith acquired 665,568 shares of the Company's Common Stock for a net purchase price of approximately $12.3 million. The Company has a $5.0 million revolving line of credit with a bank. There were no borrowings under the line of credit at March 31, 1996. Advances under the line of credit bear interest at the bank's prime rate (8.25% at March 31, 1996) and are secured by inventories and accounts receivable. Under the terms of the line of credit agreement, the Company is required to maintain certain minimum working capital, net worth, profitability levels and other specific financial ratios. In addition, the agreement prohibits the payment of cash dividends and contains certain restrictions on the Company's ability to borrow money or purchase assets or interests in other entities without the prior written consent of the bank. The line of credit expires on November 1, 1996. See Note 4 of Notes to Consolidated Financial Statements. The Company intends to use the net proceeds from this offering and available lines of credit, together with cash flows from operations, to finance its future operations. The Company believes that its existing cash balances and investments, together with cash flow from operations, available lines of credit and the proceeds realized on the sale of the shares offered hereby by the Company, will be sufficient to meet its liquidity and capital spending requirements at least through the end of calendar year 1997. However, possible acquisitions of complementary businesses, products or technologies may require additional financing prior to such time. There can be no assurance that additional financing will be available when required or, if available, will be on terms satisfactory to the Company. The Company has no present plans, agreements or commitments, and is not currently engaged in any negotiation with respect to any such acquisition. 27 BUSINESS GENERAL Uniphase is an optoelectronics company that designs, develops, manufactures and markets laser subsystems, laser-based semiconductor wafer defect examination and analysis equipment and fiber optic telecommunications equipment products. Optoelectronics is a technology that extends the speed and capacity of conventional electronic solutions by addressing many of the constraints of the electron with the particle of light, the photon. Since its founding, Uniphase has shipped over one million lasers and has become a leading supplier of laser subsystems for OEMs in the biotechnology, industrial process control, semiconductor wafer inspection, and graphics and printing markets. The Company's strategy is to leverage its core competencies in laser technology to develop highly focused and differentiated applications where there is a convergence of market need and optoelectronic technology. The Company's knowledge of laser technology enabled it to introduce an optoelectronics application for the semiconductor capital equipment industry, the Ultrapointe System, in June 1993. The Ultrapointe System works in conjunction with automated inspection systems from vendors such as Tencor and KLA to enable semiconductor manufacturers to more accurately identify and classify defects. This defect examination and analysis procedure enables semiconductor manufacturers to improve yields by identifying and containing process problems. In November 1995, Tencor became the exclusive OEM reseller of the Ultrapointe System. In May 1996, the Company introduced its Identifier software product, an optional feature that provides ADC capability for Ultrapointe Systems. Working in conjunction with the Ultrapointe System, the Identifier software automates the defect classification process, thereby improving the precision and repeatability of defect classification. The Company extended its optoelectronic product offerings into the telecommunications equipment market by acquiring UTP in May 1995. UTP designs, develops, manufactures and markets high-speed external modulators and transmitters for fiber optic networks in the long-haul telecommunications and CATV industries. In November 1995, UTP established a facility to develop and manufacture turn-key CATV transmitters. In May 1996, the Company acquired UFP. The acquisition of UFP expands the Company's presence in the optoelectronic communications market. UFP custom packages laser diodes, LEDs and photodetectors for OEMs for use in fiber optic networks for local telecommunications and data communications. COMPANY STRATEGY The Company seeks to leverage its expertise in optoelectronics to develop highly focused and differentiated applications where there is a convergence of market need and optoelectronic technology. Uniphase seeks to integrate its strengths in photonics, electronics and software development to provide innovative and cost effective solutions to its customers. The key elements of Uniphase's business strategy are as follows: . Capitalize on Expertise in Laser Technology and Laser Manufacturing. Since its inception in 1979, Uniphase has sold over one million lasers to OEM customers and has become a leader in certain market segments. The Company is currently developing solid state lasers for its existing OEM customers and new applications. In this regard, Uniphase has commercially introduced a series of green wavelength solid state microlasers and a series of continuous wave and pulsed infrared solid state lasers. In addition, the Company is in the late stage of development of blue wavelength solid state microlasers. The Company believes that it is well positioned to continue development of and penetrate the market for solid state lasers, which the Company believes will be the primary commercial laser technology in the future. . Offer Applications Differentiated by Optoelectronic Technologies. The Company's expertise in laser technology has enabled it to successfully introduce and market applications products in the semiconductor capital equipment and telecommunications equipment markets. The Company's Ultrapointe Systems utilize high resolution laser imaging systems for the examination and analysis of wafer defects that are as small as 0.1 micron. The Company also develops and produces optical external modulators and associated transmitters for fiberoptic CATV transmission systems as well as modulators for long haul fiber optic digital 28 transmission. In May 1996, the Company acquired UFP as a continuation of its strategy to pursue selected opportunities where optoelectronic technology converges on specific market needs. Through UFP, the Company will offer custom packaged laser diodes and photodetectors for the efficient transmission of voice, data and video across local fiber optic systems. . Provide Cost-Effective, Demand-Driven Solutions to its OEM Customers. The Company seeks, through close relationships, to understand its customers' needs at an early stage in the customers' product development cycles and to design its laser subsystems and telecommunications equipment products to meet these specific needs. The Company focuses on selling its subsystems to customers at the design-in phase of a product, creating the potential for recurring sales throughout a product's life. Following design-in of its products, the Company shifts its focus to obtaining manufacturing efficiencies, quality enhancements and cost reductions during the product life. . Maintain Industry and Customer Diversity. Uniphase sells its laser subsystems to numerous OEMs in the biotechnology, measurement systems, semiconductor equipment and graphics and printing system industries, which reduces the Company's vulnerability to a downturn in any specific industry or company. The Company has also increased the diversity of its industry and customer base by leveraging its expertise in laser technology to develop products for the semiconductor capital equipment and telecommunications equipment markets. PRODUCTS AND MARKETS The Company offers optoelectronic products in three principal product families: laser subsystems, semiconductor capital equipment and fiber optic telecommunications equipment products. The Company's laser subsystems were the Company's initial product offering and these operations have enabled the Company to invest in the further development of its laser technology and to offer new applications products. In fiscal 1994, the Company first shipped its Ultrapointe System for defect examination and analysis of semiconductor wafers. In May 1995, the Company acquired UTP to provide high-speed external modulators and transmitters for the fiber optic networks in the long-haul telecommunications and CATV industries. In May 1996, the Company acquired UFP, which custom packages laser diodes, LEDs and photodetectors for OEMs for use in fiber optic networks for local telecommunications and data communications. The following table sets forth the Company's net sales by product family in fiscal years 1994 and 1995 and for the nine months ended March 31, 1995 and 1996.
NET SALES ----------------------------------- FISCAL YEAR ENDED NINE MONTHS ENDED JUNE 30, MARCH 31, ----------------- ----------------- PRODUCT CATEGORY 1994 1995 1995 1996 - ---------------- -------- -------- -------- -------- (IN THOUSANDS) Laser Subsystems........................... $ 30,558 $ 33,837 $ 25,026 $ 25,972 Semiconductor Capital Equipment............ 2,364 7,428 5,120 12,536 Telecommunications Equipment (1)........... -- 1,017 -- 8,834 -------- -------- -------- -------- $ 32,922 $ 42,282 $ 30,146 $ 47,342
- -------- (1) The Company first entered the telecommunications equipment market through the acquisition of UTP in a transaction accounted for as a purchase on May 15, 1995. As a result, telecommunications equipment net sales for fiscal 1995 reflect the inclusion of UTP operations from May 15, 1995 through June 30, 1995. LASER PRODUCTS Background Today, lasers are used in a variety of applications in the biotechnology, semiconductor, consumer electronics, graphic arts and industrial process control and measurement industries. For example, in the biotechnology field, lasers are incorporated in flow cytometers, which identify and analyze biological cells, in 29 DNA sequencers, which measure and identify DNA patterns, and in certain surgical instruments. In the semiconductor field, lasers are used to perform automated test and measurement functions. In consumer electronics markets, lasers are an enabling technology in laser printers and compact disc players. In the industrial process control and measurement field, lasers are used for bar code scanning. The principal factors that distinguish different types of lasers and determine the particular laser suitable for a specific application are wavelength (color), cost, operating life and output power, which is measured in terms of watts ("W") or milliwatts ("mW"). Lasers are capable of emitting light from low frequency, long wavelength (greater than 700 nm) infrared light through the visible spectrum to high frequency, short wavelength (less than 400 nm) ultraviolet light. For example, the wavelength of the laser is of key importance in causing the fluorescence of dyes in biotechnology applications. In addition, laser light at shorter green and blue wavelengths is capable of being focused to smaller, more intense points of light, enabling higher resolution optoelectronic applications, such as semiconductor wafer inspection. Four types of lasers commonly available today are gas, liquid, semiconductor diode and solid state, each of which derives its classification from the lasing material it uses. Examples of gas lasers include argon lasers used for biotechnology applications and carbon dioxide lasers used for industrial welding applications. Liquid dye lasers are sold primarily in research markets. Semiconductor diode lasers are used in CD players and in telecommunications equipment. The Company believes that solid state lasers will ultimately address all of the applications currently served by gas lasers and that new applications for lasers, such as marking and micromachining, will be made possible by solid state technology. Solid state lasers use a solid material such as crystal, glass or certain fibers as their lasing medium and, in some cases, use a semiconductor diode laser as the energy source to stimulate their lasing medium. While infrared solid state lasers are commercially available, shorter wavelength green and blue solid state lasers have been commercialized on a very limited basis to date due to cost and performance issues. The Company believes that further development of green and blue solid state lasers may lead to significant market opportunities for these shorter wavelength laser subsystems. In order to provide its customers with the benefits of the smaller size and the improved efficiency of solid state lasers, the Company is developing microlaser products. Laser Subsystems Markets and Products Uniphase's principal laser subsystem products consist of air-cooled argon gas laser subsystems, which generally emit blue or green light, Helium Neon ("He-Ne") laser subsystems, which generally emit red or green light and solid state lasers, which generally emit infrared, blue or green light. These systems consist of a combination of a laser head containing the lasing medium, power supply, cabling and packaging, including heat dissipation elements. Uniphase's principal laser subsystem products and representative applications include:
LASER TYPE WAVELENGTH POWER PRICE RANGE (1) PRINCIPAL APPLICATIONS ---------- ----------- ---------------- --------------- ------------------------------ Gas: He-Ne 633 nm 1-25 mW $50-$1,500 CAE Photoplotting Argon 458-515 nm 3-75 mW $2,500-$12,000 Capillary Electrophoresis Color Separation Solid State: Microlaser 473-1064 nm 5-50 mW $4,000-$9,000 Direct-to-Plate Printing DNA Sequencing Flow Cytometry Particle Counting Semiconductor Wafer Inspection Stablelight 1064 nm Up to 4W $15,000-$20,000 Spectrometry Daylight 349-1064 nm Up to 1mJ pulsed $30,000-$40,000 Micromachining Marking
- -------- (1) Product prices vary depending on order volume, power output and other customer requirements and configurations. 30 The overall market for gas lasers is mature and is expected to decline as technology transitions from conventional lasers, including gas and liquid, to solid state lasers, which the Company expects to be the primary laser technology in the future. In comparison to gas lasers, solid state lasers are smaller and use less power. Sales of the Company's argon gas lasers have increased in recent years primarily as a result of increased sales of such products for use in biotechnology and semiconductor applications. Use of He-Ne gas lasers has substantially declined as most customers are now using semiconductor diode lasers to satisfy bar code scanning applications. Uniphase introduced a series of green wavelength solid state microlasers in May 1994. The Company is in the late stage of development of blue wavelength solid state lasers and, in fiscal 1996, the Company has shipped such lasers to certain customers for evaluation purposes. These products consist of a power supply and an infrared diode laser coupled to a proprietary crystal structure contained in a temperature controlled housing. The Company believes that these products will ultimately address the principal markets currently served by Uniphase's argon laser products. The Company also believes that the reduced size and power requirements of these microlasers will permit new applications for these products, although no assurance can be given that these microlasers will achieve commercial acceptance for use in existing or any new applications. Uniphase introduced a series of continuous wave and pulsed infrared solid state laser systems at the Conference on Laser and Electro-Optics in May 1995. These products consist of a power supply and a number of high power diodes or diode arrays coupled to a proprietary crystal structure in a stable mechanical structure. The continuous wave product, Stablelight, produces up to 4W of infrared power and is principally used by customers in industrial process control and measurement applications. The Daylight product produces pulses up to 1 milli-Joule ("mJ") and is designed for customers with micromachining or marking requirements. SEMICONDUCTOR CAPITAL EQUIPMENT PRODUCTS Background Technological advances and demands for increasing levels of performance have led the semiconductor industry to develop more complicated devices with increasingly smaller geometries. A current state-of-the-art microprocessor may have four million transistors per square centimeter, four or five "wiring" levels and require 400 process steps during its manufacture, providing ample opportunities for particle contamination to occur on the wafer and cause defects. As semiconductor feature sizes decrease, devices become increasingly susceptible to smaller defects during their manufacture. It has been estimated that 80% of the loss of manufacturing yield is caused by particle contamination that occurs on the wafer during the manufacturing process. One of the semiconductor industry's responses to the increasing vulnerability of semiconductor devices to smaller defects has been to employ defect detection and inspection that is closely linked to the manufacturing process. Semiconductor process engineers monitor their processes more closely, identifying defects and their origins in order to reduce their recurrence and maintain and improve process yields. Presently, automated inspection systems such as those manufactured by Tencor and KLA are used on-line to detect and locate defects as small as 0.1 micron. A single wafer may be inspected numerous times during its progression through manufacturing. These on-line detection systems use advanced image processing and innovative laser scanning technologies to achieve high sensitivity and speed. Detecting the presence of defects is only the first step in preventing their recurrence. After detection, the defects must be examined in order to identify their size, shape and the process step in which the defect occurred. This examination is called "defect classification." The resulting description of the defects is then added to a computer database. This database is used to monitor defect trends and to pinpoint the sources of defects and contaminating particles to specific process steps or pieces of equipment. Identification of the sources of defects in the lengthy and complex semiconductor manufacturing process has become essential for maintaining high yield production. While automated inspection systems have progressed to being able to detect submicron defects, the conventional optical microscopes that have traditionally been used for defect classification are not capable of 31 examining such defects. With a state-of-the-art, conventional optical microscope, a 0.3 micron defect, which is nearly the entire minimum feature size of today's microprocessor, appears only as a dark speck. Further, certain types of defects that are embedded in or under films created during gas phase semiconductor manufacturing processes are not currently observable by such microscopes. Other very shallow defects, which are often only 0.1 micron high and which may occur during the chemical mechanical polishing ("CMP") process, are also not observable by conventional microscopes. The Ultrapointe System Solution The Company established its Ultrapointe subsidiary in fiscal 1992 and began shipping Ultrapointe Systems in fiscal 1994. The Ultrapointe System is a laser imaging system ("LIS") that is capable of examining microscopic defects with the ease and speed of conventional microscopes while also offering increased resolution and the ability to provide three-dimensional ("3-D") images. This system combines state-of-the-art high speed laser scanning technology, real- time confocal imaging and digital image reconstruction to allow for 3-D imaging of semiconductor defects as small as 0.1 micron. The Ultrapointe System works in conjunction with automated inspection systems from vendors such as Tencor and KLA to enable semiconductor manufacturers to more accurately identify and classify defects. This defect examination and analysis procedure enables semiconductor manufacturers to improve yields by identifying and containing process problems. Ultrapointe Systems operate in the manufacturing clean room, adjacent to automated inspection systems, and can in seconds produce detailed images of defects even when they are very small or embedded or buried in films. The Company believes that its Ultrapointe System is the only currently available, non-destructive wafer inspection tool with increased resolution and 3-D imaging capabilities that is capable of both examining certain sub-surface wafer defects and accurately analyzing the sources of defects. The following diagram illustrates the stages in the wafer manufacturing process in which the Company's Ultrapointe Systems are designed to function in an on-line capacity: The diagram appearing on page 32 of the Prospectus depicts a semiconductor wafer prior to defect examination, analysis and classification by the Company's Ultrapointe System. Next to the wafer is a drawing of an Ultrapointe System unit; there is a drawing of a finished wafer underneath, having undergone defect examination by the Ultrapointe System. 32 The Ultrapointe System utilizes an optical technique called scanning laser confocal microscopy. This technique uses, through high power microscopic optics, an argon laser as an intense light source to scan a wafer's surface numerous times. The return signal from the laser is processed by the system's computer workstation, which provides a complete topological image of the wafer's surface at the system's console and can display in a high resolution format defects as small as 0.1 micron. Typical magnifications afforded by Ultrapointe Systems approximate 35,000x, as compared with conventional white light microscopes upper magnification limits of approximately 6,000x. Through software developed by the Company, the system's workstation can also evaluate and classify defects, communicate with automated inspection systems and store images and other data. The Company currently offers two versions of its Ultrapointe System, the Ultrapointe LIS 500, which has a base list price of $275,000, and the Ultrapointe LIS 1010, which has a base list price of $368,000. These products differ primarily in the degree of software image manipulation available to the operator. The systems can also be tailored, through software, to interface with various automated inspection systems and local area networks. The Ultrapointe LIS 500 includes full wafer automation and handling and a Silicon Graphics workstation. The images available include a conventional, real time white light microscopy image, real time laser confocal "slices" and a multiple slice top view of the wafer surface and defect. The full resolving power of the laser images is available and surface, embedded and buried defects can be viewed. This product can be upgraded at any time with advanced two dimensional ("2-D") and 3-D imaging accessories. The Ultrapointe LIS 1010 incorporates all of the features of the Ultrapointe LIS 500 while using a more advanced version of the Silicon Graphics workstation. The Ultrapointe System currently requires a human operator to classify defects. In May 1996, the Company introduced its Identifier software product, an optional feature that provides automatic defect classification capability for Ultrapointe Systems. Working in conjunction with the Ultrapointe System, the Identifier software automates the defect classification process, thereby improving the precision and repeatability of defect classification. The ability to review defects using ADC software is becoming increasingly important to semiconductor manufacturers as it facilitates defect classification without direct operator evaluation at each defect site. This automation can improve reliability and consistency by eliminating operator- induced variations. In addition, such automation helps speed analysis of the vast amounts of defect data and classifications necessary for yield enhancement programs. The Company developed the Identifier software using technology licensed from ISOA, Inc. and in cooperation with the semiconductor industry consortium, SEMATECH. The Identifier has a base list price of $150,000. In November 1995, the Company entered into a three-year agreement with Tencor under which Tencor became the exclusive OEM reseller for the Company's Ultrapointe Systems and the Identifier, the Company's ADC software product. Under the Agreement, Tencor will distribute the Ultrapointe System under its own label worldwide and has the responsibility for installation and service of the systems it sells. The Company retains the right to distribute its products through its own channels. The Agreement includes a license providing Tencor with certain ADC technology and payments to the Company to accelerate ADC development. TELECOMMUNICATIONS EQUIPMENT PRODUCTS UTP Background Fiber optic cable is gaining widespread acceptance in upgrades and new installations of CATV and telecommunications systems worldwide. The use of fiber optic cable results in vastly improved performance, flexibility, reliability and lower installation and operating costs when compared to traditional copper and coaxial cable. Moreover, technological innovation and market forces are creating increased demand for communication transmission systems with multiple delivery capability and higher performance and reliability features. Further, telecommunications interexchange carriers are being required to provide higher speed data transmission over longer lengths of installed optical fiber between electronic repeater stations. Due to the high cost of new fiber installations, interexchange carriers seek to utilize the installed fiber base to the greatest extent possible. In the CATV industry, consolidation has resulted in a smaller number of multiple system operators controlling larger networks. These operators, who compete with other technologies such as direct broadcast satellite television, are upgrading their systems and seek economical solutions that will increase their network flexibility and reliability. 33 The flexibility and performance of fiber optic systems has been enhanced through the use of two types of signal encoding techniques: direct modulation and external modulation. In direct modulation, the light output from a diode laser is switched on and off to generate a signal, similar to the operation of a flashlight. This frequent switching, however, causes wavelength instability, which limits the distance of transmission before signal regeneration is required. Further, the diode lasers used in direct modulation have limited power and modulation rate, thereby constraining the performance of the signal transmission system. In external modulation, the light output of a continuously powered laser is switched in a separate crystal of lithium niobate. Light from the laser travels along waveguides patterned into lithium niobate crystals and electrical signals applied to electrodes alongside the waveguides encode the signal onto a light beam for transmission in the optical fiber. As compared to direct modulation, external modulation has the following advantages: . Longer Distances in Telecommunications. External modulators enable signal transmission over longer distances in telecommunications systems before signal regeneration is required. External modulation thereby reduces the required number of expensive repeaters or amplifiers, which are a significant cost in transmission systems. . Higher Capacity in Telecommunications. External modulation is being used by equipment suppliers that are developing transmission hardware incorporating wavelength division multiplexing ("WDM"). WDM is capable of increasing the capacity of a fiber route up to 16 times without upgrading to more expensive electronic multiplexing/demultiplexing equipment. WDM is compatible with the large installed base of fiber optic networks and can be used to increase significantly the data carrying capacity of such networks. External modulators also enable higher data rates (e.g. OC-192 or 10 Gbps) to be effectively transmitted over long distances. . Longer Distances and Higher Fidelity in CATV. External modulators operate at higher laser power and therefore allow signals to be transmitted over longer distances without detection and retransmission. In addition, external modulation provides inherently higher fidelity because of lower laser noise and low noise susceptibility to optical system reflections, such as those arising from existing fiber optic connections. External modulators are fully compatible with CATV distribution systems that utilize fiber optical amplifiers. UTP Products and Markets In May 1995, the Company purchased UTP, which designs, develops, manufactures and markets high-speed external modulators and transmitters for fiber optic networks in the CATV and telecommunications industries. The Company acquired UTP as part of its strategy to pursue selected opportunities where optoelectronic technology converges on specific market needs which have not been adequately addressed by conventional electronic solutions. The Company produces lithium niobate integrated optic modulators by using its proprietary Annealed Proton Exchange (APE(R)) fabrication process. The Company believes that this process produces modulators which have higher optical power handling, and inherently better fidelity as compared with competing external modulators. The Company also sells customized external modulators for a variety of customer applications. The Company's principal modulator products include:
TYPE WAVELENGTH APPLICATION - ---- ---------------- ------------------------------ CATV Modulators................ 1300 nm, 1550 nm CATV Super Trunk Transmitter 2.5 Gbps Digital Modulators.... 1300 nm, 1550 nm OC-48 Telecommunications Microwave and Radio Frequency Modulators.................... 1300 nm, 1550 nm Antenna Links, Radar, Cellular
34 UTP began to supply turn-key externally modulated CATV transmitters to CATV OEMs in September 1995. These transmitters incorporate a continuous-wave diode laser, a lithium niobate modulator and patented electronic linearity and control circuitry. The Company routinely customizes its transmitter to the specifications of the OEM customer. The Company also resells optical fiber amplifiers as part of providing complete optical transmission functionality to OEMs. The principal applications addressed by the Company's telecommunications equipment products are as follows: . Cable. The principal cable television applications addressed by the Company are externally modulated transmitters for trunk-line applications. These transmitters operate at the preferred optical wavelength of 1550 nm. They incorporate high power (>20 mw) diode lasers and the Company's modulators to provide high optical powers for the transmission of broadcast television signals over long distances. In addition, they are compatible with existing optical amplifier technology, which allows the transmission distance or the subscriber area to be increased. The Company's modulated transmitters are designed for use in broadband systems, are operational over bandwidths of up to 1 Ghz and are compatible with hybrid fiber coax ("HFC") systems being developed by certain telecommunications equipment providers for the transmission of voice, data and video. . Long-Haul Telecommunications. The principal long-haul telecommunications application addressed by the Company is a 2.5 Gbps transmission system for long distance telephone interexchange carriers. The Company's external modulators are used in these systems to significantly increase the space between repeaters in such systems. The Company's modulators allow the transmission of up to 32,000 phone conversations over a single fiber to switching sites across distances of up to 350 miles. In addition, the Company's external modulators are well suited for WDM applications at 2.5 Gbps. In such applications, multiple wavelength telecommunications signals are transmitted over the same fiber, thereby multiplying the capacity of the fiber cable system. Telecommunications customers are presently deploying systems with four and eight separate wavelengths in order to accommodate 10 Gbps and 20 Gbps, respectively, using UTP's OC-48 modulators. The Company is also developing a higher speed modulator to provide similar capability at 10 Gbps (OC-192 data rate). . Wireless Antenna Links. The rapid growth of wireless communication systems is producing many deployment situations where the antenna must be located a significant distance from the telephone base station. The Company's modulators are well suited for fiber optic transmitter systems to carry RF signals from the antenna in cellular systems to base stations. . Specialty Products and Markets. In May 1996, UTP entered into an agreement with Sanders, a Lockheed Martin Company, to develop and produce fiber optic transmitters for the United States government to be installed on high performance aircraft. Additional applications for the Company's integrated optic modulators include fiber optic gyroscopes ("FOGs"), analog RF fiber optic systems and laboratory and research and development activities. The Company is a leading commercial supplier of multi- function integrated optic signal processing chips for FOGs. FOGs are intended for use in commercial aviation, military/aerospace and industrial applications. The Company also offers a variety of integrated optic modulators and switches for use at frequencies up to 20 Ghz that are being used in a large variety of industrial, government and university research and development programs. UFP Products and Markets In May 1996, the Company acquired UFP which custom packages laser diodes, LEDs and photodetectors for OEMs for use in fiber optic networks. UFP uses its proprietary technologies of epoxy-based attachment and laser welding to attach fiber ("pigtailing") to these optoelectronic components in a variety of configurations to meet the specific needs of its OEM customers. 35 The principal applications addressed by UFP are as follows: . Data communications. The ever-increasing use of computer networks is fueling a growth in fiber data communications systems. Fiber offers advantages over copper-wire links that include longer distance transmission, higher data rates, ease of multiplexing, and immunity from electromagnetic interference. UFP offers custom packaged optical sources and detectors for a variety of fiber-based data communications applications such as single-fiber Ethernet and Token Ring. . Local telecommunications. Low-cost laser diodes are used in the feeder and loop portions of the local telephone network to accommodate various data rates. The Company supplies custom packaged components to telecommunications equipment manufacturers. For example, UFP supplies custom laser-diode submodules for use as optical sources and detectors in SONET OC-3 (155 Mbps) networks. . Specialty Markets. UFP products are well suited for several specialty markets such as fiber optic test and measurement equipment, fiber optic sensors and military and aerospace data communications applications. For example, the Company pigtails red diode lasers for use in hand-held fiber optic fault locators. SALES AND MARKETING Uniphase markets its laser subsystem products principally to OEMs through its own sales force in the United States, United Kingdom and Germany and through a worldwide network of representatives and distributors to service smaller domestic accounts, including those in the research and education markets. The Company's sales and marketing strategy for its laser subsystem products is to establish long term relationships with its OEM customers at the early design-in phase of its laser subsystems into customers applications and through high levels of customer service and support. The following chart sets forth the Company's principal OEM customers for laser subsystems by application:
INDUSTRIAL PROCESS CONTROL AND WAFER INSPECTION BIOTECHNOLOGY INSTRUMENTS MEASUREMENT INSTRUMENTS SYSTEMS GRAPHICS AND PRINTING SYSTEMS - ------------------------- ----------------------- ------------------ ----------------------------------------------- Applied Biosystems Allen-Bradley Co. ADE Corporation Crosfield Electronics Ltd. Beckman Instruments ASM Lithography, B.V. Nikon Corporation Gerber Systems Corporation Coulter Corporation Canon Tencor Instruments Optronics, a division of Intergraph Corporation Molecular Dynamics ICL Plc Purup Pre-Press A/S Ortho Diagnostic Systems Scitex Corporation Ltd.
One laser subsystems customer, the Applied Biosystems Division of Perkin- Elmer Corporation, accounted for approximately 11%, 12%, 12% and 13% of the Company's net sales for fiscal years 1993, 1994, 1995, and the nine months ended March 31, 1996, respectively. In addition, in the nine months ended March 31, 1996, Tencor accounted for 11% of the Company's sales through the purchase of both laser subsystems and Ultrapointe Systems. A reduction or delay in orders from these customers could adversely affect the Company's results of operations. In addition, another laser subsystem customer accounted for 10% of net sales in both fiscal years 1993 and 1994. See Note 12 of Notes to Consolidated Financial Statements. Uniphase markets its Ultrapointe Systems through Tencor's worldwide distribution channels and a network of four independent sales representatives in the United States and Canada. In Japan, the Company has a distribution agreement with Tencor and Innotech Corporation for sales to Japan's semiconductor industry. In Europe and the Pacific Rim, the Company distributes its products through Tencor; however, the Company has the right to market its products through its own distribution channels. 36 As of March 31, 1996, the Company had sold 63 Ultrapointe Systems in the United States, Japan and Korea. Customers for the Company's Ultrapointe System include: American Microsystems Micron Technology* Analog Devices Microunity Applied Materials Motorola* Digital Equipment Corporation* Philips Semiconductors* Fujitsu, Ltd.* Samsung* IBM Corporation* SEMATECH Intel* Sony Corporation LSI Logic Corporation* Toshiba* Lucent Technologies* (formerly AT&T) VLSI Technology* L.G. Semicon VTC Matsushita Electric* Yamaha Corporation -------- * Indicates customers that have purchased multiple Ultrapointe Systems. UTP markets its telecommunications equipment products to OEMs through its own direct sales force and is in the process of establishing a sales office in Chalfont, Pennsylvania. In addition, UTP sells such products through distributors in Europe, Australia, Japan and Taiwan. Customers for the Company's telecommunications equipment products include Ericsson Raynet and Harmonic Lightwaves. CUSTOMER SUPPORT AND SERVICE The Company believes that a high level of customer support is necessary to successfully develop and maintain long term relationships with its OEM customers in its laser subsystems and telecommunications equipment businesses. This close relationship begins at the design-in phase and is maintained as customer needs change and evolve. The Company provides direct service and support to its OEM customers through its offices in the United States. The Company's European laser subsystem customers are serviced through its sales and support offices in the United Kingdom and Germany. In Japan, the Company's laser subsystems distributor, Autex, assists in performing support and service functions. The Company provides support through both on-site customer service and telephone support from its various facilities that perform sales and service functions. The Company generally warrants all of its laser products for a period of one year from the date of shipment. Certain argon lasers carry warranties based on hours of use. A high level of customer support is also necessary when providing production instrumentation for the semiconductor industry. Tencor and all distributors of Ultrapointe Systems are responsible for sales, installation, warranty and post-warranty support. Ultrapointe Systems generally carry a one-year warranty from the date of installation or fifteen months from shipment, whichever occurs first. Service contracts are available for system support after the warranty period. RESEARCH AND DEVELOPMENT During fiscal years 1993, 1994, 1995 and the nine months ended March 31, 1996, Uniphase spent $2.0 million, $3.1 million, $3.7 million, and $4.1 million, respectively, on research and development. In fiscal 1995, Uniphase incurred charges totaling $4.5 million for acquired in-process research and development, most of which were incurred in connection with the acquisition of UTP. The Company expects to incur an estimated charge of $4.5 million for acquired in-process research and development in connection with the acquisition of UFP in the quarter ending June 30, 1996. In fiscal 1996, the Company's laser research and development efforts will focus primarily on the continued development of solid state lasers. These programs are supported up to $1.4 million by an award from the Advanced Technologies Program of the Department of Commerce which expires in 37 December 1996. The Company also has development and licensing agreements with Stanford University and the University of St. Andrews, Scotland which give the Company the right to manufacture and sell certain next generation laser products being developed by these universities. If the Company manufactures such products, it will be required to pay the universities certain royalties based on sales of the products. The Company continues to devote substantial research and development resources to its Ultrapointe Systems product line. These efforts focus on the Company's Identifier software product and the enhancement of laser images. In addition to the Identifier, the Company is also exploring a number of methods to improve the resolution of the scanning laser confocal microscopy technique used in the Ultrapointe System and, in particular, the Company is currently working with a leading semiconductor manufacturer to enable the Ultrapointe System to examine semiconductor masks. The Company is developing new and enhanced telecommunications equipment products and enhancing its manufacturing capability for telecommunications equipment products. For example, higher performance modulators and transmitters are under development, as are advanced multi-gigabit modulators. In manufacturing, the Company is developing improved CAD design tools and advanced modulator packages. The Company also participates in two national consortia: the Analog Optoelectronics Module Consortium, which seeks to develop new and cost-effective RF and microwave transmitters and receivers, and the National Transparent Optical Network Consortium, which is involved in advanced high capacity WDM fiber optic communications components and networks. MANUFACTURING The Company manufactures its argon laser subsystems and related power supplies at its San Jose, California facility and its He-Ne lasers at its Manteca, California facility. The Company assembles and tests its Ultrapointe Systems and manufactures initial systems of its microlasers at its San Jose, California facility. The Company's modulator products are manufactured at its facility in Bloomfield, Connecticut (where it is expanding a clean room) and its transmitters are manufactured in Chalfont, Pennsylvania. UFP products are manufactured at the Company's facilities in Witney, United Kingdom and Batavia, Illinois. The Company manufactures its Stablelight and Daylight solid state laser subsystems products at its I.E. Optomech Ltd. subsidiary located in the United Kingdom. The Company has purchasing, materials management, assembly, final testing and quality assurance functions at each location for the products that are manufactured at that facility. The manufacture of the Company's laser subsystems, Ultrapointe Systems and telecommunications equipment products is a highly complex and precise process, requiring production in a highly controlled environment. The Company maintains a newly expanded 2,000 square foot class 100 clean room in which all Ultrapointe System assembly takes place. Systems are tested and then packaged for direct shipment into a customer's clean room. Changes in the Company's or its suppliers' manufacturing processes or the inadvertent use of defective or contaminated materials by the Company or its suppliers could adversely affect the Company's ability to achieve acceptable manufacturing yields and product reliability. To the extent the Company does not achieve such yields or product reliability, its operating results and customer relationships would be adversely affected. The raw materials and sub-components which the Company requires for the manufacture of its products are generally available from several sources. The Company purchases some raw materials and components from single sources, but has no reason to believe it could not purchase such materials and components from alternative sources of supply on comparable terms. The Company obtains all the robotics, workstations, and many optical components used in its Ultrapointe Systems from Equipe Technologies, Silicon Graphics, Inc., and Olympus Corporation, respectively. The Company currently utilizes a sole source for the crystal semiconductor chip sets incorporated in its solid state microlaser products and acquires its pump diodes for use in its solid state laser products from SDL Inc., Opto Power Corporation and GEC. Certain of these companies also manufacture products that compete with those of the Company. The Company obtains lithium niobate wafers and specialized fiber components used in its telecommunications products from primarily Crystal Technology, Inc. and Fujikura 38 Ltd., respectively. From time to time, the Company has experienced delays in obtaining raw materials and components. However, to date such delays have not materially affected its operations. The Company does not have long-term volume purchase agreements with any of these suppliers, and no assurance can be given that these components will be available in the quantities required by the Company, if at all. COMPETITION The industries in which the Company sells its products are highly competitive. Uniphase's overall competitive position depends upon a number of factors, including the price and performance of its products, the level of customer service and quality of its manufacturing processes, the compatibility of its products with existing laser systems and Uniphase's ability to participate in the growth of emerging technologies, such as solid state lasers. In the argon laser market, Uniphase primarily competes with American Laser, Coherent, Ion Laser Technology, NEC, Omnichrome, Spectra-Physics, Toshiba and Carl Zeiss. In the He-Ne laser market, Uniphase considers Melles- Griot, NEC and Carl Zeiss to be its primary competitors. In the solid state laser markets, Uniphase's competitors include Coherent, Hitachi, IBM, Lightwave, Opto Power Corporation, Philips, SDL, Inc., Siemens and Sony. Significant competitive factors in the market for Ultrapointe Systems include specific system performance, cost of ownership, support and infrastructure and the ability to interface to existing automated inspection systems and local area networks. Ultrapointe Systems compete with the following three types of devices: scanning electron microscopes, conventional white light microscopes and laser confocal microscopes. The Company believes that its principal competitors include Amray, Hitachi, JEOL, Kinetek, Kensington, Lasertech, Leica, Nidek, Nikon, Stahl Research and Carl Zeiss. Competitive factors in the market for the Company's telecommunications equipment products include price, product performance and reliability, the capability to provide strong customer support and service, customer relationships and the breadth of product line. In this market, the Company faces competition from companies that have substantially greater financial, engineering, research, development, manufacturing, marketing, service and support resources, greater name recognition than the Company and long-standing customer relationships. With respect to modulator products for CATV and telecommunications equipment suppliers, the Company's competitors include AT&T Micro Electronics, Crystal Technology, Inc., Fujitsu, Integrated Optical Components, Ltd. and Sumitomo Cement Opto Electronics Group. With respect to CATV 1550 nm transmitters for supply to OEMs, the Company's competitors include AEL, Harmonic Lightwave, Kablerhydt, Ortel, Synchronous Communications and PAi. Other CATV equipment suppliers may also enter this market. With respect to laser diode products for data communications and local telecommunications equipment suppliers, the Company's competitors include Oz Optics and SDL-Optics as well as larger optoelectronic suppliers such as AMP and Hewlett-Packard. Potential new technologies may also emerge to compete with the Company's products, such as electro-absorption modulators that are being introduced for long-haul telecommunications. PATENTS AND PROPRIETARY RIGHTS The Company holds 30 United States patents and certain corresponding foreign patents on the technologies related to its products and processes. The United States patents expire on dates ranging from 1999 to 2014. The Company has applied for additional patents related to its solid state laser products, its Ultrapointe Systems (three of which were recently issued) and its telecommunications products. The Company has also acquired several patent licenses involving areas such as end-pumped solid state lasers, diode-pumped blue light lasers and waveguides. The laser, semiconductor equipment, CATV and telecommunications industries in which the Company sells its products are characterized by frequent litigation regarding patent and other intellectual property rights. Numerous patents in these industries are held by others, including academic institutions and competitors of the Company. Such patents could inhibit the Company's ability to develop new products for such markets. From time to time, the Company has received notices claiming that it has infringed third-party patents or other 39 intellectual property rights. While in the past licenses generally have been available to the Company where third-party technology was necessary or useful for the development or production of the Company's products, there can be no assurance that licenses to third-party technology will be available on commercially reasonable terms, if at all. Generally, a license, if granted, would include payments by the Company of up-front fees, ongoing royalties or a combination thereof. There can be no assurance that such royalty or other terms would not have a significant adverse impact on the Company's operating results. The Company is a licensee of a number of third party technologies and intellectual property rights and is required to pay royalties to these third party licensors on certain of its products, including its Ultrapointe Systems and its solid state lasers. In fiscal 1995 and in the nine months ended March 31, 1996, the Company expensed $1.2 million and $1.2 million, respectively, in license and royalty fees primarily in connection with its gas laser subsystems. In addition, there can be no assurance that third parties will not assert claims against the Company with respect to its existing products or with respect to future products under development by the Company. In the event of litigation to determine the validity of any third-party claims, such litigation could result in significant expense to the Company and divert the efforts of the Company's technical and management personnel, whether or not such litigation is determined in favor of the Company. In the event of an adverse result in any such litigation, the Company could be required to expend significant resources to develop non-infringing technology or to obtain licenses to the technology which is the subject of the litigation. There can be no assurance that the Company would be successful in such development or that any such licenses would be available to the Company. In the absence of such a license, the Company could be enjoined from future sales of the infringing product or products. In fiscal years 1992 and 1993, the Company incurred substantial legal expenses in connection with a patent infringement action relating to the Company's current gas laser subsystems brought by Spectra-Physics Lasers, Inc. ("Spectra-Physics"). While the Spectra-Physics case has since been settled, no assurance can be given that, in the future, the Company will be able to avoid similar actions by competitors or others or not be forced to initiate its own actions to protect its proprietary position. BACKLOG Backlog consists of written purchase orders for products for which the Company has assigned shipment dates within the following 12 months. As of March 31, 1996 the Company's backlog was approximately $15.7 million, as compared with a backlog of approximately $6.1 million at March 31, 1995. Orders in backlog are firm, but are subject to cancellation or rescheduling by the customer. Because of possible changes in product delivery schedules and cancellation of product orders and because the Company's sales will often reflect orders shipped in the same quarter that they are received, the Company's backlog at any particular date is not necessarily indicative of actual sales for any succeeding period. Certain of the Company's laser subsystems customers are adopting "just in time" techniques with respect to ordering the Company's products, which will cause the Company to have shorter lead times for providing products. Such shorter lead times are likely to result in lower backlog. EMPLOYEES At March 31, 1996, the Company had a total of 328 full-time employees, including 61 in research, development and engineering, 39 in sales, marketing and services, 189 in manufacturing, and 39 in general management, administration and finance. The Company intends to hire additional personnel during the next 12 months in each of these areas. The Company's future success will depend in part on its ability to attract, train, retain and motivate highly qualified employees, who are in great demand. There can be no assurance that the Company will be successful in attracting and retaining such personnel. The Company's employees are not represented by any collective bargaining organization, and the Company has never experienced a work stoppage, slowdown or strike. The Company considers its employee relations to be good. 40 FACILITIES On February 8, 1996, the Company acquired two properties in San Jose, California, totaling 109,000 square feet, which includes land, buildings and improvements, for an aggregate purchase price of approximately $11.0 million. One of the properties is the Company's current principal facility occupied under an operating lease which would have expired in August 1998. The Company plans to expand into the additional building. The Company's principal sales, marketing, technical support, administration, and research and development operations as well as manufacturing operations for the argon laser and Ultrapointe products will occupy these facilities. The Company plans to lease any unused space. The Company's manufacturing facilities for its He-Ne laser products occupy a 20,000 square foot building in Manteca, California. The building is leased through September 1997. The Company's facilities for its telecommunications equipment products occupy a 33,000 square foot leased building in Bloomfield, Connecticut, where its modulator operations are manufactured and a 18,000 square foot leased building in Chalfont, Pennsylvania where its transmitter operations are manufactured. UFP products are manufactured at the Company's 7,000 square foot facility in Witney, United Kingdom and its 5,000 square foot facility in Batavia, Illinois. Leases for the Bloomfield, Chalfont, Witney and Batavia facilities expire in July 2002 (with a lease extension available through 2007), February 2001, December 2013, and July 1999, respectively. The Company also maintains sales and service offices in both the United Kingdom and Germany to support its European operations. The Company anticipates capital expenditures for fiscal 1997 of approximately $4.0 million to support expansion of its current operations, including the expansion into additional facilities. 41 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The executive officers and directors of the Company and their respective ages as of the date of this Prospectus are as follows:
NAME AGE POSITION ---- --- -------- Kevin N. Kalkhoven.................... 52 President, Chief Executive Officer and Chairman of the Board R. Clark Harris....................... 59 President of UTP Dan E. Pettit......................... 49 Vice President, Finance and Chief Financial Officer John M. Scott......................... 52 President of Ultrapointe Ian T. Jenks.......................... 42 President of the Laser Division William B. Bridges, Ph.D. (1)......... 61 Director Robert C. Fink (2).................... 61 Director Catherine P. Goodrich (1)............. 39 Director Stephen C. Johnson (2)................ 53 Director Anthony R. Muller (1)(2).............. 53 Director Wilson Sibbett, Ph.D.................. 48 Director
- -------- (1) Member of Audit Committee (2) Member of Compensation Committee Mr. Kalkhoven has been President and Chief Executive Officer of the Company since January 1992, a member of the Board of Directors of the Company since February 1992, and Chairman of the Board since April 1994. From September 1988 to January 1992, Mr. Kalkhoven was President of Demax Software, a systems software company. From 1986 to August 1988, Mr. Kalkhoven was President and Chief Executive Officer of AIDA Corporation, a computer aided engineering company that was acquired in October of 1987 by Teradyne Corporation. Mr. Kalkhoven is a member of the Board of Directors of Network Express, a manufacturer of telecommunications equipment. Mr. Harris joined the Company in May 1995, as President of UTP. Prior to joining the Company, Mr. Harris held several executive positions with United Technologies Corporation, most recently as General Manager of United Technologies Technology Center from 1990 to March 1995. From 1987 to 1989, Mr. Harris served as Senior Vice President of Sikorsky Aircraft Division. Mr. Pettit joined the Company as Corporate Controller in March 1986 and has been Vice President of Finance since November 1986. In June 1994, he became the Company's Chief Financial Officer. Prior to joining the Company, Mr. Pettit held the positions of Group Controller and Division Controller at Burroughs Corporation, where he was employed from 1983 to 1986. Mr. Scott joined the Company as President of Ultrapointe in April 1994. Before joining the Company, Mr. Scott held numerous executive positions at companies in the semiconductor equipment industry, most recently as Vice President of Sales and Service at Tencor Instruments, a manufacturer of wafer defect inspection systems, where he was employed from 1987 to 1994. Mr. Jenks joined the Company as President of the Laser Division in August 1995. Before joining the Company, Mr. Jenks had been serving as a consultant to the Company since February 1995. Mr. Jenks was the founder and Chief Executive Officer of I.E. Optomech Ltd., a solid state laser company, until its acquisition by Uniphase in July 1995. Prior to founding I.E. Optomech, he was the Chief Executive Officer of the International Projects Division of the management consulting firm Ingersol Engineers, Inc. 42 Dr. Bridges has been a member of the Company's Board of Directors since May 1986. He has been a Professor of Electrical Engineering and Applied Physics at the California Institute of Technology since June 1977 and the Carl F. Braun Professor of Engineering since 1983. Dr. Bridges served as President of the Optical Society of America, a nonprofit professional society, in 1988. Mr. Fink has been a member of the Company's Board of Directors since April 1995. Mr. Fink has served as Senior Vice President of Lam Research since October 1995. From July 1993 to October 1995, Mr. Fink served as Chief Operating Officer of Lam Research, following its acquisition of Drytek, Inc., where he had served as President since 1988. From 1984 to 1988, Mr. Fink served as Director of VLSI Operations for ITT Corporation's Semiconductor Division. Mr. Fink also currently serves on the board of directors of Consilium Corporation, a publicly held software manufacturer for the pharmaceutical and semiconductor industries. Ms. Goodrich has been a member of the Company's Board of Directors since January 1994. Ms. Goodrich is President of Goodrich Ventures, Inc., a consulting firm specializing in business development of early stage electronics companies since June 1992. Prior to establishing her own firm, Ms. Goodrich was a general partner in Oak Investment Partners, a venture capital group, from 1981 to 1992. Ms. Goodrich also serves on the board of directors of Etec Corporation, San Disk Corporation and Zitel Corporation, all publicly held companies, as well as on the board of directors of several privately held companies. Mr. Johnson has been a member of the Company's Board of Directors since April 1984. He has been President and Chief Executive Officer of Komag Incorporated, a publicly held supplier of high density computer disks, since 1983. Mr. Johnson also is a director of 3Com Corporation, a local area network company. Mr. Muller has been a member of the Company's Board of Directors since September 1984. Since November 1990, Mr. Muller has served as Senior Vice President of Operations and Administration and Chief Financial Officer of Centigram Communications Corporation, a supplier of telecommunications systems. From March 1985 to July 1990, Mr. Muller was Vice President of Finance and Chief Financial Officer of Silicon Valley Group, Inc., a manufacturer of production processing systems for the semiconductor industry. Professor Sibbett has been a member of the Company's Board of Directors since February 1995. Professor Sibbett has been Director of Research for the School of Physics and Astronomy at the University of St. Andrews in Scotland since 1994. Since 1985, Professor Sibbett has been the head of the School of Physics and Astronomy at the University of St. Andrews. Professor Sibbett has been a member of the Science and Engineering Research Council ("SERC") of the Department of Trade and Industry since 1986 and served as chairman of the SERC Laser Committee from 1992 to 1994. All directors hold office until the next annual meeting of shareholders or until their successors have been elected and qualified. Officers serve at the discretion of the Board of Directors. There are no family relationships between any of the directors or executive officers of the Company. 43 PRINCIPAL STOCKHOLDERS The following table sets forth certain information known to the Company with respect to the beneficial ownership of the Company's Common Stock as of May 20, 1996, and as adjusted to reflect the Stock Split and the sale of the 2,000,000 shares of Common Stock offered hereby by the Company, by (i) all persons who are beneficial owners of five percent (5%) or more of the Company's Common Stock, (ii) each director of the Company, (iii) the Company's Chief Executive Officer and each of the other executive officers with annual compensation in excess of $100,000 for fiscal year 1995, and (iv) all current directors and executive officers as a group. Unless otherwise indicated, each of the stockholders has sole voting and investment power with respect to the shares beneficially owned, subject to community property laws, where applicable.
PERCENTAGE NUMBER OF BENEFICIALLY OWNED (2) SHARES --------------------------- BENEFICIALLY BEFORE AFTER BENEFICIAL OWNER OWNED (1) OFFERING OFFERING - ---------------- ------------ ----------- ----------- Kopp Investment Advisors, Inc. ..... 1,162,064 8.4% 7.3% 6600 France Avenue South Suite 672 Edina, MN 55435 The Prudential Insurance Company of 1,012,600 7.3 6.4 America............................ Prudential Plaza Newark, New Jersey 07102-3777 Kevin N. Kalkhoven (3).............. 437,750 3.1 2.7 Dan E. Pettit (4)................... 120,408 * * John M. Scott (5)................... 65,131 * * Ian T. Jenks........................ 60,000 * * Stephen C. Johnson (6).............. 51,636 * * Anthony R. Muller (7)............... 49,708 * * William B. Bridges (8).............. 40,684 * * Catherine P. Goodrich (9)........... 25,312 * * R. Clark Harris (10)................ 20,380 * * Wilson Sibbett (11)................. 6,250 * * Robert Fink......................... -- -- -- All officers and directors as a 877,259 6.1 5.3 group (11 persons) (12)............
- -------- * Less than 1% of the outstanding Common Stock. (1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of Common Stock subject to options held by that person that are currently exercisable or exercisable within 60 days of May 20, 1996 are deemed outstanding. Such shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of each other person. To the Company's knowledge, except as set forth in the footnotes to this table and subject to applicable community property laws, each person named in the table has sole voting and investment power with respect to the shares set forth opposite such person's name. (2) Percentage of ownership is based on 13,814,264 shares of Common Stock outstanding on May 20, 1996. (3) Includes 427,500 shares subject to stock options exercisable as of July 19, 1996. (4) Includes 115,032 shares subject to stock options exercisable as of July 19, 1996. (5) Includes 59,375 shares subject to stock options exercisable as of July 19, 1996. (6) Includes 5,312 shares subject to stock options exercisable as of July 19, 1996. (7) Includes 3,312 shares subject to stock options exercisable as of July 19, 1996 and 4,380 shares held by Lesley Muller, Mr. Muller's daughter. (8) Includes 5,312 shares subject to stock options exercisable as of July 19, 1996. (9) Includes 25,312 shares subject to stock options exercisable as of July 19, 1996. (10) Includes 20,380 shares subject to stock options exercisable as of July 19, 1996. (11) Includes 6,250 shares subject to stock options exercisable as of July 19, 1996. (12) Includes an aggregate of 667,785 shares subject to stock options exercisable as of July 19, 1996. 44 UNDERWRITING Montgomery Securities, Alex. Brown & Sons Incorporated, Unterberg Harris and Josephthal Lyon & Ross Incorporated (the "Underwriters") have agreed, subject to the terms and conditions contained in the Underwriting Agreement, to purchase from the Company the number of shares of Common Stock indicated below opposite their respective names at the public offering price less the underwriting discount set forth on the cover page of this Prospectus. The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent, and that the Underwriters are committed to purchase all of such shares if any are purchased.
NUMBER UNDERWRITERS OF SHARES ------------ --------- Montgomery Securities.............................................. Alex. Brown & Sons Incorporated.................................... Unterberg Harris................................................... Josephthal Lyon & Ross Incorporated................................ --------- Total.......................................................... 2,000,000 =========
The Underwriters have advised the Company that they propose initially to offer the Common Stock to the public on the terms set forth on the cover page of this Prospectus. The Underwriters may allow selected dealers a concession of not more than $ per share; and the Underwriters may allow, and such dealers may reallow, a concession of not more than $ per share to certain other dealers. After the public offering, the offering price and other selling terms may be changed by the Underwriters. The Common Stock is offered subject to receipt and acceptance by the Underwriters, and to certain other conditions, including the right to reject orders in whole or in part. The Company has granted an option to the Underwriters, exercisable during the 30-day period after the date of this Prospectus, to purchase up to a maximum of 300,000 additional shares of Common Stock to cover over-allotments, if any, at the same price per share as the initial 2,000,000 shares to be purchased by the Underwriters. To the extent that the Underwriters exercise this option, the Underwriters will be committed, subject to certain conditions, to purchase such additional shares in approximately the same proportion as set forth in the above table. The Underwriters may purchase such shares only to cover over-allotments made in connection with this offering. The Underwriting Agreement provides that the Company will indemnify the Underwriters against certain liabilities, including civil liabilities under the Securities Act, or will contribute to payments the Underwriters may be required to make in respect thereof. All of the directors and executive officers of the Company holding an aggregate of 877,259 shares of Common Stock (plus an additional approximately 86,658 shares of Common Stock exercisable under stock options vested as of 90 days from the date of this Prospectus) have agreed that they will not, without the prior written consent of Montgomery Securities, directly or indirectly, (1) offer, pledge, sell, contract to sell (including, without limitation, any short sale), sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, establish an open "put equivalent position" within the meaning of Rule 16a-1(h) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock owned directly by such party or with respect to which such party has or acquires beneficial ownership or (2) enter into any swap or similar agreement that transfers, in whole or in part, the economic risk of ownership of the Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise or publicly announce the intention to do any of the foregoing, for a period of 90 days after the date of this Prospectus. Montgomery Securities may, in its sole discretion, at any time without prior notice, release all 45 or any portion of the securities held by the Company's directors and executive officers from the aforementioned restrictions. The Company has agreed in the Underwriting Agreement that, without the prior written consent of Montgomery Securities (which consent may be withheld at the sole discretion of Montgomery Securities), it will not (other than pursuant to the Company's 1993 Employee Stock Purchase Plan or pursuant to options under the Company's Amended and Restated 1993 Flexible Stock Incentive Plan) issue, offer, sell, grant options to purchase or otherwise dispose of any of the Company's equity securities or any other securities convertible into or exchangeable with the Company's Common Stock or other equity securities for a period of 90 days after the first date that any shares of Common Stock are released for sale in this offering. In connection with this offering, the Underwriters and selling group members, if any, may engage in passive market making transactions in the Common Stock on the Nasdaq National Market in accordance with Rule 10b-6A under the Exchange Act. Passive marketing making consists of displaying bids on the Nasdaq National Market that are limited by the bid prices of independent market makers and completing purchases in response to order flow at prices limited by such bids. Net purchases by a passive market maker on each day are limited to a specified percentage of the passive market maker's average daily trading volume in the Common Stock during a specified prior period. Purchases by the passive market maker must be discontinued for any day on which such limit is reached. Passive market making may stabilize the market price for the Common Stock at a level above that which might otherwise prevail and, if commenced, may be discontinued at any time. LEGAL MATTERS The validity of the Common Stock offered hereby will be passed upon for the Company by Morrison & Foerster LLP, Palo Alto, California. Certain legal matters in connection with the offering will be passed on for the Underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California. EXPERTS The consolidated financial statements of the Company as of June 30, 1995 and 1994 and for each of the three years in the period ended June 30, 1995 and the combined financial statements of GCA Fibreoptics Ltd. and Fiberoptic Alignment Solutions, Inc. as of October 31, 1995 and 1994 and for the years then ended, appearing in this Prospectus and in the Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein and in the Registration Statement and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. 46 INDEX TO FINANCIAL STATEMENTS UNIPHASE CORPORATION
PAGE ---- Report of Ernst & Young LLP, Independent Auditors.......................... F-2 Consolidated Balance Sheets.............................................. F-3 Consolidated Statements of Operations.................................... F-4 Consolidated Statements of Stockholders' Equity.......................... F-5 Consolidated Statements of Cash Flows.................................... F-6 Notes to Consolidated Financial Statements............................... F-7
GCA FIBREOPTICS LTD. & FIBEROPTICS ALIGNMENT SOLUTIONS, INC. Report of Ernst & Young LLP, Independent Auditors......................... F-18 Combined Balance Sheets................................................. F-19 Combined Statements of Operations....................................... F-20 Combined Statements of Cash Flows....................................... F-21 Notes to Combined Financial Statements.................................. F-22 Unaudited Interim Condensed Combined Balance Sheets....................... F-27 Unaudited Interim Condensed Combined Statements of Operations and Retained Earnings................................................................. F-28 Unaudited Interim Condensed Combined Statements of Cash Flows............. F-29 Notes to Unaudited Interim Condensed Combined Financial Statements........ F-30
F-1 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Stockholders Uniphase Corporation We have audited the accompanying consolidated balance sheets of Uniphase Corporation as of June 30, 1994 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended June 30, 1995. 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 in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Uniphase Corporation at June 30, 1994 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 30, 1995, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP San Jose, California July 31, 1995 F-2 UNIPHASE CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
JUNE 30, MARCH 31, ---------------- ----------- 1994 1995 1996 ------- ------- ----------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents....................... $ 3,048 $ 2,880 $18,581 Short-term investments.......................... 11,167 4,679 18,287 Accounts receivable, less allowances for doubtful accounts of $100 at June 30, 1994, $164 at June 30, 1995 and $234 at March 31, 1996........................................... 4,314 8,793 12,824 Inventories..................................... 3,359 5,478 8,810 Deferred income taxes and other current assets.. 1,377 2,367 2,215 ------- ------- ------- Total current assets.......................... 23,265 24,197 60,717 Long-term investments............................. -- -- 14,900 Property, plant, and equipment, net............... 2,260 3,452 17,019 Intangible assets................................. 605 3,178 3,002 Other assets...................................... 84 1,083 1,062 ------- ------- ------- Total assets.................................. $26,214 $31,910 $96,700 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................................ $ 1,228 $ 2,249 $ 3,308 Accrued payroll and related expenses............ 1,770 1,965 2,722 Other accrued expenses.......................... 1,192 2,667 3,654 Current portion of capital lease obligations.... 132 -- -- ------- ------- ------- Total current liabilities..................... 4,322 6,881 9,684 Deferred income taxes............................. 561 -- -- Other non-current liabilities..................... -- 221 171 Commitments and contingencies Stockholders' equity: Preferred stock, $0.001 par value: 1,000,000 shares authorized, none issued and outstanding................................... -- -- -- Common stock, $0.001 par value: Authorized shares--20,000,000 Issued and outstanding shares-- 8,812,908 at June 30, 1994, 9,515,604 at June 30, 1995 and 13,694,138 at March 31, 1996.............................. 8 10 14 Additional paid-in capital...................... 13,093 15,751 72,188 Stock purchase notes receivable................. (18) -- -- Retained earnings............................... 8,223 8,958 14,619 Net unrealized gain (loss) on securities avail- able-for-sale.................................. 11 -- (11) Foreign currency translation adjustment......... 14 89 35 ------- ------- ------- Total stockholders' equity.................... 21,331 24,808 86,845 ------- ------- ------- Total liabilities and stockholders' equity.... $26,214 $31,910 $96,700 ======= ======= =======
See accompanying notes to consolidated financial statements F-3 UNIPHASE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED YEARS ENDED JUNE 30, MARCH 31, ------------------------- ------------------ 1993 1994 1995 1995 1996 ------- ------- ------- -------- -------- (UNAUDITED) Net sales....................... $27,314 $32,922 $42,282 $ 30,146 $ 47,342 Cost of sales................... 17,870 20,067 24,113 17,378 25,102 ------- ------- ------- -------- -------- Gross profit.................. 9,444 12,855 18,169 12,768 22,240 Operating expenses: Research and development...... 1,986 3,058 3,710 2,707 4,093 Royalty and license........... 986 1,212 1,172 995 1,205 Selling, general, and administrative............... 5,417 5,693 7,355 5,176 8,942 Infrequent or unusual charges: Acquired in-process research and development............. -- -- 4,460 -- -- Loss on sale of product line. -- -- 891 -- -- Litigation................... 2,381 (355) -- -- -- ------- ------- ------- -------- -------- Total operating expenses........ 10,770 9,608 17,588 8,878 14,240 ------- ------- ------- -------- -------- Income (loss) from operations. (1,326) 3,247 581 3,890 8,000 Interest income................. 84 274 487 385 1,014 Interest expense................ (60) (37) (25) (24) (20) Other income (expense), net..... 115 (25) 88 43 (107) ------- ------- ------- -------- -------- Income (loss) before income taxes........................ (1,187) 3,459 1,131 4,294 8,887 Income tax expense (benefit).... (389) 1,228 396 1,588 3,226 ------- ------- ------- -------- -------- Net income (loss)............... $ (798) $ 2,231 $ 735 $ 2,706 $ 5,661 ======= ======= ======= ======== ======== Net income (loss) per share..... $ (0.14) $ 0.27 $ 0.07 $ 0.27 $ 0.44 ======= ======= ======= ======== ======== Shares used in per share calculation.................... 5,510 8,274 10,082 9,966 12,962 ======= ======= ======= ======== ========
See accompanying notes to consolidated financial statements. F-4 UNIPHASE CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
STOCK NET FOREIGN COMMON STOCK ADDITIONAL PURCHASE UNREALIZED CURRENCY -------------- PAID-IN NOTE RETAINED GAIN ON TRANSLATION SHARES AMOUNT CAPITAL RECEIVABLE EARNINGS SECURITIES ADJUSTMENT TOTAL ------ ------ ---------- ---------- -------- ---------- ----------- ------- Balance at July 1, 1992. 5,076 $ 6 $ 749 $(166) $ 6,789 $-- $ 49 $ 7,427 Repurchase of common stock................. (4) -- (8) -- -- -- -- (8) Issuance of common stock for minority interest in Ultrapointe........... 86 -- 207 -- -- -- -- 207 Net loss............... -- -- -- -- (797) -- -- (797) Foreign currency translation adjustment............ -- -- -- -- -- -- (98) (98) ------ --- ------- ----- ------- ---- ---- ------- Balance at June 30, 1993................... 5,158 6 948 (166) 5,992 -- (49) 6,731 Repurchase of common stock................. (6) -- (8) -- -- -- -- (8) Exercise of stock options and related tax benefits.......... 352 -- 695 -- -- -- -- 695 Common stock issued upon initial public offering, net of issuance costs........ 3,308 2 11,458 -- -- -- -- 11,460 Repayment of stock purchase note......... -- -- -- 148 -- -- -- 148 Net income............. -- -- -- -- 2,231 -- -- 2,231 Net unrealized gain on securities available- for-sale.............. -- -- -- -- -- 11 -- 11 Foreign currency translation adjustment............ -- -- -- -- -- -- 63 63 ------ --- ------- ----- ------- ---- ---- ------- Balance at June 30, 1994................... 8,812 8 13,093 (18) 8,223 11 14 21,331 Exercise of stock options and related tax benefits.......... 704 2 2,658 -- -- -- -- 2,660 Repayment of stock purchase note......... -- -- -- 18 -- -- -- 18 Net income............. -- -- -- -- 735 -- -- 735 Net realized gain on securities available- for-sale.............. -- -- -- -- -- (11) -- (11) Foreign currency translation adjustment............ -- -- -- -- -- -- 75 75 ------ --- ------- ----- ------- ---- ---- ------- Balance at June 30, 1995................... 9,516 10 15,751 -- 8,958 -- 89 24,808 Exercise of stock options and related tax benefits (unaudited)........... 522 -- 3,629 -- -- -- -- 3,629 Common stock issued upon public offering, net of issuance costs (unaudited)........... 2,990 3 40,526 -- -- -- -- 40,529 Common stock issued to Tencor net of issuance costs (unaudited)..... 666 1 12,282 -- -- -- -- 12,283 Net income (unaudited). -- -- -- -- 5,661 -- -- 5,661 Net unrealized gain on securities available- for-sale (unaudited) -- -- -- -- -- (11) -- (11) Foreign currency translation adjustment (unaudited)........... -- -- -- -- -- -- (54) (54) ------ --- ------- ----- ------- ---- ---- ------- Balance at March 31, 1996 (unaudited)....... 13,694 $14 $72,188 $ -- $14,619 $(11) $ 35 $86,845 ====== === ======= ===== ======= ==== ==== =======
See accompanying notes to consolidated financial statements. F-5 UNIPHASE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
NINE MONTHS ENDED YEARS ENDED JUNE 30, MARCH 31, -------------------------- ------------------- 1993 1994 1995 1995 1996 ------ -------- -------- -------- --------- (UNAUDITED) OPERATING ACTIVITIES Net income (loss)............ $ (798) $ 2,231 $ 735 $ 2,706 $ 5,661 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization............... 872 941 1,154 819 1,435 (Gain) loss on disposal of fixed assets............... 43 5 (18) -- -- Acquired in-process research and development............ -- -- 4,460 -- -- Undistributed earnings of affiliate.................. -- -- (114) -- -- Change in deferred income taxes, net................. (360) 179 (2,188) -- -- Loss on sale of product line....................... -- -- 891 -- -- Change in operating assets and liabilities: Accounts receivable......... (306) (754) (3,286) (2,623) (4,031) Inventories................. (238) (788) (1,244) (760) (3,332) Other current assets........ 5 (259) (391) (442) 152 Accounts payable, accrued liabilities, income tax payable and other.......... 923 286 3,221 1,729 2,717 ------ -------- -------- -------- --------- Net cash provided by operating activities..... 141 1,841 3,220 1,429 2,602 ------ -------- -------- -------- --------- INVESTING ACTIVITIES Notes receivable from related parties..................... -- 133 -- -- -- Purchase of available-for- sale investments............ -- (11,156) (10,604) (9,582) (36,731) Sale of available-for-sale investments................. -- -- 17,081 9,440 8,212 Investment in I.E. Optomech Ltd......................... -- (528) (12) (109) (238) Acquisition of net assets of United Technologies Photonics, Inc.............. -- -- (8,747) -- -- Acquisition of licenses...... -- -- (600) -- -- Proceeds from sale of product line........................ -- -- 375 -- -- Purchase of property, plant and equipment............... (650) (1,065) (1,808) (1,481) (14,665) Decrease (increase) in other assets...................... 79 (3) 17 4 21 ------ -------- -------- -------- --------- Net cash used in investing activities............... (571) (12,619) (4,298) (1,728) (43,401) ------ -------- -------- -------- --------- FINANCING ACTIVITIES Repurchase of common stock... (8) (8) -- -- -- Repayment of stock purchase note........................ -- 148 18 -- -- Proceeds from issuance of common stock................ -- 11,759 1,024 1,797 56,500 Principal payments on capital lease obligations........... (160) (107) (132) (98) -- ------ -------- -------- -------- --------- Net cash provided by (used in) financing activities. (168) 11,792 910 1,699 56,500 ------ -------- -------- -------- --------- Increase (decrease) in cash and cash equivalents......... (598) 1,014 (168) 1,400 15,701 Cash and cash equivalents at beginning of period.......... 2,632 2,034 3,048 3,048 2,880 ------ -------- -------- -------- --------- Cash and cash equivalents at end of period................ $2,034 $ 3,048 $ 2,880 $ 4,448 $ 18,581 ====== ======== ======== ======== =========
See accompanying notes to consolidated financial statements. F-6 UNIPHASE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION AS OF MARCH 31, 1996 AND RELATING FOR THE NINE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED) NOTE 1. BUSINESS ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Activities. Uniphase Corporation (the "Company" or "Uniphase") designs, develops, manufactures and markets laser subsystems, laser-based semiconductor wafer defect examination and analysis equipment and fiber optic telecommunications equipment products. Uniphase operates three manufacturing facilities in the United States (in San Jose and Manteca, California, and Bloomfield, Connecticut). The Company's laser division designs, develops, manufactures and markets laser subsystems for a broad range of OEM applications, which include biotechnology, industrial process control and measurement, graphics and printing and semiconductor equipment. Uniphase's domestic wholly-owned subsidiary, Ultrapointe Corporation, designs, develops, manufactures and markets advanced laser-based systems for semiconductor wafer defect examination and analysis. In May 1994, the Company acquired a 49% equity position in I.E. Optomech, an optoelectronics company located in the United Kingdom. The Company increased its ownership percentage on May 1, 1995 to 51.5% through an additional equity investment and on July 1, 1995, purchased the remaining equity interest. In May 1995, Uniphase acquired United Technologies Photonics, Inc., which designs, develops, manufactures and markets high-speed external modulators and transmitters for fiber optic networks in the CATV and long-haul telecommunications industries, and which is being operated as a Uniphase subsidiary, Uniphase Telecommunications Products, Inc. ("UTP"). At the end of fiscal 1995, the Company sold the net assets of its diode laser product line, which was previously operated in a Los Angeles facility. Uniphase also has wholly-owned subsidiaries in Germany and the United Kingdom to market and service its products in Europe. Basis of Presentation. The consolidated financial statements include Uniphase, its wholly-owned subsidiaries, I.E. Optomech subsequent to obtaining controlling interest on May 1, 1995 and UTP subsequent to its purchase by the Company on May 15, 1995. All significant intercompany accounts and transactions have been eliminated. Amounts applicable to the minority interest of I.E. Optomech are insignificant. Cash, Cash Equivalents, and Short-term Investments. Uniphase considers all liquid investments with maturities of ninety days or less when purchased to be cash equivalents. The Company's short-term investments have maturities of one year or less. The Company's securities are classified as available-for-sale and are recorded at fair value. Fair value is based upon quoted market prices on the last day of the fiscal year. The cost of debt securities sold is based on the specific identification method. Unrealized gains and losses are reported as a separate component of stockholders' equity. Gross realized gains and losses are included in interest income and have not been material. The Company's investments consist of the following: F-7 UNIPHASE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1996 AND RELATING FOR THE NINE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
JUNE 30, 1994 --------------------------------------- GROSS GROSS ESTIMATED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ------- ---------- ---------- --------- (IN THOUSANDS) Municipal bonds......................... $ 7,156 $-- $-- $ 7,156 Auction instruments..................... 4,000 11 -- 4,011 Money market instruments................ 1,439 -- -- 1,439 Certificate of deposits................. 503 -- -- 503 ------- --- --- ------- $13,098 $11 $-- $13,109 ======= === === ======= Included in cash and cash equivalents... $ 1,942 $-- $-- $ 1,942 Included in short-term investments...... 11,156 11 -- 11,167 ------- --- --- ------- $13,098 $11 $-- $13,109 ======= === === ======= JUNE 30, 1995 --------------------------------------- GROSS GROSS ESTIMATED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ------- ---------- ---------- --------- (IN THOUSANDS) Auction instruments..................... $ 3,000 $-- $-- $ 3,000 Municipal bonds......................... 1,679 -- -- 1,679 Certificate of deposits................. 1,003 -- -- 1,003 Money market instruments................ 549 -- -- 549 ------- --- --- ------- $ 6,231 $-- $-- $ 6,231 ======= === === ======= Included in cash and cash equivalents... $ 1,552 $-- $-- $ 1,552 Included in short-term investments...... 4,679 -- -- 4,679 ------- --- --- ------- $ 6,231 $-- $-- $ 6,231 ======= === === =======
Inventories. Inventories are valued at the lower of cost (first-in, first-out method) or market. The components of inventory consist of the following:
JUNE 30, ------------- MARCH 31, 1994 1995 1996 ------ ------ --------- (IN THOUSANDS) Finished goods.......................................... $ 948 $2,043 $1,818 Work in process......................................... 969 1,072 2,992 Raw materials and purchased parts....................... 1,442 2,363 4,000 ------ ------ ------ $3,359 $5,478 $8,810 ====== ====== ======
Property, Plant and Equipment. Property, plant and equipment are stated at cost. Depreciation is computed by the straight-line method over the estimated useful lives of the assets, which range from two to five years. Leasehold improvements are amortized by the straight-line method over the shorter of the estimated useful lives of the assets or the term of the lease. The components of property, plant and equipment are as follows: F-8 UNIPHASE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1996 AND RELATING FOR THE NINE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
JUNE 30, ------------- MARCH 31 1994 1995 1996 ------ ------ -------- (IN THOUSANDS) Land..................................................... $ -- $ -- $ 3,816 Building and improvements................................ -- -- 7,728 Manufacturing equipment.................................. 3,823 4,944 9,726 Furniture, fixtures and office equipment................. 2,243 2,887 3,277 Leasehold improvements................................... 371 556 364 ------ ------ ------- 6,437 8,387 24,911 Less: accumulated depreciation and amortization.......... 4,177 4,935 7,892 ------ ------ ------- $2,260 $3,452 $17,019 ====== ====== =======
Concentration of Credit Risk. Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, short-term investments and trade receivables. The Company places its cash equivalents and short-term investments with high credit-quality financial institutions. The Company invests its excess cash primarily in auction instruments, municipal bonds and certificates of deposits. The Company has established guidelines relative to credit ratings, diversification and maturities that seek to maintain safety and liquidity. The Company sells primarily to customers involved in the application of laser technology or the manufacture of semiconductors. The Company performs ongoing credit evaluations of its customers and does not require collateral. The Company provides reserves for potential credit losses, and such losses and yearly provisions have not been significant and have been within management's expectations. Foreign Currency Translation. Assets and liabilities denominated in foreign currencies are translated using the exchange rate on the balance sheet dates. Revenues and expenses are translated using average rates of exchange prevailing during the year. The translation adjustment resulting from this process is shown separately as a component of stockholders' equity. Foreign currency transaction gains and losses are not material and are included in the determination of net income. Revenue Recognition. Revenue from the sale of products is generally recognized upon shipment. Revenue on the shipment of Ultrapointe Systems on evaluation is deferred until customer acceptance. The Company provides for the estimated cost to repair products under warranty at the time of sale. Revenues from UTP's research contracts are recognized on the percentage-of- completion method, measured by costs incurred to date to estimated total costs for each contract. Under this method, revenues are recognized as various stages of research contracts are completed. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. The Company is party to certain research and development contracts with third parties whereby the Company is obligated to spend certain specified amounts over periods ranging from two to three years on certain research and development activities and will be reimbursed by the third party participants for a portion of such expenditures. During fiscal 1995, the Company earned reimbursements of $245,000 in connection with these contracts which were recorded as credits to research and development expense. The corresponding amounts during fiscal 1994 were insignificant. At June 30, 1995, a total of approximately $4.6 million remains to be F-9 UNIPHASE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1996 AND RELATING FOR THE NINE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED) expended under these contracts for which the Company will receive reimbursements of approximately $2.2 million. The research activities covered by the contracts are complementary to the Company's own research and development activities. At the end of the contracts, the Company will own or have access to the technology developed in connection with the contracts. Income Taxes Income taxes are calculated under the provisions of Statement of Financial Accounting Standards No. 109 (FAS 109), "Accounting for Income Taxes." Under FAS 109, the liability method is used in accounting for income taxes which includes the effects of temporary differences between financial and taxable amounts of assets and liabilities. Net Income (Loss) Per Share. Net income (loss) per share is computed using the weighted average number of shares of common stock and dilutive common equivalent shares from stock options using the treasury stock method. Since fully diluted earnings per share differs from primary earnings per share by less than 3%, only primary earnings per share is shown below. Shares and net income used in the per share computations are as follows:
NINE MONTHS ENDED YEAR ENDED JUNE 30, MARCH 31, --------------------- ----------------- 1993 1994 1995 1995 1996 ------ ------ ------ -------- -------- (IN THOUSANDS) Weighted average common shares.......... 5,076 7,276 9,108 9,004 11,854 SAB 83 shares........................... 434 -- -- -- -- Stock options........................... -- 998 974 962 1,108 ------ ------ ------ -------- -------- Total................................. 5,510 8,274 10,082 9,966 12,962 ====== ====== ====== ======== ======== Net income.............................. $ (798) $2,231 $ 735 $ 2,706 $ 5,661 ====== ====== ====== ======== ======== Net income per share.................... $(0.14) $ 0.27 $ 0.07 $ 0.27 $ 0.44 ====== ====== ====== ======== ========
Pursuant to the Securities and Exchange Commission Staff Accounting Bulletins, common equivalent shares issued by the Company at prices below the initial public offering price during the 12-month period prior to the offering have been included in the fiscal 1993 calculation (using the treasury stock method and the initial public offering price of $4.00 per share). Reclassifications. Certain reclassifications, relating to geographic sales information, have been made to the fiscal 1994 and fiscal 1993 presentation to conform to the fiscal 1995 presentation. NOTE 2. OTHER ACCRUED EXPENSES The components of other accrued expenses are as follows:
JUNE 30, --------------- MARCH 31, 1994 1995 1996 ------- ------- --------- (IN THOUSANDS) Royalties payable..................................... $ 442 $ 435 $ 830 Warranty reserve...................................... 172 385 510 Other accrued liabilities............................. 578 1,847 2,314 ------- ------- ------ $ 1,192 $ 2,667 $3,654 ======= ======= ======
F-10 UNIPHASE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1996 AND RELATING FOR THE NINE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED) NOTE 3. INCOME TAXES The expense (benefit) for income taxes consists of the following:
YEAR ENDED JUNE 30, -------------------- 1993 1994 1995 ----- ------ ------ (IN THOUSANDS) Federal: Current................................................. $ (60) $ 806 $1,967 Deferred................................................ (285) 173 (1,688) ----- ------ ------ (345) 979 279 State: Current................................................. 13 196 550 Deferred................................................ (75) 6 (500) ----- ------ ------ (62) 202 50 Foreign: Current................................................. 18 47 67 ----- ------ ------ Income tax expense (benefit).......................... $(389) $1,228 $ 396 ===== ====== ======
A reconciliation of the income tax expense (benefit) at the federal statutory rate to the income tax expense (benefit) at the effective tax rate is as follows:
YEAR ENDED JUNE 30, ----------------------- 1993 1994 1995 ------ ------- ------ (IN THOUSANDS) Income taxes (benefit) computed at federal statutory rate.................................................. $ (404) $ 1,176 $ 385 State taxes, net of federal benefit.................... (41) 133 33 Foreign taxes on income................................ 18 47 (7) Research, development, and foreign tax credits......... -- (132) (15) Other.................................................. 38 4 -- ------ ------- ----- $ (389) $ 1,228 $ 396 ====== ======= =====
The components of deferred taxes consist of the following:
YEAR ENDED JUNE 30, ---------------------- 1994 1995 --------- ----------- (IN THOUSANDS) Deferred tax assets: State taxes............................................ $ 64 $ 186 Accrued legal expenses................................. 69 36 Inventory reserve...................................... 188 234 Vacation accruals...................................... 120 128 Intangibles and acquired in-process research and development........................................... -- 1,760 Warranty reserve....................................... 69 139 Diode laser product line write-off..................... -- 257 Other accruals not deductible for tax.................. 45 74 -------- ----------- Total deferred tax assets............................ 555 2,814 Deferred tax liabilities: Tax over book depreciation............................. 88 19 Interest charge DISC commission........................ 473 613 -------- ----------- Total deferred tax liabilities....................... 561 632 -------- ----------- Total net deferred tax assets (liabilities).......... $ (6) $ 2,182 ======== ===========
F-11 UNIPHASE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1996 AND RELATING FOR THE NINE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED) The Company believes that net deferred tax assets are more likely than not to be realized from the Company's ongoing operations. Thus, no valuation allowance is deemed necessary. Cumulative undistributed earnings of Uniphase's foreign subsidiaries were approximately $110,000, $99,000 and $282,000 at June 30, 1993, 1994 and 1995, respectively. These amounts have been permanently reinvested, and accordingly, no provision for federal and state income taxes has been provided thereon. The tax benefit associated with exercises of stock options reduced taxes currently payable by $346,000 and $1,636,000 for the years ended June 30, 1994 and 1995, respectively. Such benefits are credited to additional paid-in capital when realized. For the nine-month periods ended March 31, 1995 and 1996, income taxes were provided based on the estimated annual effective tax rates for such years which were 37% and 36%, respectively. NOTE 4. LINE OF CREDIT The Company has a $5.0 million revolving bank line of credit that expires on November 1, 1996. Advances under the line of credit bear interest at the bank's prime rate (9% at June 30, 1995 and 8.25% at March 31, 1996) and are secured by inventories and accounts receivable. Under the terms of the line of credit agreement, the Company is required to maintain certain minimum working capital, net worth, profitability levels and other specific financial ratios. In addition, the agreement prohibits the payment of cash dividends and contains certain restrictions on the Company's ability to borrow money or purchase assets or interests in other entities without the prior written consent of the bank. There were no borrowings under the line of credit at June 30, 1995 or March 31, 1996. NOTE 5. LEASE COMMITMENTS Uniphase leases manufacturing and office space primarily in San Jose and Manteca, California and Bloomfield, Connecticut under noncancelable operating leases expiring at various dates through August 1998 and containing certain renewal options ranging from one to four years. Future minimum commitments for noncancelable operating leases are as follows which excludes $221,000 accrued at June 30, 1995 for vacated space upon sale of a product line:
OPERATING LEASES -------------- (IN THOUSANDS) 1996.......................................................... $ 833 1997.......................................................... 678 1998.......................................................... 351 1999.......................................................... 55 ------ Total minimum lease payments.................................. $1,917 ======
Rental expense for operating leases for the years ended June 30, 1993, 1994 and 1995 amounted to approximately $539,000, $530,000 and $605,000, respectively. NOTE 6. EMPLOYEE BENEFIT PLAN Uniphase has an employee 401(k) salary deferral plan, covering all domestic employees. Employees may make contributions by withholding a percentage of their salary up to $9,240 per year. Company contributions consist of $.25 per dollar contributed by the employees with at least six months of service. Company contributions were approximately $85,000, $100,000 and $131,000 for the years ended June 30, 1993, 1994, and 1995, respectively. F-12 UNIPHASE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1996 AND RELATING FOR THE NINE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED) NOTE 7. STOCK OPTION PLANS As of June 30, 1995, Uniphase has reserved 3,044,000 shares of common stock for future issuance to employees, directors and consultants under its 1984 Amended and Restated Stock Option Plan (the "1984 Option Plan") and 1993 Flexible Stock Incentive Plan (the "1993 Option Plan"). The existing reserve includes an additional 700,000 shares, approved by the Board of Directors during fiscal 1995, that have been reserved for issuance under the 1993 Option Plan pending stockholder approval. The Board of Directors has the authority to determine the type of option and the number of shares subject to option. The exercise price cannot be less than the fair value at the date of grant. Options generally become exercisable over a four-year period and, if not exercised, expire from five to ten years from the date of grant. The following table summarizes option activity through June 30, 1995:
OPTIONS OUTSTANDING ------------------------------------------ SHARES AGGREGATE AVAILABLE NUMBER PRICE EXERCISE FOR GRANT OF SHARES PER SHARE PRICE --------- --------- ------------ --------- (IN THOUSANDS, EXCEPT PRICE PER SHARE) Balance at June 30, 1992............ 586 1,598 $ 0.62-$1.80 $ 1,976 Granted........................... (258) 258 $ 1.60-$2.40 466 Exchanged......................... (54) 54 $ 0.46 25 Canceled.......................... 204 (204) $ 0.62-$1.80 (280) ------ ----- ------------ ------- Balance at June 30, 1993............ 478 1,706 $ 0.46-$2.40 2,187 Increase in authorized shares..... 1,254 -- -- -- Granted........................... (1,184) 1,184 $ 2.40-$4.63 3,404 Canceled.......................... 52 (52) $ 0.46-$4.63 (119) Exercised......................... -- (352) $ 0.46-$2.40 (349) ------ ----- ------------ ------- Balance at June 30, 1994............ 600 2,486 $ 0.46-$4.63 5,123 Increase in authorized shares, pending shareholder approval..... 700 -- -- -- Granted........................... (874) 874 $3.88-$11.57 7,354 Canceled.......................... 32 (128) $ 1.30-$9.88 (373) Exercised......................... -- (646) $ 0.46-$4.63 (827) ------ ----- ------------ ------- Balance at June 30, 1995............ 458 2,586 $0.46-$11.57 $11,277 ====== ===== ============ =======
Options for 934,000 shares are exercisable as of June 30, 1995. Certain employees of UTP have been granted tandem stock options whereby such employees receive options to purchase shares of either Common Stock of UTP (the "UTP Options") under the UTP 1995 Flexible Stock Incentive Plan (the "1995 Option Plan") or Common Stock of Uniphase (the "Uniphase Options") under Uniphase's 1993 Option Plan. Under the tandem option plan structure, the aggregate value of the UTP Options and the Uniphase Options that are granted to each optionee are equal. The optionees can exercise either their UTP Options or Uniphase Options, but not both. When the optionees exercise their options as to UTP Common Stock, their corresponding Uniphase Options automatically terminate, and vice versa. The total number of Uniphase Options granted in tandem with UTP options is 82,454 shares, at an exercise price of $11.563 per share, which was the fair market value of Uniphase Common Stock on the date of grant. The total number of UTP Options granted as of June 30, 1995 is 953,500 shares, at an exercise price of $1.00 per share which was the fair value of UTP stock at that date. UTP has reserved 246,500 shares of Common Stock for future issuance. Both the Uniphase Options and the UTP Options will be exercisable in accordance with the standard vesting schedules under the 1993 Option Plan and the 1995 Option Plan, over a four-year period. F-13 UNIPHASE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1996 AND RELATING FOR THE NINE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED) NOTE 8. EMPLOYEE STOCK PURCHASE PLAN The Uniphase 1993 Employee Stock Purchase Plan (the "Purchase Plan") was adopted in October 1993 and amended during fiscal 1994. The Company has reserved 400,000 shares of common stock for issuance under the Purchase Plan. The Purchase Plan, effective February 1, 1994, provides eligible employees with the opportunity to acquire an ownership interest in Uniphase through participation in a program of periodic payroll deductions applied at specific intervals to the purchase of common stock. The Purchase Plan is structured as a qualified employee stock purchase plan under Section 423 of the amended Internal Revenue Code of 1986. However, the Purchase Plan is not intended to be a qualified pension, profit sharing or stock bonus plan under Section 401(a) of the 1986 Code and is not subject to the provisions of the Employee Retirement Income Security Act of 1974. The Purchase Plan will terminate upon the earlier of December 31, 1998 or the date on which all shares available for issuance under the Purchase Plan have been sold. During fiscal 1995, employees purchased 57,850 shares of common stock under the Purchase Plan and 342,150 shares are available for future issuance. NOTE 9. INVESTMENT IN I.E. OPTOMECH LTD. In May 1994, Uniphase purchased 49% of the outstanding common stock of I.E. Optomech Ltd., a privately held optoelectronics company located in the United Kingdom for $528,000 in cash, which included intellectual properties related to solid state lasers and the right to manufacture and sell certain I.E. Optomech Ltd. products. In May of 1995, the Company acquired an additional 2.5% of the outstanding common stock of I.E. Optomech, Ltd. for approximately $12,000 in cash. As of June 30, 1995, the Company owned 51.5% of I.E. Optomech and the acquisition has been accounted for by the purchase method of accounting. The fair market value of the net assets less minority interests at the date of acquisition was $109,000. The excess of the investment in I.E. Optomech over the fair value of the net assets acquired is being amortized over its estimated useful life of 10 years. Accumulated amortization is approximately $54,000 as of June 30, 1995. In July 1995, the Company acquired the remaining 48.5% of I.E. Optomech for $238,000 in cash. I.E. Optomech will operate as a wholly-owned subsidiary of the Company. NOTE 10. ACQUISITION OF UNIPHASE TELECOMMUNICATIONS PRODUCTS, INC. On May 15, 1995, the Company acquired all the outstanding capital stock of UTP, from United Technologies Corporation. UTP is a global supplier of integrated optical components used in transmitters for fiber-based networks in the cable television and telecommunications industries, as well as in optical antenna links and navigation systems. The total purchase price of $8,747,000 included a cash payment of $8,050,000 to United Technologies Corporation and $697,000 for related acquisition expenses. The acquisition has been accounted for by the purchase method of accounting and accordingly, the accompanying financial statements include the results of operations of UTP subsequent to the acquisition date. The fair value of the net assets and acquired in-process research and development purchased was $7,975,000. The excess of $772,000 of the acquisition price over such fair value and the purchased intangible assets are being amortized over estimated useful lives ranging from 5 to 10 years. Accumulated amortization is approximately $47,000 at June 30, 1995. The following unaudited pro forma summary presents the consolidated results of operations of the Company as if the acquisition of UTP had occurred at the beginning of fiscal 1994 and does not purport to be indicative of what would have occurred had the acquisition been made as of the beginning of fiscal 1994 or of results which may occur in the future. F-14 UNIPHASE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1996 AND RELATING FOR THE NINE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
YEAR ENDED JUNE 30, --------------------- 1994 1995 ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales.............................................. $39,967 $46,512 Net income............................................. $ 2,756 $ 222 Net income per share................................... $ 0.34 $ 0.02
The effects of the UTP acquisition on the 1995 consolidated statement of cash flows were as follows (in thousands): Working capital acquired............................................. $1,215 Property, plant and equipment........................................ 1,260 Intangibles and goodwill............................................. 2,072 In-process research and development.................................. 4,200 ------ Total purchase price................................................. $8,747 ======
NOTE 11. SALE OF DIODE LASER PRODUCT LINE The Company sold its diode laser product line for $375,000 in cash on June 30, 1995. The loss on sale of the product line was $891,000. In conjunction with the sale, the Company also obtained a limited non-exclusive sublicense to a solid state technology patent at a reduced royalty rate. NOTE 12. GEOGRAPHIC AND INDUSTRY SEGMENT INFORMATION Uniphase operates in two geographic regions: the United States and Europe. The Company operates in a single industry segment, the design, manufacture and sale of laser subsystems and laser based products. The following table shows sales, operating income (loss) and other financial information by geographic region:
YEAR ENDED JUNE 30, ------------------------- 1993 1994 1995 ------- ------- ------- (IN THOUSANDS) Net Sales: United States--domestic............................ $18,639 $23,403 $29,456 United States--export.............................. 1,915 2,771 5,726 Europe............................................. 6,760 6,748 7,100 Intercompany (primarily to Europe)................. 5,516 5,370 5,466 Eliminations....................................... (5,516) (5,370) (5,466) ------- ------- ------- Total net sales.................................. $27,314 $32,922 $42,282 ======= ======= ======= Operating Income (Loss): United States...................................... $(1,072) $ 3,115 $ 276 Europe............................................. (193) 107 299 Eliminations....................................... (61) 25 6 ------- ------- ------- Total operating income (loss).................... $(1,326) $ 3,247 $ 581 ======= ======= ======= Identifiable Assets: United States...................................... $ 9,277 $24,219 $28,785 Europe............................................. 2,508 1,995 3,125 ------- ------- ------- Total assets..................................... $11,785 $26,214 $31,910 ======= ======= =======
F-15 UNIPHASE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1996 AND RELATING FOR THE NINE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED) Intercompany transfers represent products that are transferred between geographic areas on a basis intended to reflect as nearly as possible the market value of the products. Identifiable assets are those assets of the Company that are identified with the operations of the corresponding geographic area. One laser subsystem customer accounted for 11%, 12% and 12% of the Company's consolidated net sales in years ended June 30, 1993, 1994, and 1995, respectively. In addition, another laser subsystem customer accounted for 10% of the Company's consolidated net sales in both years ended June 30, 1993 and 1994. NOTE 13. SUPPLEMENTAL CASH FLOW INFORMATION
YEAR ENDED JUNE 30, ------------------- 1993 1994 1995 ---- ---- ---- (IN THOUSANDS) Cash paid for interest.................................. $ 60 $ 28 $ 11 Cash paid for income taxes.............................. $ 12 $965 $1,213 Issuance of common stock for minority interest in Ultrapointe............................................ $207 $ -- $ --
NOTE 14. LITIGATION AND CONTINGENCIES During fiscal 1994, the Company settled one of two remaining lawsuits against the Company which had been filed by certain former employees. Due to the settlement of this lawsuit at a cost which was less than anticipated and the re-evaluation of the potential liability with respect to the remaining outstanding lawsuit, the Company reversed $355,000 of accrued legal expense. In addition, during fiscal 1994, it was determined that certain costs accrued for in fiscal 1993, with respect to certain third party patents, would not have to be paid. As a result of this determination, accrued expenses of $300,000 were reversed in fiscal 1994 as a credit to selling, general and administrative expenses. In the ordinary course of business, various lawsuits and claims are filed against the Company. While the outcome of these matters is currently not determinable, management believes that the ultimate resolution of these matters will not have a material adverse effect on the Company's financial statements. NOTE 15. EVENTS SUBSEQUENT TO JUNE 30, 1995 (UNAUDITED) In October 1995, the Company received proceeds, net of related expenses, of approximately $40,529,000 from a public offering of 2,990,000 shares of common stock. In November 1995, the company issued an additional 665,568 shares of common stock for a net purchase price of approximately $12,283,000 to Tencor in a private placement in connection with the licensing arrangement entered into with Tencor. During fiscal 1996, two former employees commenced wrongful termination actions against the Company. The Company believes these claims are without merit and is vigorously defending them. Even if these claims are adjudicated in favor of the plaintiffs, the Company does not believe that the ultimate resolution of these matters will have a material adverse impact on the Company or its operations. On February 8, 1996, the Company acquired two properties in San Jose, California, totaling 109,000 square feet, which includes land, buildings and improvements, for an aggregate purchase price of approximately $11.0 million. One of the properties is the Company's current principal facility occupied under an operating lease which would have expired in August 1998. The Company plans to expand into the additional building. The Company's principal sales, marketing, technical support, administration, and research and development operations as well as manufacturing operations for the argon laser and Ultrapointe products will occupy these facilities. The Company plans to lease any unused space. F-16 UNIPHASE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1996 AND RELATING FOR THE NINE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED) On April 27, 1996, the Company's Board of Directors approved a two-for-one split of its Common Stock (the "Stock Split") to be effected in the form of a 100% stock dividend, payable on June 3, 1996 to Stockholders of record on May 20, 1996. All prior period common stock and per share data in these financial statements and the notes thereto have been adjusted to reflect the pending Stock Split. The Company has entered into a definitive stock purchase agreement with the shareholders of FAS and GCA to acquire 100% of the outstanding shares of FAS and GCA, respectively. The total purchase price is estimated to be approximately $9.1 million which includes the aggregate consideration of $8.6 million for both GCA and FAS, payable through a combination of cash and notes, and estimated direct transaction costs of approximately $500,000. The Company expects that an estimated $4.5 million of the estimated total purchase price will be allocated to in-process research and development and immediately charged to expense. This amount is an estimate and is subject to change based on the completion of an independent valuation which is currently in process. It is anticipated that the remaining $4.6 million of the estimated total purchase price will be allocated to specifically identifiable assets acquired and goodwill. It is estimated that intangible assets acquired of $3.9 million (net of deferred tax liability) will be amortized over a weighted average life of seven years. In addition, in order to operate UFP as a division of UTP, management believes it was necessary to cancel options to purchase UTP stock previously granted to UTP employees and to grant replacement options to such employees to purchase stock of the Company. The Company will incur compensation expense totaling $4.4 million in connection with such option grants which were effective on May 15, 1996. Of this total, $3.0 million, related to options which have vested to date, will be charged to expense during the quarter ending June 30, 1996 and the remaining $1.4 million will be charged to expense over the remaining vesting period of three years. F-17 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors Uniphase Corporation We have audited the accompanying combined balance sheets of GCA Fibreoptics Ltd. and Fiberoptics Alignment Solutions, Inc. as of October 31, 1994 and 1995, and the related combined statements of operations and cash flows for the years then ended. 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 in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of GCA Fibreoptics Ltd. and Fiberoptics Alignment Solutions, Inc. at October 31, 1994 and 1995, and the combined results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP San Jose, California May 28, 1996 F-18 GCA FIBREOPTICS LTD. AND FIBEROPTICS ALIGNMENT SOLUTIONS, INC. COMBINED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
OCTOBER 31, -------------- 1994 1995 ------ ------ ASSETS Current assets: Cash and cash equivalents.................................... $ 81 $ 15 Accounts receivable, less allowance for doubtful accounts of $26 at October 31, 1994 and 1995................................... 897 676 Inventories.................................................. 570 815 Deferred income taxes........................................ 45 49 Other current assets......................................... 17 76 ------ ------ Total current assets....................................... 1,610 1,631 Property, plant, and equipment, net............................ 405 942 Other assets................................................... 6 6 ------ ------ Total assets............................................... $2,021 $2,579 ====== ====== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable to bank........................................ $ 324 $ 232 Accounts payable............................................. 575 792 Income taxes payable......................................... 66 93 Other accrued expenses....................................... 182 211 Current portion of long-term debt............................ 83 82 Current portion of capital lease obligations................. 10 80 ------ ------ Total current liabilities.................................. 1,240 1,490 Long-term debt, less current portion........................... 277 190 Capital lease obligations, less current portion................ 22 146 Commitments Shareholders' equity: Common stock, FAS--$1.00 par value: Authorized shares--10,000 Issued and outstanding shares--1,000 as of July 31, 1994 and 1995........................................................ 1 1 GCA--$0.0162 par value Authorized shares--250,000 Issued and outstanding shares--101,000 as of October 31, 1994 and 1995............................................... 2 2 Additional paid-in capital................................... 253 303 Shareholder note receivable.................................. (1) (1) Foreign currency translation adjustment...................... 3 (4) Retained earnings............................................ 224 452 ------ ------ Total shareholders' equity................................. 482 753 ------ ------ Total liabilities and shareholders' equity................. $2,021 $2,579 ====== ======
See accompanying notes to combined financial statements F-19 GCA FIBREOPTICS LTD. AND FIBEROPTICS ALIGNMENT SOLUTIONS, INC. COMBINED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (IN THOUSANDS)
YEARS ENDED OCTOBER 31, -------------- 1994 1995 ------ ------ Net sales....................................................... $3,468 $5,690 Cost of sales................................................... 1,961 3,471 ------ ------ Gross profit.................................................. 1,507 2,219 Operating expenses: Research and development...................................... 143 142 Selling, general, and administrative.......................... 1,164 1,680 ------ ------ Total operating expenses........................................ 1,307 1,822 ------ ------ Income from operations........................................ 200 397 Interest expense................................................ (42) (84) ------ ------ Net income before income taxes................................ 158 313 Income tax expense.............................................. 35 85 ------ ------ Net income...................................................... 123 228 Beginning retained earnings..................................... 101 224 ------ ------ Ending retained earnings........................................ $224 $452 ====== ======
See accompanying notes to combined financial statements. F-20 GCA FIBREOPTICS LTD. AND FIBEROPTICS ALIGNMENT SOLUTIONS, INC. COMBINED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED OCTOBER 31, ------------ 1994 1995 ----- ----- OPERATING ACTIVITIES Net income...................................................... $ 123 $ 228 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................................. 123 311 Change in deferred income taxes, net........................... (31) (4) Change in operating assets and liabilities: Accounts receivable............................................ (273) 221 Inventories.................................................... (102) (245) Other current assets........................................... -- (59) Accounts payable, income taxes payable and other accrued expenses...................................................... 183 273 ----- ----- Net cash provided by operating activities.................... 23 725 INVESTING ACTIVITIES Increase in other assets........................................ (6) -- Purchase of property, plant and equipment....................... (290) (573) ----- ----- Net cash used in investing activities........................ (296) (573) FINANCING ACTIVITIES Net payments under line of credit agreement..................... 61 (92) Payments on long-term debt...................................... (78) (88) Proceeds from issuance of long-term debt........................ 394 -- Principal payments on capital lease obligations................. (24) (31) ----- ----- Net cash provided by (used in) financing activities.......... 353 (211) Effect of exchange rates on cash................................. (11) (7) ----- ----- Increase (decrease) in cash and cash equivalents................. 69 (66) Cash and cash equivalents at beginning of period................. 12 81 ----- ----- Cash and cash equivalents at end of period....................... $ 81 $ 15 ===== =====
See accompanying notes to combined financial statements. F-21 GCA FIBREOPTICS LTD. AND FIBEROPTICS ALIGNMENT SOLUTIONS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 1. SIGNIFICANT ACCOUNTING POLICIES Business Activities. GCA Fibreoptics Ltd. ("GCA"), is a manufacturer of fiberoptic devices and distributor of circuit projection components based in Witney, United Kingdom. Fiberoptics Alignment Solutions, Inc. ("FAS") is a manufacturer and assembler of fiberoptic components and provides services for a world-wide installed-base of automated alignment and laser welding systems based in Batavia, Illinois. Both GCA and FAS as a combined entity will be referred hereafter as "the Company." Uniphase has entered into a definitive stock purchase agreement with the shareholders of FAS and GCA to acquire 100% of the outstanding shares of FAS and GCA, respectively. Basis of Presentation. The same individual is the majority shareholder of both GCA and FAS. Therefore the presentation of the combined financial statements is similar to the pooling-of-interests method of accounting. Accordingly the financial statements of FAS as of July 31, 1994 and 1995 and its fiscal years then ended have been combined with the financial statements of GCA as of October 31, 1994 and 1995 and for its fiscal years then ended. There were no significant events for FAS in the periods from August 1, 1994 and 1995 to October 31, 1994 and 1995. All intercompany transactions have been eliminated from the combined financial statements. Cash and Cash Equivalents. The Company considers all liquid investments with maturities of ninety days or less when purchased to be cash equivalents. Inventories. Inventories are valued at the lower of cost (first-in, first-out method) or market. The components of inventory consist of the following:
OCTOBER 31, --------------- 1994 1995 ------- ------- (IN THOUSANDS) Finished goods................................................. $ 59 $ 62 Work in process................................................ 32 31 Raw materials and purchased parts.............................. 479 722 ------- ------- $570 $815 ======= =======
Property, Plant and Equipment. Property, plant and equipment are stated at cost. Depreciation is computed under the straight-line method of accounting over the estimated useful lives of the assets, which range from three to five years. Leasehold improvements are amortized over the shorter of the estimated useful lives of the assets or the term of the lease. The components of property, plant and equipment are as follows: F-22 GCA FIBREOPTICS LTD. AND FIBEROPTICS ALIGNMENT SOLUTIONS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 31, -------------- 1994 1995 -------------- (IN THOUSANDS) Manufacturing equipment...................................... $ 309 $ 971 Furniture.................................................... 505 619 Leasehold improvements....................................... 32 38 ------ ------- 846 1,628 Less: accumulated depreciation and amortization.............. 441 686 ------ ------- $405 $942 ====== =======
Concentration of Credit Risk. The Company performs ongoing credit evaluations of its customers and does not require collateral. The Company provides reserves for potential credit losses, and such losses and yearly provisions have not been significant and have been within management's expectations. Foreign Currency Translation. Assets and liabilities denominated in foreign currencies are translated using the exchange rate on the balance sheet dates. Revenues and expenses are translated using average rates of exchange prevailing during the year. The translation adjustment resulting from this process is shown separately as a component of shareholders' equity. Foreign currency transaction gains and losses are not material and are included in the determination of net income. Revenue Recognition. Revenue from the sale of products is generally recognized upon shipment. Income Taxes. Income taxes are calculated under the provisions of Statement of Financial Accounting Standards No. 109 (FAS 109), "Accounting for Income Taxes". Under FAS 109, the liability method is used in accounting for income taxes which includes the effects of temporary differences between financial and taxable amounts of assets and liabilities. Earnings per Share Earnings per share information has been omitted because it will not provide meaningful information of the combined company. Impact of Recently Issued Accounting Standards. In March 1995, the FASB issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company will adopt Statement 121 in the first quarter of the fiscal year 1996 and, based on current circumstances, does not believe the effect of adoption will be material. F-23 GCA FIBREOPTICS LTD. AND FIBEROPTICS ALIGNMENT SOLUTIONS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) NOTE 2. COMMITMENTS The Company's manufacturing and office space in the United Kingdom and the United States are under leases expiring at various dates from July 1999 to December 2013. The Company has the option of terminating one of the lease agreements on December 25, 2003 upon six months written notification. The Company also leases office equipment under noncancelable operating leases expiring at various dates from October 1996 to February 2000. The Company leases certain equipment under capital leases. Total capitalized costs included in property, plant and equipment was $29,000 and $311,000 as of October 31, 1994 and 1995, respectively. The related accumulated depreciation as of October 31, 1994 and 1995 was $8,000 and $55,000, respectively. The future minimum commitments under capital and operating leases are as follows:
CAPITAL OPERATING LEASES LEASES ------- --------- (IN THOUSANDS) 1996.......................................................... $96 $114 1997.......................................................... 92 110 1998.......................................................... 63 108 1999.......................................................... 19 106 2000.......................................................... -- 73 Thereafter.................................................... -- 229 ---- ---- Total minimum lease payments.................................. 270 $740 ==== Less: amounts representing interest........................... 44 ---- $226 ====
Rental expense for the years ended October 31, 1994 and 1995 was $74,000 and $94,000, respectively. NOTE 3. LINE OF CREDIT. GCA maintains approximately $1,500,000 revolving line of credit agreement. Advances under the line of credit bear interest at 2% above the bank's prime rate (8.75% at October 31, 1995) and are secured by all UK accounts receivable. As of October 31, 1995 the outstanding balance was $232,000. NOTE 4. LONG-TERM DEBT. In March 1994, GCA entered into a Small Firm Guaranteed Loan ("SFG Loan"). The loan is repayable in 60 equal monthly installments and is guaranteed by substantially all the assets of GCA, totaling $2,266,000 at April 31, 1996. Interest payable on the loan is prime plus 2%. The balance outstanding as of October 31, 1994 and 1995 was $345,000 and $262,000, respectively. Future principal payments on long-term debt, consisting primarily of the SFG Loan are as follows:
(IN THOUSANDS) 1996............................................................. $ 82 1997............................................................. 82 1998............................................................. 76 1999............................................................. 32 ---- $272 ====
F-24 GCA FIBREOPTICS LTD. AND FIBEROPTICS ALIGNMENT SOLUTIONS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) NOTE 5. INCOME TAXES The provision for income taxes consists of the following:
YEAR ENDED OCTOBER 31, ----------------- 1994 1995 ------- ------- (IN THOUSANDS) Federal: Current..................................................... $ -- $ 9 State: Current..................................................... -- 4 Foreign: Current..................................................... 66 76 Deferred.................................................... (31) (4) ------- ------- Income tax expense $ 35 $ 85 ======= =======
A reconciliation of the income tax expense at the federal statutory rate to the income tax expense at the effective tax rate is as follows:
YEAR ENDED OCTOBER 31, ---------------- 1994 1995 ------- ------- (IN THOUSANDS) Income taxes computed at federal statutory rate................ $ 59 $ 112 Foreign income taxes at a rate less than the federal rate...... (26) (18) Other.......................................................... 2 (9) ------ ------- Total.......................................................... $ 35 $ 85 ====== =======
The components of deferred taxes consist of the following:
YEAR ENDED OCTOBER 31, ---------------- 1994 1995 ------- ------- (IN THOUSANDS) Deferred tax assets: Inventory reserve............................................ $ 17 $ 28 Depreciation................................................. 11 4 Accrued rent................................................. 17 17 ------- ------- Total deferred tax assets..................................... $ 45 $ 49 ======= =======
The Company believes that deferred tax assets are more likely than not to be realized from the Company's ongoing operations. F-25 GCA FIBREOPTICS LTD. AND FIBEROPTICS ALIGNMENT SOLUTIONS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) NOTE 6. GEOGRAPHICAL AND INDUSTRY SEGMENT INFORMATION The Company operates in two geographical regions: the United States and Europe. The Company operates in a single industry segment, the design, manufacture and sale of fiberoptic components. The following table shows sales, operating income, and identifiable assets.
YEARS ENDED OCTOBER 31, ---------------- 1994 1995 ------- ------- (IN THOUSANDS) Net Sales: United States--domestic...................................... $ -- $ 710 United States--exports....................................... -- 277 Europe....................................................... 3,468 4,922 Eliminations................................................. -- (219) ------- ------- Total net sales............................................. $ 3,468 $ 5,690 ======= ======= Operating Income (loss): United States................................................ $ (5) $ 64 Europe....................................................... 205 333 Eliminations................................................. -- -- ------- ------- Total operating income...................................... $ 200 $ 397 ======= ======= Identifiable Assets: United States................................................ $ 71 $ 313 Europe....................................................... 1,950 2,266 ------- ------- Total assets................................................ $ 2,021 $ 2,579 ======= =======
Intercompany transfers represent products that are transferred between geographic areas on a basis intended to reflect as nearly as possible the market value of the products. Identifiable assets are those assets of the Company that are identified with the operations of the corresponding geographic area. One customer accounted for 11% of combined net sales in the year ended October 31, 1995. No customers accounted for more than 10% of combined net sales in the year ended October 31, 1994. NOTE 7. SUPPLEMENTAL CASH FLOW INFORMATION
YEAR ENDED JUNE 30, ----------- 1994 1995 ----- ----- Interest paid during the year...................................... $ 43 $ 84 Non-cash transactions Assets acquired through capital leases............................ $ 27 $ 225 Stocks issued in exchange for assets contributed.................. $ -- $ 50
NOTE 8. STOCK OPTION AGREEMENT As of October 31, 1994, Company has reserved 50,000 shares of common stock for future issuance to a minority shareholder. As of October 31, 1994 10,000 options were granted at an exercise price of $3.60. No options had been exercised and the outstanding options expired in March 1995. F-26 GCA FIBREOPTICS LTD. AND FIBEROPTICS ALIGNMENT SOLUTIONS, INC. CONDENSED COMBINED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
APRIL 30, 1996 --------- ASSETS Current assets: Cash and cash equivalents.......................................... $ 28 Accounts receivable, less allowance for doubtful accounts of $26 at April 30, 1996.................................................... 779 Inventories........................................................ 1,064 Other current assets............................................... 123 ------ Total current assets............................................. 1,994 Property, plant and equipment, net................................... 886 Other assets......................................................... 3 ------ Total assets..................................................... $2,883 ====== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable to bank.............................................. $ 451 Accounts payable................................................... 973 Income taxes payable............................................... 109 Other accrued expenses............................................. 246 Current portion of long-term debt and lease obligations............ 82 Current portion of lease obligations............................... 79 ------ Total current liabilities........................................ 1,940 Long-term debt, less current portion................................. 159 Capital lease obligations, less current portion...................... 96 Shareholders' equity: Common stock....................................................... 3 Additional paid-in capital......................................... 304 Notes receivable from shareholders................................. (1) Retained earnings.................................................. 382 ------ Total shareholders' equity....................................... 688 ------ Total liabilities and shareholders' equity....................... $2,883 ======
See accompanying notes to condensed combined financial statements. F-27 GCA FIBREOPTICS LTD. AND FIBEROPTICS ALIGNMENT SOLUTIONS, INC. CONDENSED COMBINED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS)
SIX MONTHS ENDED APRIL 30, ------------------ 1995 1996 -------- -------- Net sales.................................................. $3,078 $ 2,909 Cost of sales.............................................. 1,790 2,048 -------- -------- Gross profit............................................. 1,288 861 Operating expenses: Research and development................................. 84 80 Selling, general, and administrative..................... 859 753 -------- -------- Total operating expenses............................... 943 833 -------- -------- Income from operations..................................... 345 28 Interest expense........................................... (44) (42) -------- -------- Net income (loss) before income taxes...................... 301 (14) Income tax expense....................................... 70 28 -------- -------- Net income (loss).......................................... $ 231 $ (42) ======== ========
See accompanying notes to condensed combined financial statements. F-28 GCA FIBREOPTICS LTD. AND FIBEROPTICS ALIGNMENT SOLUTIONS, INC. CONDENSED COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
SIX MONTHS ENDED APRIL 30, ------------------ 1995 1996 -------- -------- OPERATING ACTIVITIES Net income............................................... 231 (42) Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization.......................... 146 162 Change in deferred taxes, net.......................... 3 7 Change in operating assets and liabilities: Accounts receivable.................................... (403) (103) Inventories............................................ (112) (249) Other current assets................................... (113) (2) Accounts payable, income taxes payable and other accrued expenses...................................... 314 232 -------- -------- Net cash provided by operating activities............ 66 5 INVESTING ACTIVITIES Purchase of property, plant and equipment................ (495) (106) -------- -------- Net cash used in investing activities................ (495) (106) FINANCING ACTIVITIES Net borrowings under line of credit agreement............ 404 219 Payments on long-term debt............................... (31) (31) Principal payments on capital lease obligations.......... (3) (51) -------- -------- Net cash provided by financing activities............ 370 137 Effect of exchange rates on cash........................... 4 (23) -------- -------- Increase (decrease) in cash and cash equivalents........... (55) 13 Cash and cash equivalents at beginning of period........... 81 15 -------- -------- Cash and cash equivalents at end of period................. 26 28 ======== ======== Supplemental disclosures of noncash activities Assets acquired through capital leases................... 80 -- Stock issued in exchange for assets contributed.......... 50 --
See accompanying notes to condensed combined financial statements. F-29 GCA FIBREOPTICS LTD. AND FIBEROPTICS ALIGNMENT SOLUTIONS, INC. NOTES TO INTERIM CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) FOR THE SIX MONTHS ENDED APRIL 30, 1996 AND 1995 NOTE 1. BASIS OF PRESENTATION. The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with rules 10-01 of Regulation S-X. Accordingly, they do not include all of the footnote information required by generally accepted accounting principles for annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of financial condition and results of operations have been included. Detailed footnote information for the periods are not presented. The results of operations for the six months ended April 30, 1996 are not necessarily indicative of the results of operations to be expected for the full year ending July 31, 1996. Prior to the Company's acquisition of GCA and FAS, the same individual had been the majority shareholder of both GCA and FAS. Therefore, the presentation of the combined financial statements is in a similar manner to the pooling-of- interests method of accounting. Accordingly the financial statements of FAS as of January 31, 1996 and the six month periods then ended, have been combined with the financial statements of GCA as of April 30, 1996 and the six month periods then ended. All intercompany transactions have been eliminated from the combined financial statements. NOTE 2. INVENTORIES. Inventory consists of the following:
APRIL 30, 1996 -------------- (IN THOUSANDS) Finished goods............................................. $ 71 Work in process............................................ 36 Raw materials and purchased parts.......................... 957 ------ $1,064 ======
NOTE 3. LINE OF CREDIT. In November 1995, FAS agreed to a $150,000 revolving line of credit agreement. Advances under the line of credit bear interest at 2% above the bank's prime rate (10.25% at April 30, 1996) and are secured by all receivables, inventory, property, plant and equipment, and any cash and non- cash proceeds of any of the foregoing items. Under the terms of the agreement, the Company is required to maintain certain debt to tangible net worth ratios and net cash flow related to the long-term debt. The agreement has been guaranteed by two significant shareholders of the Company. As of April 30, 1996 the outstanding balance was $140,000. F-30 ================================================================================ No dealer, sales representative, or any other person has been authorized to give any information or to make any representations in connection with this offering 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 by the Company or the Underwriters. This Prospectus does not constitute an offer to sell or a solicitation of any offer to buy any securities other than the shares of Common Stock to which it relates or an offer to, or a solicitation of, any person in any jurisdiction where such an offer or solicitation would be unlawful. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances create an implication that there has been no change in the affairs of the Company or that information contained herein is correct as of any time subsequent to the date hereof. ------------------- TABLE OF CONTENTS -------------------
Page ---- Available Information..................................................... 2 Incorporation of Certain Documents by Reference........................... 2 Prospectus Summary........................................................ 3 Risk Factors.............................................................. 5 Recent Developments....................................................... 13 Use of Proceeds........................................................... 13 Price Range of Common Stock............................................... 14 Dividend Policy........................................................... 14 Capitalization............................................................ 15 Selected Consolidated Financial Data...................................... 16 Unaudited Combined Pro Forma Financial Information.................................................... 17 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 20 Business.................................................................. 28 Management................................................................ 42 Principal Stockholders.................................................... 44 Underwriting.............................................................. 45 Legal Matters............................................................. 46 Experts................................................................... 46 Index to Financial Statements............................................. F-1
=============================================================================== =============================================================================== 2,000,000 SHARES [UNIPHASE LOGO] COMMON STOCK ---------------- PROSPECTUS ---------------- MONTGOMERY SECURITIES ALEX. BROWN & SONS INCORPORATED UNTERBERG HARRIS JOSEPHTHAL LYON & ROSS INCORPORATED June , 1996 ================================================================================ PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by the Company in connection with the sale of Common Stock being registered. All amounts are estimates except the SEC registration fee, NASD filing fee and Nasdaq listing fee.
AMOUNT TO BE PAID ----------------- SEC registration fee.................................... $ 24,884 NASD filing fee......................................... 7,716 Nasdaq listing fee...................................... 17,500 Printing expenses....................................... 100,000 Legal fees and expenses................................. 100,000 Accounting fees and expenses............................ 180,000 Blue Sky fees and expenses.............................. 10,000 Transfer agent fees..................................... 10,000 Miscellaneous expenses.................................. 99,900 -------- Total................................................. $550,000 ========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS The indemnification and liability of the Company's directors and officers are governed by Delaware law. Under Section 145 of the General Corporation Law of the State of Delaware, the Registrant has broad powers to indemnify its directors and officers against liabilities that may incur in such capacities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). The Registrant's Bylaws also provide for mandatory indemnification of its directors and executive officers, and permissive indemnification of its employees and agents, to the fullest extent permissible under Delaware law. The Registrant's Certificate of Incorporation provides that the liability of its directors for monetary damages shall be eliminated to the fullest extent permissible under Delaware law. Pursuant to Delaware law, this includes elimination of liability for monetary damages for breach of the directors' fiduciary duty of care to the Registrant and its stockholders. These provisions do not eliminate the directors' duty of care and, in appropriate circumstances, equitable remedies such as injunctive or other forms of non- monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director's duty of loyalty to the Registrant, for acts of omissions not in good faith or involving intentional misconduct, for knowing violations of law, for any transaction from which the director derived an improper personal benefit, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a director's responsibilities under any other laws, such as the federal securities laws or state or federal environmental laws. The Registrant has entered into agreements with its directors and certain of its executive officers that require the Registrant to indemnify such persons against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred (including expenses of a derivative action) in connection with any proceeding, whether actual or threatened, to which any such person may be made a party by reason of the fact that such person is or was a director or officer of the Registrant or any of its affiliated enterprises, provided such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Registrant and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. The indemnification agreement also sets forth certain procedures that will apply in the event of a claim for indemnification thereunder. II-1 The Registrant has obtained a policy of directors' and officers' liability insurance that insures the Company's directors and officers against the cost of defense, settlement or payment of a judgment under certain circumstances. The Underwriting Agreement provides for cross-indemnification of the Underwriters and the Registrant and its officers and directors for certain liabilities arising under the Securities Act or otherwise. ITEM 16. EXHIBITS (a) Exhibits
NO. DESCRIPTION --- ----------- 1.1+ Form of Underwriting Agreement 2.1+ Purchase and Sale Agreement between Registrant and Tasman-Sterling Associates, a California general partnership, dated January 30, 1996 (incorporated by reference to the indicated exhibit to the Company's Current Report on Form 8-K filed February 22, 1996) 2.2 Form of Stock Purchase Agreement between Registrant, Fiberoptic Alignment Solutions, Inc., an Illinois corporation ("FAS"), Uniphase Telecommunications Products, Inc., a Delaware corporation, and the shareholders of FAS named therein, and Amendment No. 1 thereto dated as of May 31, 1996 2.3++ Form of Agreement between Registrant and GCA Fibreoptics Limited for the Sale and Purchase of the Entire Issued Share Capital of GCA Fibreoptics Limited 5.1+ Opinion of Morrison & Foerster LLP 23.1 Consent of Ernst & Young LLP, Independent Auditors 23.2+ Consent of Counsel (included in Exhibit 5.1) 24.1+ Power of Attorney (see page II-3) 27 Financial Data Schedule
- ------- + Previously filed. ++Filed pursuant to Rule 202 of Regulation S-T of the Securities and Exchange Act of 1934, as amended. ITEM 17. UNDERTAKINGS 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, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether 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, 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 that time shall be deemed to be the initial bona fide offering thereof. (3) For the purpose of determining liability under the Securities Act, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-2 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAN JOSE, STATE OF CALIFORNIA, ON THE 6TH DAY OF JUNE, 1996. Uniphase Corporation /s/ Kevin N. Kalkhoven By: _________________________________ KEVIN N. KALKHOVEN PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD OF DIRECTORS PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE /s/ Kevin Kalkhoven President, Chief June 6, 1996 - ------------------------------------- Executive Officer KEVIN N. KALKHOVEN and Chairman of the Board of Directors (Principal Executive Officer) /s/ Dan E. Pettit* Vice President, June 6, 1996 - ------------------------------------- Finance, Chief DAN E. PETTIT Financial Officer and Secretary (Principal Financial and Accounting Officer) - ------------------------------------- Director WILLIAM B. BRIDGES, PH.D. /s/ Robert C. Fink* Director June 6, 1996 - ------------------------------------- ROBERT C. FINK /s/ Catherine P. Goodrich* Director June 6, 1996 - ------------------------------------- CATHERINE P. GOODRICH /s/ Stephen C. Johnson* Director June 6, 1996 - ------------------------------------- STEPHEN C. JOHNSON /s/ Anthony R. Muller* Director June 6, 1996 - ------------------------------------- ANTHONY R. MULLER Director - ------------------------------------- WILSON SIBBETT, PH.D. *By: /s/ Kevin N. Kalkhoven - ---------------------------------- KEVIN N. KALKHOVEN Attorney-in-fact
II-3 INDEX TO EXHIBITS
SEQUENTIALLY EXHIBIT NUMBERED NUMBER EXHIBITS PAGE ------- -------- ------------ 1.1+ Form of Underwriting Agreement 2.1+ Purchase and Sale Agreement between Registrant and Tasman-Sterling Associates, a California general partnership, dated January 30, 1996 (incorporated by reference to the indicated exhibit to the Company's Current Report on Form 8-K filed February 22, 1996) 2.2 Form of Stock Purchase Agreement between Registrant, Fiberoptic Alignment Solutions, Inc., an Illinois corporation ("FAS"), Uniphase Telecommunications Products, Inc., a Delaware corporation, and the shareholders of FAS named therein, and Amendment No. 1 thereto dated as of May 31, 1996 2.3++ Form of Agreement between Registrant and GCA Fibreoptics Limited for the Sale and Purchase of the entire issued share capital of GCA Fibreoptics Limited as of May 24, 1996 5.1+ Opinion of Morrison & Foerster LLP 23.1 Consent of Ernst & Young LLP, Independent Auditors 23.2+ Consent of Counsel (included in Exhibit 5.1) 24.1+ Power of Attorney (see page II-3) 27 Financial Data Schedule
- -------- + Previously filed. ++Filed pursuant to Rule 202 of Regulation S-T of the Securities and Exchange Act of 1934, as amended. EX-2.2 2 STOCK PURCHASE AGREEMENT EXHIBIT 2.2 STOCK PURCHASE AGREEMENT among UNIPHASE CORPORATION FIBEROPTIC ALIGNMENT SOLUTIONS, INC. and THE SHAREHOLDERS OF FIBEROPTIC ALIGNMENT SOLUTIONS, INC. Dated as of May 24, 1996 STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT (the "Agreement"), dated and effective as of May 24, 1996, by and among Fiberoptic Alignment Solutions, Inc., a corporation organized and existing under the laws of the State of Illinois ("FAS" or "Target Corporation"), Uniphase Telecommunications Products, Inc., a corporation organized and existing under the laws of the State of Delaware ("UTP" or "Acquiring Corporation"), and each and every shareholder of FAS identified on the signature pages hereto (individually, a "Shareholder", collectively, the "Shareholders"). Certain capitalized terms in this Agreement are defined in Section 10.12. RECITALS -------- A. The Shareholders are the record owners of all of the 1,000 outstanding shares at no par value of the common stock of the Target Corporation (the "Shares"). The Acquiring Corporation wishes to purchase all of the outstanding Shares of the Target Corporation from the Shareholders upon the terms herein provided. B. To induce Acquiring Corporation to enter into this transaction, the Shareholders are willing to make the representations and warranties set forth herein. NOW THEREFORE, in consideration of the foregoing and the mutual promises contained herein, the parties agree as follows: AGREEMENT --------- ARTICLE 1 PURCHASE AND SALE OF SHARES 1.1 Purchase and Sale. Subject to the terms and conditions set forth in this Agreement, and in accordance with the Business Corporation Act of 1983 of the State of Illinois (the "IBCA"), at the Closing (as defined below), each Shareholder agrees to sell and transfer to the Acquiring Corporation, and the Acquiring Corporation agrees to purchase from each Shareholder, all of the Shares owned by such Shareholder. The obligations of each of the Shareholders to sell the Shares held by him shall be several and not joint. 1.2 Purchase Price. In consideration of the sale of the Shares by the Shareholders, and in consideration of the representations, warranties and covenants of the Target Corporation and the Shareholders, the Acquiring Corporation agrees to pay to the Shareholders the amount of $6,197.03 per Share (except as provided in Exhibit B attached hereto) for an aggregate consideration of $6,197,030 (the "Purchase Price"). The Purchase Price shall be paid by Uniphase to the Shareholders at the Closing by way of a certified or bank cashier's check or wire transfer ("Same Day Funds") or pursuant to an unsecured promissory note delivered to the Shareholders at Closing in substantially the form attached hereto as Exhibit A-1 and, in the case of the promissory note deliverable to J. Timothy Greaves, Exhibit A-2 (the "Note(s)"). The allocation of the Purchase Price between cash and Notes to each Shareholder is set forth in Exhibit B attached hereto. 1.3 The Closing. Within three business days after the execution of this Agreement (or such later date as the parties may agree), a closing (the "Closing") will be held at the offices of Morrison & Foerster, 755 Page Mill Road, Palo Alto, California 94306 (or such other place as the parties may agree) for the purpose of confirming satisfaction or waiver of all conditions contained herein as of the Closing Date (as defined below) and for the purpose of delivering the Shares and payment of the Purchase Price. Subject to the satisfaction or waiver of each of the conditions specified in Articles 7 and 8 hereof as of the Closing Date, the following shall occur: (a) Each Shareholder shall deliver or cause to deliver to the Acquiring Corporation certificates representing all of the Shares owned by such Shareholder duly endorsed in favor of Uniphase. (b) The Acquiring Corporation shall pay the Purchase Price by delivery of Same Day Funds or Notes to the Shareholders in accordance with Exhibit B attached hereto. The date on which the Closing occurs is referred herein as the "Closing Date". 1.4 Guarantee of Existing Loans of Target Corporation. Uniphase shall use its reasonable commercial best efforts to cause those Shareholders and their respective spouses who have guaranteed those certain loans of Target Corporation in the approximate aggregate principal amount of $175,000 (the "Guaranteed Loans") with First National Bank of Chicago ("First National Bank") to be released from such guarantees within thirty (30) days following the Closing Date. Uniphase agrees to defend, indemnify and hold harmless each of such Shareholders and their spouses from any liability or expenses paid or incurred by such persons after the Closing Date pursuant to such guarantees. 2 ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF TARGET CORPORATION AND SHAREHOLDERS Target Corporation and the Shareholders hereby jointly and severally represent and warrant to Acquiring Corporation as follows: 2.1 Corporate Organization; Etc. (a) Target Corporation is a corporation duly organized, validly existing and in good standing under the law of Illinois; has full power and authority (corporate and otherwise) to carry on its business as it is now being conducted and to own, lease or operate its properties and assets; and is duly qualified or licensed to do business as a foreign corporation in good standing in every jurisdiction in which the character or location of the properties and assets owned, leased or operated by it or the conduct of its business requires such licensing or qualification, except in those jurisdictions where the failure to be so duly qualified or licensed in good standing will not have a material adverse effect on the business, operation, properties, assets or condition (financial or otherwise) of the Target Corporation (the "Business"). A schedule initialed and delivered by Target Corporation to Acquiring Corporation prior to the execution and delivery of this Agreement (the "Disclosure Schedule") lists all such jurisdictions in which Target Corporation is qualified or licensed to do business. (b) Target Corporation has delivered to Acquiring Corporation complete and correct copies of (i) its Articles of Incorporation, as amended to date, certified by the appropriate official of the Target Corporation's jurisdiction of incorporation; and (ii) its Bylaws, as amended to date, certified by the Secretary of the Target Corporation. The Target Corporation's Certificate of Incorporation and Bylaws are in full force and effect, and the Target Corporation is in full compliance with the provisions thereof. 2.2 Capitalization. As of the date of this Agreement, the authorized capital stock of Target Corporation consists of 10,000 shares of FAS Stock, no par value per share. At the date hereof, 1,000 shares of FAS Stock were issued and outstanding. All issued and outstanding shares of FAS Stock are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights. Except as set forth above, as of the date of this Agreement, there are no shares of capital stock or other securities of Target Corporation outstanding; there are no outstanding options, warrants, conversion or exchange privileges or other rights to purchase or obtain any capital stock of Target Corporation and there are no contracts, commitments, understandings, arrangements or restrictions relating to the issuance, sale, transfer or purchase by Target Corporation of any shares of its capital stock. 2.3 Subsidiaries. At the date hereof, Target Corporation does not have any Subsidiaries (as defined below) and does not own any equity interest (or have the right to acquire any equity interest) in any other corporation, partnership, joint venture or other business entity. 2.4 Authorization. Target Corporation has full corporate power and authority to enter into this Agreement and to carry out the transactions contemplated hereby. The Board of Directors of Target Corporation has taken all action required by law, its Articles of Incorporation, its Bylaws or otherwise to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby. This Agreement has been duly and validly authorized, executed and delivered and no other corporate action is necessary except Target Corporation shareholders' approval of the Exchange. Subject to obtaining the necessary approval by shareholders of Target Corporation, this Agreement is a valid and binding obligation of Target Corporation enforceable in accordance with its terms. 3 2.5 No Violation. Except as set forth in the Disclosure Schedule, neither the execution and delivery of this Agreement nor its performance and the consummation of the transactions contemplated hereby will (a) violate any provision of the Articles of Incorporation or Bylaws of Target Corporation, (b) violate, or be in conflict with, or constitute a default (or an event which, with or without due notice or lapse of time, or both, would constitute a default) under, or result in the modification or termination of, or cause or permit the acceleration of the maturity of any debt, obligation, contract, commitment or other agreement to which Target Corporation is a party or by which it or its property may be bound, (c) result in the creation or imposition of any mortgage, pledge, lien, security interest, encumbrance, restriction, charge or limitation of any kind, upon any property or assets of Target Corporation, or (d) violate any statute or law or any judgment, decree, order, regulation or rule of any court or governmental authority. 2.6 Consents and Approvals of Government Authorities. Except as set forth in the Disclosure Schedule and for filing and recordation of the Articles of Exchange as required by the laws of the States of Illinois, no consent, approval or authorization of, or declaration, filing or registration with, any governmental or regulatory authority is required in connection with the execution, delivery and performance of this Agreement by Target Corporation and the consummation of the transactions contemplated thereby. 2.7 Financial Statements. Target Corporation has furnished to Acquiring Corporation an unaudited, internal balance sheet of Target Corporation as of July 31, 1995 and a statement of income for the year then ended. Target Corporation also has furnished to Acquiring Corporation the unaudited, internal balance sheet of Target Corporation as of April 30, 1996 and a statement of income for the nine (9) month period then ended. All of such financial statements are in accordance with the books and records of Target Corporation. The above balance sheets and the notes thereto are complete and correct and fully and fairly present the assets, Liabilities and financial condition of Target Corporation as at the respective dates thereof, and the statements of income are complete and correct and fully and fairly present the results of the operations for the periods therein referred to. 2.8 No Undisclosed Liabilities; Etc. Target Corporation has no Liabilities of the type required to be reflected or disclosed in a balance sheet (or the notes thereto) prepared in accordance with generally accepted accounting principles except (a) Liabilities that are fully reflected or reserved against in the April 30, 1996 balance sheet (the "Balance Sheet"), which reserves are adequate, appropriate and reasonable, (b) Liabilities incurred in the ordinary course of business and consistent with past practice since the date of the Balance Sheet and (c) as set forth in the Disclosure Schedule. 2.9 Absence of Certain Changes. Except as and to the extent set forth in the Disclosure Schedule, since the date of the Balance Sheet, Target Corporation has not: 4 (a) Suffered any material adverse change in its condition (financial or otherwise), working capital, assets, Liabilities, reserves, business, operations or prospects; (b) Suffered any loss, damage, destruction or other casualty materially and adversely affecting any of the properties, assets or business of Target Corporation (whether or not covered by insurance); (c) Borrowed or agreed to borrow any funds or incurred, or assumed or became subject to, whether directly or by way of guarantee or otherwise, any Liability except those incurred in the ordinary course of business and consistent with past practice; (d) Paid, discharged or satisfied any claims or Liabilities other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of Liabilities reflected or reserved against in the Balance Sheet or incurred in the ordinary course of business and consistent with past practice since the date of the Balance Sheet; (e) Permitted or allowed any of its property or assets (real, personal or mixed, tangible or intangible) to be subjected to any mortgage, pledge, lien, security interest, encumbrance, restriction or charge of any kind, except those of a kind permitted under Section 2.10 hereof; (f) Written down the value of any inventory or written off as uncollectible any notes or accounts receivable, except for write-downs and write-offs in the ordinary course of business and consistent with past practice, none of which is material; (g) Cancelled any debts or waived any claims or rights of substantial value, or sold, transferred, or otherwise disposed of any of its properties or assets (real, personal or mixed, tangible or intangible), except in the ordinary course of business and consistent with past practice; (h) Licensed, disposed of or permitted to lapse any rights to the use of any patent, trademark, trade name, technology, process, or other intangible asset, copyright, or disposed of or disclosed to any Person any trade secret, formula, technology, process or know-how not theretofore a matter of public knowledge; (i) Granted any general increase in the compensation of officers or employees (including any such increase pursuant to any bonus, pension, profit- sharing or other plan or commitment) or any increase in the compensation payable or to become payable to any officer or employee, except for normal periodic increases made pursuant to Target Corporation's established compensation policies applied on a basis consistent with that of the prior two years, which policies are briefly summarized in the Disclosure Schedule; (j) Made any capital expenditure or commitment in excess of $25,000 individually or in excess of $50,000 in the aggregate for additions to property, plant or equipment; 5 (k) Declared, paid or set aside for payment any dividend or other distribution in respect of its capital stock or, directly or indirectly, redeemed, purchased or otherwise acquired any shares of its capital stock or other securities; (l) Made any change in any method of accounting or accounting practice; (m) Paid, loaned or advanced any amount to, or sold, transferred or leased any properties or assets (real, personal or mixed, tangible or intangible) to, or entered into any agreement or arrangement with any of its officers or directors or any Affiliate or Associate of any of its officers or directors, except for directors' fees, and compensation to officers at rates not exceeding the rates of compensation paid during the fiscal quarter ended March 31, 1996; (n) Entered into any other transaction, contract or commitment other than in the ordinary course of business; and (o) Agreed, whether in writing or otherwise, to take any action described in this Section 2.9. 2.10 Title to Properties; Encumbrances. Except as set forth in the Disclosure Schedule, Target Corporation has good and marketable title to or a valid leasehold interest in all its properties and assets (real, personal and mixed, tangible and intangible), including, without limitation, all the properties and assets reflected in the Balance Sheet (except for properties and assets sold since the date of the Balance Sheet in the ordinary course of business and consistent with past practice), and all the properties and assets purchased or otherwise acquired by Target Corporation since the date of the Balance Sheet. Except as set forth in the Disclosure Schedule, all such properties and assets reflected in the Balance Sheet have a fair market or net realizable value at least equal to the value thereof as reflected therein, and none of such properties or assets is subject to any mortgage, pledge, lien, security interest, encumbrance, restriction, variance, charge or limitation of any kind except the following: (a) liens shown on the Balance Sheet securing specified Liabilities or obligations with respect to which no default exists (or event that, whether with or without notice, lapse of time, or the happening or occurrence of any other event would constitute a default); (b) mechanics', carriers', worker's and other similar liens arising in the ordinary course of business and consistent with past practice since the date of the Balance Sheet; (c) exceptions disclosed in the Disclosure Schedule; (d) minor imperfections of title, if any, none of which is substantial in amount, materially detracts from the value or impairs the use of the property subject thereto, or impairs the operations of Target Corporation; (e) zoning laws that do not impair the present or anticipated use of the property subject thereto; and (f) liens for current taxes not yet due and payable for which adequate reserves have been provided. The properties and assets of the Target Corporation include all rights, properties and other assets necessary to permit Target Corporation to conduct its business in all material respects in the same manner as it is conducted on, and has been conducted prior to, the date of this agreement. 2.11 Plants and Equipment. Except as set forth in the Disclosure Schedule, the plants, structures and equipment of Target Corporation are structurally sound with no material defects and in good operating condition and repair and are adequate for the uses to which they are 6 being put; and none of such plants, structures or equipment is in need of maintenance or repairs except for ordinary, routine maintenance and repairs. All buildings, plants and structures owned by Target Corporation lie wholly within the boundaries of the real property owned by Target Corporation and do not encroach upon the property of, or otherwise conflict with the rights of, any other Person. 2.12 Leases. The Disclosure Schedule contains (a) an accurate and complete list of all leases pursuant to which Target Corporation leases real property, including for each lease a brief description of Target Corporation's financial obligations under such lease, its expiration date and renewal terms and (b) a complete list and description by generic category of all leases pursuant to which Target Corporation leases personal property. All such leases are valid, binding and enforceable in accordance with their terms, and are in full force and effect; except as set forth in such Disclosure Schedule, there are no existing defaults by Target Corporation or the other party thereunder; no event of default has occurred which (whether with or without notice, lapse of time or the happening or occurrence of any other event) would constitute a default thereunder; and all lessors under such leases have consented (where such consent is necessary) to the consummation of the transactions contemplated by this Agreement. 2.13 Patents, Trademarks, Trade Names. Target Corporation owns, or is licensed or otherwise has the full right to use, all patents, trademarks, trade names, copyrights, technology, know-how and processes used in or necessary for the conduct of its business as heretofore conducted. The Disclosure Schedule contains an accurate and complete description of (a) all patents, trademarks, trade names and copyrights used or proposed to be used by Target Corporation, all applications therefor, and the terms of all licenses and other agreements relating thereto, and (b) the terms of all agreements relating to technology, know-how or processes that Target Corporation is licensed or authorized to use by others. Except as set forth in the Disclosure Schedule, Target Corporation has the sole and exclusive right to use the licenses, patents, trademarks, trade names, copyrights, technology, know-how and processes referred to in the Disclosure Schedule, and the consummation of the transactions contemplated hereby will not alter or impair any such rights; no claims have been asserted by any Person to the use of any such licenses, patents, trademarks, trade names, copyrights, technology, know-how or processes or challenging or questioning the validity or effectiveness of any such license or agreement, and there is no valid basis for any such claim; and the use of such licenses, patents, trademarks, trade names, copyrights, technology, know-how or processes by Target Corporation does not infringe on the rights of any Person. 2.14 Litigation. Except as set forth in the Disclosure Schedule, there is no legal, administrative, arbitration or other proceeding, claim, or action of any nature or investigation pending or threatened against or involving Target Corporation, or which questions or challenges the validity of this Agreement or any action taken or to be taken by Target Corporation pursuant to this Agreement or in connection with the transactions contemplated hereby; and Target Corporation does not know or have any reason to know of any valid basis for any such legal, administrative, arbitration or other proceeding, claim, or action of any nature or investigation. Target Corporation is not subject to any judgment, order or decree entered in any lawsuit or proceeding which has had an adverse effect on its business practices or on its ability to acquire any property or conduct its business in any area. 7 2.15 Tax Returns. Target Corporation has duly filed all federal, state, local and foreign tax reports and returns required to be filed by it and, except as set forth in the Disclosure Schedule, has duly paid all taxes and other charges due or claimed to be due from it by federal, state, local or foreign taxing authorities; the reserves for taxes reflected in the Balance Sheet are adequate; and there are no tax liens upon any property or assets of Target Corporation. The consolidated federal income tax returns of Target Corporation and the federal income tax returns of each Subsidiary obligated to file a federal income tax return whose results of operations are not consolidated in the federal income tax returns of Target Corporation have been examined by the Internal Revenue Service for all periods to and including those expressly set forth in the Disclosure Schedule; and, except to the extent shown therein, all deficiencies asserted as a result of such examinations have been paid or finally settled and no issue has been raised by the Internal Revenue Service in any such examination which, by application of similar principles, reasonably could be expected to result in a proposed deficiency for any other period not so examined. Except as set forth in the Disclosure Schedule, the tax returns of each Subsidiary which is based or incorporated outside of the United States have been examined by the relevant national and local taxing authorities or closed without examination in the jurisdictions of their organization or principal place of business for all periods to and including those expressly set forth in the Disclosure Schedule and, except to the extent shown therein, all deficiencies and assessments resulting from such examinations of each Subsidiary have been paid or finally settled and no issue has been raised by any of the relevant taxing authorities in any such examination which, by application of similar principles, reasonably could be expected to result in a proposed deficiency for any other period not so examined. Further, no state of facts exists or has existed which would constitute grounds for the assessment of any further tax liability with respect to the periods which have not been audited by the Internal Revenue Service or the applicable state, local, or foreign tax authorities. All deficiencies and assessments resulting from examination of state, local and foreign tax returns and reports of Target Corporation and each Subsidiary have been paid. Except to the extent set forth in the Disclosure Schedule, there are no outstanding agreements or waivers extending the statutory period of limitation applicable to any federal, state, local, or foreign tax return or report for any period. Neither Target Corporation nor any Subsidiary is a "consenting corporation" within the meaning of Section 341(f)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), a "United States real property holding corporation" within the meaning of Section 897(c)(2) of the Code, or a "purchasing corporation," a "target" or a "target affiliate" within the meaning of Section 338 of the Code with respect to any transaction to which Section 338 applies (other than the transaction contemplated by this Agreement). 2.16 Insurance. Target Corporation has maintained and now maintains, with reputable and responsible insurance companies or associations, insurance in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general area in which Target operates. The Disclosure Schedule contains an accurate and complete description of all policies of fire, liability, worker's compensation and other forms of insurance owned or held by Target Corporation. All such policies are in full force and effect; are sufficient for compliance with all requirements of law and of all agreements to which Target Corporation is a party; are valid, outstanding and enforceable policies; provide adequate insurance coverage for the assets and operations of Target Corporation; will remain in full force and effect through the respective dates set forth in the 8 Disclosure Schedule; and will not in any way be affected by, or terminate or lapse by reason of, the transactions contemplated by this Agreement. 2.17 Benefit Plans. Neither Target Corporation nor any Subsidiary maintains or contributes to, or has maintained or contributed to any "employee pension benefit plan" as such term is defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Neither Target Corporation nor any Subsidiary maintains a welfare, pension or other employee benefit plan outside the United States. Except as set forth in the Disclosure Schedule, neither Target Corporation nor any Subsidiary maintains or contributes to any "employee welfare benefit plan" ("Target Corporation Welfare Plans"), as such term is defined in Section 3(1) of ERISA, whether insured or otherwise, and each such Target Corporation Welfare Plan is in material compliance with the provisions of ERISA. Except as set forth in the Disclosure Schedule, neither Target Corporation nor any Subsidiary maintains any bonus, incentive compensation, deferred compensation, stock option, stock purchase, severance or other fringe benefit plan, whether formal or informal. 2.18 Bank Accounts. The Disclosure Schedule sets forth the names and locations of all banks, trust companies, savings and loan associations and other financial institutions at which Target Corporation maintains accounts of any nature and the names of all persons authorized to draw thereon or make withdrawals therefrom. 2.19 Contracts and Commitments; No Default. (a) Except as set forth in the Disclosure Schedule: (i) Target Corporation has no employment agreement with any officer, employee or agent, nor any agreement that contains any severance or termination pay Liabilities or obligations; (ii) Target Corporation has no employee to whom it is paying aggregate direct remuneration at the annual rate of more than $60,000 for services rendered or commissions at a rate, which based on sales by such employee during the last fiscal year, would exceed $60,000; (iii) Target Corporation has no collective bargaining or union contracts or agreements; (iv) Target Corporation is not restricted by agreement from carrying on its business or any part thereof anywhere in the world or from competing in any line of business with any Person; (v) Target Corporation has no debt obligation for borrowed money, including guarantees of or agreements to acquire any such debt obligation of others; (vi) Target Corporation has no outstanding loan to any Person; 9 (vii) Target Corporation has no obligation or liability as guarantor, surety, co-signer, endorser, co-maker, indemnitor or otherwise in respect of the obligation of any other Person; (viii) Target Corporation is not subject to any obligation or requirement to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any Person; (ix) Target Corporation is not a party to any agreement, contract, commitment or loan to which any of its officers or directors or any Affiliate or Associate of Target Corporation or its officers and directors is a party; (x) There are no outstanding sales or purchase contracts, commitments or proposals of Target Corporation that will result in any loss exceeding $25,000 upon completion or performance thereof; (xi) Target Corporation is not a party to any purchase or sale contract or agreement that continues for a period of more than twelve months (including periods covered by any option to renew by either party); (xii) Target Corporation is not under any liability or obligation with respect to the return of inventory or merchandise in the possession of wholesalers, distributors, retailers or other customers; (xiii) Target Corporation has not given any irrevocable power of attorney to any person, firm, corporation or other entity for any purpose whatsoever, except the appointment of agents to accept service of process; and (b) Except for agreements, contracts, commitments or restrictions referred to in Subsections 2.19(a)(i)-(xiii) or elsewhere specifically disclosed pursuant to this Agreement, Target Corporation has no agreements, contracts, commitments or restrictions that are material to its business, operations or prospects (for the purpose of this subsection, any agreement, contract, commitment or restriction may be deemed "immaterial" if it may be cancelled in thirty (30) days' notice without premium, penalty or forfeiture and it calls for fixed and/or contingent payments thereunder of less than $10,000 per year). (c) True and complete copies of all documents (including all amendments thereto) referred to in Section 2.19(a) have either been delivered to Acquiring Corporation or shall be delivered upon request. All contracts, agreements, commitments or restrictions referred to in Section 2.19(a) are valid and enforceable in accordance with their respective terms, Target Corporation is not in default in the performance of any its obligations thereunder, no event of default has occurred which (whether with or without notice, lapse of time, or both, or the happening or the occurrence of any other event) would constitute a default thereunder and, to the best knowledge of Target Corporation, all other parties thereto are not in default thereunder. 10 2.20 Inventory. Except as set forth in the Disclosure Schedule, all inventory of Target Corporation, whether or not reflected in the Balance Sheet, consists of a quality and quantity usable and salable in the ordinary course of business, except for items of obsolete materials and materials of below standard quality, all of which have been written down in the Balance Sheet to net realizable market value or for which adequate reserves have been provided therein. The quantities of each type of inventory (whether raw materials, work- in-process, or finished goods) of Target Corporation are not excessive, but are reasonable in the present circumstances of its business. 2.21 Accounts Receivable. Except as set forth in the Disclosure Schedule, all accounts receivable of Target Corporation, whether or not reflected in the Balance Sheet, represent sales actually made in the ordinary course of business, and are current and collectible net of any reserves shown on the Balance Sheet (which reserves are adequate and were calculated consistent with past practice). 2.22 Labor Difficulties. Except to the extent set forth in the Disclosure Schedule, (a) Target Corporation is and has been in compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours, including, without limitation, any such laws respecting employment discrimination and occupational safety and health requirements, and, is not engaged in any unfair labor practice; (b) there is no unfair labor practice complaint against Target Corporation pending or threatened before the National Labor Relations Board; (c) there is no labor strike, dispute, slowdown or stoppage actually pending or threatened against or directly affecting Target Corporation; (d) no union representation question exists respecting the employees of Target Corporation; (e) no grievance that might have a material adverse effect on Target Corporation or the conduct of its business nor any arbitration proceeding arising out of or under collective bargaining agreements is pending and no claims therefor exist; (f) there is no organizational effort being made or threatened involving any employees of the Target Corporation; (g) no collective bargaining agreement that is binding on Target Corporation restricts it from relocating or closing any of its operations; and (h) Target Corporation has not experienced any material work stoppage or other material labor difficulty during the last twelve (12) months. 2.23 Permits and Other Operating Rights. Except as set forth in the Disclosure Schedule, Target Corporation does not require the consent of any third Person to permit it to operate its business in the manner in which it presently is being conducted, and possesses all permits and other authorizations from third Persons, including without limitation, federal, foreign, state and local governmental authorities, presently required by applicable provisions of law, including statutes, regulations and existing judicial decisions, and by the property and contract rights of third Persons, necessary to permit it to operate its business in the manner in which it presently is being conducted. 2.24 Compliance with Law. Target Corporation is in compliance in all material respects with all laws, regulations and orders applicable to its business, including, without limitation, applicable environmental, anti- pollution, building, zoning or health laws, ordinances 11 and regulations in respect of its plants, structures and equipment. Except as set forth in the Disclosure Schedule, Target Corporation has not received any notification that it is in violation of any such laws, regulations or orders and no such violation exists. Neither Target Corporation nor any employee or agent of Target Corporation has made any payments to any Persons that violate any statute or law or are required to be disclosed under applicable disclosure policies of the Commission. 2.25 Brokerage. Except as otherwise disclosed to UTP in writing, no broker, finder, agent or similar intermediary has acted on behalf of FAS or any of the Principal Shareholders in connection with this Agreement or the transactions contemplated hereby, and there are no brokerage commissions, finders' fees or similar fees or commissions payable in connection herewith based on any agreement, arrangement or understanding with FAS or any of the Principal Shareholders, or any action taken by any of them. 2.26 Hazardous Materials. (a) There are no Hazardous Materials (as hereinafter defined) generated, used, handled or stored by FAS the proper disposal of which will require any material expenditure by FAS. There has been no generation, use handling, storage or disposal of any Hazardous Materials in violation of common law or any applicable environmental law at any site owned or premises leased by FAS or during the period of FAS's ownership or lease. Nor has there been or is there threatened any release of any Hazardous Materials on or at any such site or premises during such period in violation of common law or any applicable environmental law or which created or will create an obligation to report or remediate such release. "Hazardous Materials" means any "hazardous waste" as defined in either the United States Resource Conservation and Recovery Act or regulations adopted pursuant to said Act, and any "hazardous substances" or "hazardous materials" as defined in the United States Comprehensive Environmental Response, Compensation and Liability Act. (b) There is no environmental of health and safety matter that could have a material adverse effect on the Business of FAS. FAS has previously furnished to UTP and copies of any environmental audits or risk assessments, site assessments, documentation regarding off-site disposal of Hazardous Materials, spill control plans and material correspondence with any governmental agency regarding the foregoing. 2.27 Net Operating Losses. There has been no change in ownership of FAS that would limit UTP's ability to utilize the net operating losses of FAS. 2.28 Disclosure. No representations or warranties by Target Corporation or the Principal Shareholders in this Agreement and no statement contained in any document (including, without limitation, financial statements and the Disclosure Schedule), certificate, or other writing furnished or to be furnished by Target Corporation to Acquiring Corporation pursuant to the provisions hereof or in connection with the transactions contemplated hereby, contain or will contain any untrue statement of material fact or omit or will omit to state any material fact necessary in order to make the statements herein or therein, in light of the circumstances under which they were made, not misleading. 12 2.29 Assets of Business. The assets owned or leased by Target Corporation constitute all of the assets held for use or used primarily in connection with the business of Target Corporation and are adequate to carry on such business as presently conducted. Except as set forth in the Disclosure Schedule, the Exchange will effectively convey the business of Target Corporation to Acquiring Corporation, including all tangible and intangible assets and goodwill relating to such business. REPRESENTATION AND WARRANTIES OF SHAREHOLDERS Each Shareholder severally and not jointly represents and warrants to Acquiring Corporation as follows: 3.1 Ownership of Shares. Except for the number of Shares set forth opposite such Shareholder's name in Exhibit B attached hereto, such Shareholder does not own any other securities and holds no option, warrant or other right to purchase or otherwise acquire any other equity securities of the Target Company and has, and shall transfer to Uniphase at the Closing, good and valid title to all of such Shares free and clear of any liens, pledges, security interests, adverse claims, equities, options, proxies, charges, encumbrances or restrictions. 3.2 Power and Authority; Binding Nature. Such Shareholder has full power and authority to enter into this Agreement and to perform his obligations hereunder or thereunder. This Agreement is valid and contains binding obligations of such Shareholder enforceable in accordance with the terms hereof and thereof. Such Shareholder agrees that Uniphase, and any other person or entity, may rely upon all acts and decisions of the Shareholders' Representative (as defined below) in connection with the Agreement, and any other agreement which is part of, or necessary to, the transactions contemplated thereby, without any further question or inquiry of the Shareholders' Representative or any other action of the part of the relying party. The authority of the Shareholders' Representative to act as set forth above shall be conclusively evidenced by the signature of the Shareholders' Representative on whatever agreement, instrument or other document the Shareholders' Representative executes. 3.3 Litigation. There is no action, suit, proceeding, dispute, litigation, claim, complaint or investigation by or before any court, tribunal, governmental body, governmental agency or arbitrator pending or, to the best knowledge of such Shareholder, threatened against such Shareholder which challenges or would challenge any of the actions required to be taken by the undersigned under the Agreement. 3.4 Non-Contravention. Neither the execution or delivery of this Agreement nor the performance hereof (i) will result in any violation or breach of any agreement or other instrument to which such shareholder is a party or by which such Shareholder or any of the Shares owned (beneficially or of record) by such Shareholder is bound, or (ii) will result in a violation of any law, rule, regulation, treaty, ruling, directive, order, arbitration award, judgment or decree to which such Shareholder or any of the Shares is subject. 3.5 Approvals. No authorization, consent or approval of, or registration or filing with, any governmental authority or any other person is required to be obtained or made by such Shareholder in connection with execution and delivery of this Agreement or the performance hereof. REPRESENTATIONS AND WARRANTIES OF ACQUIRING CORPORATION Acquiring Corporation represents and warrants to and covenants with Target Corporation as follows: 4.1 Corporate Organization; Etc. Acquiring Corporation is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. 4.2 Authorization; Etc. Acquiring Corporation has full corporate power and authority to enter into this Agreement and to carry out the transactions contemplated hereby. The Board of Directors of Acquiring Corporation has taken all action required by law, its respective Certificate of Incorporation and Bylaws or otherwise to authorize the execution and delivery of this Agreement and the transactions contemplated hereby, and this Agreement is a valid and binding obligation of Acquiring Corporation enforceable in accordance with its terms. 4.3 No Violation. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will violate any provisions of the Certificate of Incorporation or Bylaws of Acquiring Corporation, violate, or be in conflict with, or constitute a default under or cause the acceleration of the maturity of any debt or obligation pursuant to, any agreement or commitment to which Acquiring Corporation is a party or by which Acquiring Corporation is bound, or violate any statute or law or any judgment, decree, order, regulation, or rule of any court or governmental authority. 4.4 Consents and Approvals of Government Authorities. Except as set forth in the Disclosure Schedule, no consent, approval or authorization of, or declaration, filing or registration with, any governmental or regulatory authority is required in connection with the execution, delivery and performance of this Agreement by Acquiring Corporation and the consummation of the transactions contemplated hereby. ARTICLE 5 CONDUCT OF TARGET CORPORATION'S BUSINESS PENDING THE CLOSING DATE Pending the Closing Date, and except as otherwise consented to or approved by Acquiring Corporation in writing: 13 5.1 Regular Course of Business. Target Corporation will carry on its business diligently and substantially in the same manner as heretofore conducted, and Target Corporation shall not institute any new methods of manufacture, purchase, sale, lease, management, distribution, accounting or operation or engage in any transaction or activity, enter into any agreement or make any commitment except in the ordinary course of business and consistent with past practice. 5.2 Amendments. No change or amendment shall be made in the Articles of Incorporation or Bylaws of Target Corporation. 5.3 Capital Changes. Target Corporation shall not issue or sell, or issue options, warrants to purchase, conversion privileges or other rights to subscribe to or enter into any arrangement or contract with respect to, any shares of its capital stock or any of its other securities, or make any other changes in its capital structure. 5.4 Dividends. Target Corporation shall not declare, pay or set aside for payment any dividend or other distribution in respect of its capital stock, nor shall Target Corporation, directly or indirectly, redeem, purchase or otherwise acquire any shares of its capital stock. 5.5 Organization. Target Corporation shall use its best efforts to preserve its corporate existence and business organization intact, to keep available to Target Corporation its officers and key employees, and to preserve for Target Corporation its relationships with suppliers, dealers, licensors, licensees, franchisees, distributors, customers and others having business relations with it. 5.6 Certain Changes. Target Corporation will not, except as contemplated in the Disclosure Schedule: (a) Borrow or agree to borrow any funds or incur, or assume or become subject to, whether directly or by way of guarantee or otherwise, any obligation or liability except obligations and Liabilities incurred in the ordinary course of business and consistent with past practice; (b) Pay, discharge or satisfy any claim, liability or obligation other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of Liabilities or obligations reflected or reserved against in the Balance Sheet or incurred in the ordinary course of business and consistent with past practice since the date of the Balance Sheet; (c) Permit or allow any of its property or assets (real, personal or mixed, tangible or intangible) to be subjected to any mortgage, pledge, lien, security interest, encumbrance, restriction, charge or limitation of any kind, except for those of a kind permitted under Section 2.10 hereof; 14 (d) Write down the value of any inventory or write off as uncollectible any notes or accounts receivable, except for write-downs and write-offs in the ordinary course of business and consistent with past practice, none of which is material; (e) Cancel any debts or waive any claims or rights of substantial value or sell, transfer, or otherwise dispose of any of its properties or assets (real, personal or mixed, tangible or intangible), except in the ordinary course of business and consistent with past practice; (f) License or dispose of or permit to lapse any rights to the use of any patent, trademark, trade name, technology, process, copyright or other intangible asset of material value, or dispose of or disclose to any Person any trade secret, formula, process or know-how of material value not theretofore a matter of public knowledge; (g) Grant any general increase in the compensation of officers or employees (including any such increase pursuant to any bonus, pension, profit- sharing or other plan or commitment) or any increase in the compensation payable or to become payable to any officer or employee, except for increases in the ordinary course of business, provided that they are made in accordance with established compensation policies applied on a basis consistent with that of the previous two years; (h) Pay, loan or advance any amount to, or sell, transfer or lease any properties or assets (real, personal or mixed, tangible or intangible) to, or enter into any agreement or arrangement with, any of its officers or directors or any Affiliate or Associate of any of its officers or directors except for directors' fees and compensation to officers at rates not exceeding the rates of compensation set forth in the Disclosure Schedule; (i) Enter into any other transaction, other than in the ordinary course of business; or (j) Agree, whether in writing or otherwise, to do any of the foregoing. 5.7 Contracts. No contracts or commitments shall be entered into by or on behalf of Target Corporation, except contracts or commitments made in the ordinary course of business. 5.8 Insurance; Property. Target Corporation and all property, real, personal and mixed, owned or leased by Target Corporation, shall be insured in the manner contemplated by Section 2.16 hereof; and all such property shall be used, operated, maintained and repaired in a careful and reasonably efficient manner. 5.9 No Default; Amendment. Target Corporation shall not do any act or omit to do any act, or permit any act or omission to act, that will cause a material breach of any material contract or commitment of Target Corporation. The Target Corporation shall not amend any material contract. 15 5.10 Compliance with Laws. Target Corporation shall duly comply with all laws applicable to it and its properties, operations, business and employees. 5.11 Tax Returns; Consent. Target Corporation shall prepare and file all federal, state, local and foreign tax returns and amendments thereto required to be filed by it. Acquiring Corporation shall have a reasonable opportunity to review all income tax returns and amendments thereto. Target Corporation shall not and will cause each of its Subsidiaries not to consent to have the provisions of Section 341(f)(2) of the Code apply to such corporation. 5.12 No Acquisitions. Neither Target Corporation nor any Subsidiary will approve or undertake, either as the surviving, disappearing, acquiring or selling corporation, any other merger, consolidation, assets acquisition or disposition or tender offer or other takeover transaction or furnish or cause to be furnished any information concerning its business, properties or assets to any Person (other than to Acquiring Corporation or Disappearing Corporation) that is interested in any such transaction, or solicit or encourage any inquiries or proposals for the acquisition of all or any part of the capital stock, assets or business of Target Corporation or any Subsidiary thereof. ARTICLE 6 COVENANTS Target Corporation hereby covenants and agrees with Acquiring Corporation, and Acquiring Corporation hereby covenants and agrees with Target Corporation, that: 6.1 Full Access. Target Corporation shall afford to Acquiring Corporation, its counsel, accountants and other authorized representatives full access to Target Corporation's plants, properties, books and records in order that Acquiring Corporation may have full opportunity to make such investigations as they shall desire to make of the affairs of Target Corporation; provided, however, that any such investigation shall be conducted in such a manner as not to interfere unreasonably with the operation of the business of Target Corporation; and Target Corporation will cause its officers and accountants to furnish such additional financial and operating data and other information as Acquiring Corporation shall from time to time reasonably request, including access to the working papers of Target Corporation's independent certified public accountants, 6.2 Confidentiality. Acquiring Corporation will, and will cause its officers and authorized representatives to, hold in confidence, and not disclose to others for any reason whatsoever, all information received by them from Target Corporation in connection with the transactions contemplated hereby that Target Corporation identifies with reasonable specificity in writing as proprietary ("Proprietary Information"), except to the extent that such Proprietary Information was previously known to Acquiring Corporation or otherwise available from third Persons without restriction on its further use or disclosure or otherwise not legally protectible as proprietary information, or, as required by order of any court or for such of the Proprietary Information as is or becomes publicly known other than through actions of Acquiring Corporation or its officers or representatives; provided, that nothing herein contained shall be deemed to preclude Acquiring Corporation from (a) asserting that any documents or information (whether or 16 not embodied in a document) asserted by Target Corporation to be proprietary are not entitled to protection as such on the ground that such Proprietary Information was previously known to Acquiring Corporation or otherwise available from third Persons without restriction on its further use or disclosure or otherwise not legally protectible as proprietary information, and (b) thereafter freely using or disclosing such Proprietary Information unless a court of competent jurisdiction finally determines that this proviso does not apply to such Proprietary Information. 6.3 Supplements to Disclosure Schedule. From time to time prior to the Second Closing Date, Target Corporation will promptly supplement or amend the Disclosure Schedule with respect to any matter hereafter arising that, if existing or occurring at or prior to the date of this Agreement, would have been required to be set forth or described in the Disclosure Schedule or that is necessary to correct any information in the Disclosure Schedule or in any representation and warranty of Target Corporation that has been rendered inaccurate thereby. For purposes of determining the accuracy of the representations and warranties of Target Corporation contained in Article 2 in order to determine the fulfillment of the condition set forth in Section 7.1, the Disclosure Schedule delivered by Target Corporation shall be deemed to include only that information contained therein on the date of this Agreement and shall be deemed to exclude any information contained in any subsequent supplement or amendment thereto. 6.4 Expenses. Each of the Constituent Corporations shall bear its respective expenses incurred in connection with this Agreement and the transactions contemplated hereby, provided that any such expenses incurred by FAS or the Shareholders shall be borne and paid by the Shareholders. 17 6.5 Authorization from Others. Prior to the Closing Date, the parties shall use all reasonable efforts to obtain all authorizations, consents and permits required to permit the consummation of the transactions contemplated by this Agreement, including without limitation all consents required from third parties who have contractual relationships with FAS. 6.6 Consummation of Agreement. Each party shall use all reasonable efforts to perform and fulfill all conditions and obligations to be performed and fulfilled by it under this Agreement and to ensure that to the extent within its control or capable of influence by it, no breach of any of the respective representations, warranties and agreements hereunder occurs or exists on or prior to the Effective Date, all to the end that the transactions contemplated by this Agreement shall be fully carried out in a timely fashion. 6.7 Further Assurances. Each of the parties shall execute such documents, further instruments of transfer and assignment and other papers and take such further actions as may be reasonably required or desirable to carry out the provisions hereof and the transactions contemplated hereby. 6.8 No Solicitation. FAS and the Shareholders will not (i) solicit, initiate or encourage discussions with any person, other than UTP and Uniphase, relating to the possible acquisition of FAS or all or a material portion of the assets or capital stock of FAS or any merger or other business combination with FAS or (ii) except to the extent reasonably required by fiduciary obligations under applicable law as advised in writing by independent legal counsel, participate in any negotiations regarding, or furnish to any other person information with respect to, any effort or attempt by any other person to do or to seek any such transaction. FAS and the Shareholders agree to inform Uniphase in reasonable detail within one business day of their receipt of any offer, proposal or inquiry relating to any such transaction. 6.9 Covenants Not to Compete. Each of the Shareholders agrees to execute and deliver to Acquiring Corporation at the Closing Date a Non-Compete Agreement in substantially the form attached hereto as Exhibit C. ARTICLE 7 CONDITIONS TO ACQUIRING CORPORATION'S OBLIGATIONS The obligation of Acquiring Corporation to effect the transactions contemplated herein shall be subject to the satisfaction, on or before the Closing Date of each of the following conditions: 7.1 Representations and Warranties True. The representations and warranties of Target Corporation and the Shareholders contained herein, in the Disclosure Schedule, and in all certificates and other documents delivered by Target Corporation to Acquiring Corporation, pursuant hereto or in connection with the transactions contemplated hereby shall be in all material respects true and accurate as of the date when made and at and as of the Closing Date as though such representations and warranties were made at and as of such date, except for changes permitted or contemplated by the terms of this Agreement. 7.2 Performance. Target Corporation shall have performed and complied with all agreements, obligations and conditions required by this Agreement to be performed or complied with by it on or prior to the Closing Date. 7.3 Simultaneous Closing. The closing of the Acquiring Corporation's acquisition of GCA Fiberoptics, Ltd., a corporation organized under the laws of England. 7.4 Adverse Changes. No material adverse change shall have occurred in the financial condition, working capital, assets, Liabilities, reserves, business, operations or prospects of Target Corporation and its Subsidiaries taken as a whole, since the date of the Balance Sheet. 7.5 No Governmental Proceeding or Litigation. No suit, action, investigation, inquiry or other proceeding by any governmental body or other Person or entity or legal or administrative proceeding shall have been instituted or threatened that questions the validity or legality of the transactions contemplated hereby or that, if successfully asserted, would otherwise have a material adverse effect on the conduct of Target Corporation's business or on its properties. 7.6 Opinion of Target Corporation Counsel. Target Corporation shall have delivered to Acquiring Corporation an opinion of Timothy P. McHugh, Esq., counsel to Target Corporation, dated as of the Closing Date, substantially in the form attached hereto as Exhibit D. 7.7 Board of Directors Authorization. All action required to be taken by the Board of Directors of Target Corporation to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby shall have been duly and validly taken by the Board of Directors of Target Corporation. 7.8 Absence of Order. No restraining order or injunction of any court which prevents consummation of the Exchange shall be in effect. 7.9 Escrow Agreement. The Escrow Agreement, substantially in the form attached hereto as Exhibit C, shall have been executed and delivered by all parties thereto. 7.10 Certificates. Target Corporation will furnish Acquiring Corporation with such certificates of its officers and others to evidence compliance with the conditions set forth in this Article 6 as may be reasonably requested by Acquiring Corporation. 7.11 Consent and Agreement of Dukane Corporation. Target Corporation shall have the written agreement of Dukane Corporation ("Dukane"), in form approved by Acquiring Corporation, which approval shall not be unreasonably withheld, that serves to: (i) approve the sale of Shares hereunder as required by Section 6.2 of that certain Agreement, dated as of June 10, 1994 (the "Dukane Agreement"); and (ii) amend the Dukane Agreement as Acquiring Corporation shall reasonably determine to permit Acquiring Corporation and its parent corporation to operate and expand the Business after the Closing Date. 7.12 Resignation of Officers and Directors. Acquiring Corporation shall have obtained the resignations of each member of the Board of Directors of Target Corporation and those officers of Target Corporation as requested by Acquiring Corporation. 7.13 Amount of Bank Debt. The aggregate principal and interest owing to First National Bank pursuant to the Guaranteed Loans shall not exceed $175,000. ARTICLE 8 CONDITIONS TO TARGET CORPORATION'S OBLIGATIONS The obligation of Target Corporation to effect the transactions contemplated herein shall be subject to the satisfaction, on or before the Closing Date, of each of the following conditions: 8.1 Representations and Warranties True. The representations and warranties of Acquiring Corporation contained herein shall be in all material respects true and accurate as of the date when made and at and as of the Closing Date as though such representations and warranties were made at and as of such date. 8.2 Performance. Acquiring Corporation shall have performed and complied with all agreements, obligations and conditions required by this Agreement to be performed or complied with by them on or prior to the Closing Date. 18 8.3 No Governmental Proceeding or Litigation. No suit, action, investigation, inquiry or other proceeding by any governmental body or other Person or legal or administrative proceeding shall have been instituted or threatened that questions the validity or legality of the transactions contemplated hereby or that, if successfully asserted, would otherwise have a material adverse effect on the conduct of Target Corporation's Business. 8.4 Opinion of Counsel to Acquiring Corporation. Acquiring Corporation shall have delivered to Target Corporation an opinion of Messrs. Morrison & Foerster, counsel to Acquiring Corporation, dated as of the Closing Date substantially in the form attached hereto as Exhibit E. 8.5 Board of Directors Authorizations. All action required to be taken by the Board of Directors of Acquiring Corporation to authorize the execution, delivery and performance of this Agreement by Acquiring Corporation and the consummation of the transactions contemplated hereby shall have been duly and validly taken by the Board of Directors of Acquiring Corporation, respectively. 8.6 Certificates. Acquiring Corporation will furnish Target Corporation with such certificates of its officers and others to evidence compliance with the conditions set forth in this Article 8 as may be reasonably requested by Target Corporation. ARTICLE 9 INDEMNITY 9.1 Survival. Notwithstanding any right of any party to fully investigate the affairs of the other party and notwithstanding any knowledge of facts determined or determinable by such party pursuant to such investigation or right of investigation, each party has the right to rely fully upon the representations, warranties, covenants and agreements of each other party in this Agreement or in any certificate, financial statement or other document delivered by any party pursuant hereto. All such representations, warranties, covenants and agreements shall survive the execution and delivery hereof and the Closing hereunder, subject to the limitations set forth in Section 9.4. 9.2 Obligation of FAS and its Shareholders to Indemnify. (a) Subsequent to the Closing Date, the Shareholders shall 19 hold harmless Uniphase (and its directors, officers, employees, agents, affiliates and assigns) from and against all losses, liabilities, damages, deficiencies, costs or expenses, including interest and penalties imposed or assessed by any judicial or administrative body and reasonable attorneys' fees, whether or not arising out of third-party claims and including all amounts paid in investigations, defense or settlement of the foregoing pursuant to this Section 9 ("Losses") based upon, arising out of or otherwise in respect of any inaccuracy in, or breach of, any representation, warranty continued in Article 2 hereof or any covenant of FAS and the Shareholders contained herein or in any certificate delivered pursuant hereto. (b) Subsequent to the Closing Date, each Shareholder shall, severally and not jointly, indemnify and hold harmless Uniphase (and its directors, officers, employees, agents, affiliates and assigns) from and against all Losses based upon, arising out of or otherwise in respect of any inaccuracy in, or breach of, any representation, warranty of such Shareholder contained herein or in Article 3 hereof. 9.3 Obligation of Uniphase to Indemnify. Subsequent to the Closing Date, Uniphase agrees to indemnify and hold harmless the Shareholders (and their respective assigns) from and against any Losses based upon, arising out of or otherwise in respect of any inaccuracy in, or breach of, any representation, warranty or covenant of Uniphase contained herein or in any certificate delivered pursuant hereto. 9.4 Limitations on Indemnification. Notwithstanding the foregoing, the right to indemnification under this Article 9 shall be subject to the following terms: (a) No indemnification shall be payable pursuant to Section 9.2 or Section 9.3: (i) unless and until the amount of all claims for indemnification pursuant to the applicable Section exceeds $50,000 in the aggregate, whereupon indemnification pursuant to such Section shall be payable for all such claims without any deduction or (ii) as to any claim for indemnification that is in an amount less than $5,000 (provided that each such claim which is less than $5,000 shall count and be credited towards the $50,000 amount described in the preceding clause (i)). (b) No indemnification shall be payable pursuant to Section 9.2 or Section 9.3 at any time after August 31, 1998 (the "Expiration Date"), except with respect to claims made prior to the Expiration Date, but not resolved by the Expiration Date. Subject to the foregoing, the representations and warranties contained herein or in any certificate delivered pursuant hereto shall expire at the close of business on the Expiration Date. (c) Except for claims arising out of any inaccuracy in or breach of a representation or warranty of a Shareholder contained in Article 3 hereof, all indemnification claims under Section 9.2 shall be satisfied in full from amounts off-set against the Notes pursuant to Section 9.6 below, and no person shall have any further right to recovery from any Shareholder. Without limitation of the foregoing, the maximum liability of any Shareholder (other than as provided in Section 9.4(d) below) for any breach of a representation, warranty or covenant of FAS shall be limited to ten percent (10%) of that portion of the Purchase Price paid or otherwise delivered to such person pursuant to Section 1.2 hereof. (d) The limitations of Sections 9.3(a), (b) and (c) shall not apply in the case of a fraudulent or intentional misrepresentation or breach by any party, but no person shall be liable for any such misrepresentation or breach by any other person (except to the extent of such person's share of the funds held under the Escrow Agreement or amounts subject to off-set under the Notes if such misrepresentation or breach is by FAS). (e) In determining the amount of any indemnity, there shall be taken into account any tax benefit, insurance proceeds or other similar recovery or offset realized, directly or indirectly, by the party to be indemnified. 9.5 Notice and Defense of Claims. Promptly after receipt of notice of any claim, liability or expense for which a party seeks indemnification hereunder, such party shall given written notice thereof to the indemnifying party, but such notification shall not be a condition to indemnification hereunder except to the extent of actual prejudice to the indemnifying party. If such claim is by Uniphase for indemnification pursuant to Section 9.2(a) above, such notice shall be given by Uniphase to the Shareholders Representative (as defined below). If such claim is by Uniphase for indemnification pursuant to Section 9.2(b) above, such notice shall be given by Uniphase to the Shareholder against whom such claim is to be made. The notice shall state the information then available regarding the amount and nature of such claim, liability or expense and shall specify the provision or provisions of this Agreement under which the liability or obligation is asserted. If within thirty (30) days after receiving such notice the indemnifying party gives written notice to the indemnified party stating that it intends to defend against such claim, liability or expense at its own cost and expense, then defense of such matter, including selection of counsel (subject to the consent of the indemnified party which consent shall not be unreasonably withheld), shall be by the indemnifying party and the indemnified party shall make no payment on such claim, liability or expense as long as the indemnifying party is conducting a good faith and diligent defense. Notwithstanding the foregoing, the indemnified party shall at all times have the right to fully participate in such defense at its own expense directly or through counsel; provided, however, if the named parties to the action or proceeding include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate under applicable standards of professional conduct, the expense of separate counsel for the indemnified party shall be paid by the indemnifying party. If no such notice of intent to dispute and defend is given by the indemnifying party, or if such diligent good faith defense is not being or ceases to be conducted, the indemnified party shall, at the expense of the indemnifying party, undertake the defense of such claim, liability or expense with counsel selected by the indemnified party, and shall have the right to compromise or settle the same exercising reasonable business judgment. The indemnified party shall make available all information and assistance that the indemnifying party may reasonably request and shall cooperate with the indemnifying party in such defense. 9.6 Right of Off-Set. (a) In the event that Acquiring Corporation shall become entitled to indemnification for any Losses pursuant to Section 9.2(a) above prior to the Note Payment Date (as defined below), Acquiring Corporation shall have the right to receive payment and reimbursement from such Losses by way of an off-set against any then outstanding Notes on a pro rata basis against the Shareholders so that the contribution by each Shareholder to such indemnification shall be equal on a percentage basis to that percentages of the total outstanding Shares held by such Shareholder immediately prior to the Closing Date. Following the Note Payment Date, Uniphase shall have the right to pursue any subsequent claims directly against the Shareholders. To the extent amounts are paid from an off-set from the Notes against any Shareholder on the basis of an indemnification claim under Section 9.2(b), such Shareholder agrees that such amounts shall not reduce the ten percent (10%) amount that such Shareholder is obligated to contribute for indemnification claims pursuant to Section 9.2(a) above. (b) At any time or times prior to the Note Payment Date, Uniphase makes claims for indemnification under this Article 9 and in the further event that the amount subject to the claim is unliquidated, Uniphase shall make a good faith estimate as to the amount of the claim for purposes of determining the amount to be withheld from the payments under the Notes by Uniphase if such claim is not resolved or otherwise adjudicated by the date such Notes are due for payment ("Note Payment Date"). If the Shareholder Representative shall dispute such claim, the Shareholder Representative shall give written notice thereof to Uniphase within thirty (30) days after receipt of notice of the claim, in which case Uniphase shall be entitled to withhold such payments pending resolution of such claim; otherwise, such claim shall be deemed to have been acknowledged to be payable from the Notes in the full amount thereof as set forth in the claim as an off-set against the Notes. (c) If the Shareholder Representative shall give notice to Uniphase pursuant to Section 9.6(b) above disputing a Uniphase claim, no payment under the Notes shall be made of the Set Aside Amount (as defined in Section 9.6(d) below) with respect to such claim until either: (i) such disputed claim has been resolved as evidenced by a written notice executed by Uniphase and the Shareholder Representative; or (ii) such dispute shall have been adjudicated in accordance with the arbitration procedures described in Section 9.6(e) below. (d) If the Shareholder Representative shall dispute an indemnification claim of Uniphase as above provided, Uniphase shall be authorized to set aside a portion of the amounts due under the Notes equal to the amount of the claim as set forth in the notice of the claim (the "Set Aside Amount"). In the event Uniphase reasonably believes that it has made or anticipates that it will incur legal expenses in connection with any such disputed claim with respect to which it is entitled to be indemnified hereunder, that portion of the payments due under the Notes equal to such incurred or anticipated expenditures shall also be set aside and added to and become a part of the Set Aside Amount; provided, that in the event that it shall be agreed (as evidenced by a written notice executed by Uniphase and the Shareholder Representative as described in Section 9.6(c) above) or determined through an arbitration proceeding described in Section 9.6(d) below that Uniphase is not entitled to indemnification with respect to such claim, Uniphase shall not be entitled to such funds. (e) In the event of a disputed indemnification claim that has not been resolved within sixty (60) days of Uniphase's original notice of such claim pursuant to Section 9.6(b) above, the indemnification claim shall be referred to an arbitrator chosen by agreement of the Shareholder Representative and Uniphase. If no agreement is reached regarding selection of the arbitrator within thirty (30) days after written request from either party to the other, Uniphase or the Shareholder Representative may submit the matter or dispute to the American Arbitration Association, to be settled by arbitration in San Francisco, California in accordance with the commercial arbitration rules of such Association. Uniphase and the Shareholder Representative agree to act in good faith to mutually select an arbitrator. The fees and expenses of any arbitration shall be borne by the Shareholders and Uniphase in such proportions as shall be determined by the arbitrator, or if there is no such determination, then such fees and expenses shall be borne equally by the Shareholders and Uniphase. The determination of the arbitrator as to the amount, if any, of the indemnification claim that is properly allowable shall be conclusive and binding upon the parties hereto and judgment may be entered thereon in any court having jurisdiction thereof, including, without limitation, any Superior Court in the State of California. 9.7 Shareholder Representative. (a) The Shareholders shall be represented with respect to all claims by Uniphase pursuant to this Article 9 by a single representative ("Shareholder Representative"), who shall initially be J.T. Greaves. (b) In the event the Shareholder Representative shall die or resign or otherwise terminate his status as such, his successor shall be any Shareholder appointed by the Shareholder Representative or, in the case of the death of the Shareholder Representative or where the Shareholder Representative fails to appoint a successor after a vacancy has been created, elected by the vote or written consent of a majority in interest of the Shareholders. If the Shareholders fail for any reason to elect a new Shareholder Representative and during any period in which a vacancy exists, Aaron Hollander shall serve as the Shareholder Representative until a new Shareholder Representative is elected. All decisions of the Shareholder Representative shall be binding upon the Shareholders. The Shareholder Representative shall keep the Shareholders reasonably informed of his or her decisions of a material nature. (c) The Shareholder Representative is authorized to take any action deemed by him appropriate or necessary to carry out the provisions of, and to determine the rights of the Shareholders under this Agreement. The Shareholder Representative shall serve as the agent of the Shareholders for all purposes related to this Agreement, including without limitation service of process upon the Shareholders. By his or her execution of this Agreement, the Shareholder Representative accepts and agrees to diligently discharge the duties and responsibilities of the Shareholder Representative set forth in this Agreement. The authorization and designation of the Shareholder Representative under this 9.7(c) shall be binding upon the successors and assigns of each Shareholder. Uniphase shall be entitled to rely upon such authorization and designation and shall be fully protected in dealing with the Shareholder Representative, and shall have no duty to inquire into the authority of any person reasonably believed by any of them to be the Shareholder Representative. (d) The Shareholder Representative (i) shall not be liable to any of the Shareholders for any error of judgment, act done or omitted by him in good faith, or mistake of fact of law unless caused by his own gross negligence or willful misconduct; (ii) shall be entitled to treat as genuine any letter or other document furnished to him by Uniphase or, the Shareholders and believed by him to be genuine and have been signed and presented by the proper party or parties; and (iii) shall be reimbursed by the Shareholders for counsel fees and other out of pocket expenses incurred by the Shareholder Representative in connection with this Agreement. (e) The Shareholder Representative shall not be entitled to any compensation for services hereunder. To the extent the Shareholder Representative shall incur out of pocket costs in the performance of his duties hereunder. 20 ARTICLE 10 TERMINATION AND ABANDONMENT 10.1 Methods of Termination. This Agreement may be terminated and the transactions herein contemplated may be abandoned at any time, but not later than the Closing Date: (a) By mutual written consent of the respective Boards of Directors of Acquiring Corporation and Target Corporation; or (b) By the Board of Directors of Acquiring Corporation on or after June 15, 1996 or such later date as may be established pursuant to Section 1.3 hereof, if any of the conditions provided for in Article 7 of this Agreement shall not have been met or waived in writing by Acquiring Corporation prior to such date; or (c) By the Board of Directors of Target Corporation on or after June 15, 1996 or such later date as may be established pursuant to Section 1.3 hereof, if any of the conditions provided for in Article 8 of this Agreement shall not have been met or waived in writing by Target Corporation prior to such date. In the event of any termination of this Agreement by Acquiring Corporation or Target Corporation pursuant to Subsection (b) or (c) of this Section 10.1 as a result of a breach by the other party of any warranty, representation or covenant contained herein, such termination shall not serve to limit any of the legal or equitable remedies arising in favor of the terminating party as a result of such breach. Any such termination shall be effective ten (10) days after notice to the other party. 10.2 Procedure Upon Termination. In the event of termination and abandonment by the Board of Directors of Acquiring Corporation or by the Board of Directors of Target Corporation, or both, pursuant to Section 10.1 hereof, written notice thereof shall forthwith be given to the other party, and this Agreement shall terminate without further action by Acquiring Corporation or Target Corporation. If this Agreement is terminated as provided herein: (a) Each party will redeliver all documents, work papers and other material of any other party relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to the party furnishing the same; and (b) All Proprietary Information received by any party hereto with respect to the business of any other party or its Subsidiaries shall not at any time be used for the advantage of, or disclosed to third Persons by, such party for any reason whatsoever except as contemplated in Section 6.2 hereof. ARTICLE 11 MISCELLANEOUS PROVISIONS 11.1 Brokerage and Finder's Fees; Indemnity. Each party hereby represents and warrants to the others that neither it nor its representatives have taken, nor will they take, any action that would cause the other parties hereto to have any obligation or liability to any person for any finders' fees, brokerage fees, agents' commissions, or like payments in connection with the transactions contemplated hereby. Each party shall indemnify and hold harmless the others from any claim that is asserted by any person for a finder's fee or like payment with respect to this Agreement arising from any act, representation or promise of the indemnifying party or its representative. 11.2 Amendment and Modification. Subject to applicable law, this Agreement may be amended or supplemented only by written agreement of all parties; such agreement may be accomplished by written agreement of the respective Boards of Directors of Target Corporation, Acquiring Corporation and Disappearing Corporation or by their respective officers authorized by such Boards of Directors at any time prior to the Effective Date with respect to any of the terms contained herein. 21 11.3 Waiver of Compliance. Any failure of Target Corporation, on the one hand, or Acquiring Corporation and Disappearing Corporation, jointly or severally, on the other, to comply with any provision of this Agreement may be expressly waived in writing by Acquiring Corporation or Target Corporation, respectively, but such waiver or failure to insist upon strict compliance with such provision shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. No failure to exercise and no delay in exercising any right, remedy or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy or power hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy or power provided herein or by law or in equity. The waiver by any party of the time for performance of any act or condition hereunder does not constitute a waiver of the act or condition itself. 11.4 Attorney's Fees. If any legal action, arbitration or other proceeding is brought to interpret or enforce the terms of this Agreement, the prevailing party shall be entitled to recover reasonable attorneys' fees and any other costs incurred in that proceeding, in addition to any other relief to which it is entitled. 11.5 Notices. All notices, demands, and other communications required or permitted hereunder shall be made in writing and shall be deemed to have been duly given if delivered by hand, against receipt, or mailed, postage prepaid, certified or registered mail, return receipt requested, and addressed to Target Corporation at: 203 Oswald Avenue Batavia, Illinois 60510 Attn: Aaron Hollander and J.T. Greaves telefax: (708) 406-8692 and to Acquiring Corporation at: 163 Baypointe Parkway San Jose, California 95134 Attn: Chief Financial Officer telefax: (408) 954-0760 and to the Shareholders: J.T. Greaves c/o Ian Shane Evans Dodd 5 Balfour Place Mount Street London W1Y 5RG telefax: 0171 499 2297 All notices complying with this Section shall be deemed to have been received on the date of delivery or on the third business day after mailing. 22 11.6 Assignment; Successors and Assigns. Except as otherwise provided herein, each party agrees that it will not assign, sell, transfer, delegate or otherwise dispose of, whether voluntarily or involuntarily, or by operation of law, any right or obligation under this Agreement. Any purported assignment, transfer or delegation in violation of this Section shall be null and void. Subject to the foregoing limits on assignment and delegation, this Agreement shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns. Except for those enumerated above, this Agreement does not create, and shall not be construed as creating, any rights or claims enforceable by any person or entity not a party to this Agreement. 11.7 Governing Law. The validity, interpretation, enforceability and performance of this Agreement shall be governed by and construed in accordance with the law of the State of California. 11.8 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original. 11.9 Headings. The headings of the Sections and Articles of this Agreement and Table of Contents are for reference purposes only and shall not constitute a part hereof or affect the meaning or interpretation of this Agreement. 11.10 Entire Agreement. The parties intend that the terms of this Agreement, including the Disclosure Schedule and other documents referred to herein, shall be the final expression of their agreement with respect to the subject matter hereof and may not be contradicted by evidence of any prior or contemporaneous agreement. The parties further intend that this Agreement shall constitute the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative or other legal proceeding involving this Agreement. 11.11 Disclosure Schedule. The Disclosure Schedule to be prepared by any party, as appropriate, shall be divided into sections corresponding to the sections of this Agreement. Disclosure in any section of the Disclosure Schedule shall only constitute disclosure for purposes of the corresponding section of the Agreement and not for any other purpose. 11.12 Certain Definitions. "Liabilities" shall mean Liabilities or obligations of any nature (absolute, accrued, contingent or otherwise, and whether due or to become due). "Person" shall include any individual, firm, corporation, partnership, government, governmental agency or other entity, whether acting in an individual, fiduciary or any other capacity. "Subsidiary" shall mean, as to any particular parent corporation, any corporation as to which more than fifty percent of the outstanding stock having ordinary voting rights or power (and excluding stock having voting rights only upon the occurrence of a contingency unless and until such contingency occurs and such rights are to be exercised) at the time is owned or controlled, directly or indirectly, by such parent corporation and/or by one or more Subsidiaries. The parties have caused this Agreement to be duly executed and their respective corporate seals, if any, to be affixed hereto, as of the date first above written. SEAL Target Corporation FIBEROPTIC ALIGNMENT SOLUTIONS, INC. ATTEST: By: Aaron A. Hollander _____________________________ Fred Kautz By Aaron Hollander President _____________________________ Title: _____________________________ Secretary Attorney-in-fact SEAL Acquiring Corporation UNIPHASE TELECOMMUNICATIONS PRODUCTS, INC. ATTEST: By: Kevin Kalkhoven _____________________________ D. Pettit President & CEO _____________________________ Title: _____________________________ Secretary SEAL ATTEST: _____________________________ Secretary 23 SHAREHOLDERS Timothy Greaves - -------------------------- Aaron A. Hollander - -------------------------- Fred Kautz by Aaron Hollander Attorney-in-fact - ------------- --------------- ---------------- Dan Crews by Aaron Hollander Attorney-in-fact - ------------ --------------- ---------------- Steve Seylles by Aaron Hollander Attorney-in-fact - ---------------- --------------- ---------------- 24 EXHIBITS -------- A-1 Note Form A-2 Greaves Note B Shareholder Schedule C Covenants Not to Compete D Opinion of Timothy P. McHugh, Esq. E Opinion of Morrison & Foerster EXHIBIT A-1 PROMISSORY NOTE $ May___, 1996 _________ FOR VALUE RECEIVED, and pursuant to Section 1.2 of the Stock Purchase Agreement (the "Stock Purchase Agreement") made between and by the undersigned, Uniphase Corporation, a Delaware corporation ("Maker"), Fiberoptic Alignment Solutions, Inc. ("FAS"), an Illinois corporation, and the holders of all of the outstanding shares of the common stock of FAS (the "Shareholders"), Maker promises to pay to ________________________ (the "Shareholder") as set forth in Exhibit B to the Stock Purchase Agreement, at _________________________ ______, or such other place as the Shareholder may from time to time designate, without counterclaim, deduction or offset of any kind, except the right of offset as provided for in Section 3 below, in lawful money of the United States, the principal sum of $________________ plus interest thereon, as set forth below. 1. INTEREST. Interest on the principal sum of this Note shall accrue at the rate of 6% per annum, compounded annually, based on a 365 day year and the actual number of days elapsed. 2. PAYMENTS. Subject to Section 3 below, accrued interest and principal shall be payable in one payment due on August 31, 1997. 3. PREPAYMENT;RIGHT OF OFFSET. This Note may be prepaid in whole or in part, at any time, without penalty or premium. This Note shall be subject to a right of offset in favor of Maker as provided in Section 9.6 of the Stock Purchase Agreement. 4. APPLICATION OF PAYMENTS. All payments and prepayments received by the Shareholder shall be applied first to accrued interest, then to other charges due with respect to this Note and then to the unpaid principal balance. 1 5. DEFAULT AND REMEDIES. a. Default. Maker will be in default under this Note if (i) Maker fails to make a payment of principal and/or interest hereunder when due or declared due, whether at scheduled maturity, by acceleration or otherwise, within ten (10) business days after receipt of written notice of such nonpayment; (ii) Maker breaches any other material covenant, agreement or understanding under this Note and such breach continues for ten (10) or more business days after the receipt of written notice from the Shareholder of the occurrence of such breach; or (iii) Maker files a petition in bankruptcy, is adjudicated insolvent, petitions or applies to any tribunal for the appointment of a receiver, custodian, or any trustee for Maker or commences any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction or any such proceeding has been commenced against Maker which remains undismissed for a period of sixty days. b. Remedies. Upon Maker's default, the Shareholder may (i) upon written notice to Maker, declare the entire principal sum and all accrued and unpaid interest hereunder immediately due and payable and (ii) exercise any and all of the remedies provided in the Stock Purchase Agreement and applicable law. c. Attorneys' Fees and Costs. Maker promises to pay on demand all out-of-pocket costs and expenses of the Shareholder in connection with the collection of amounts due hereunder, including, without limitation, attorneys' fees and expenses incurred in connection therewith, whether or not any lawsuit is ever filed with respect thereto. 4. MISCELLANEOUS. a. All communications or notices required or given under this Note shall be given in accordance with the provisions of Section 11.5 of the Stock Purchase Agreement. b. This Note may be modified only by a written agreement executed by Maker and the Shareholder. c. This Note shall be governed by California law. d. The terms of this Note shall inure to the benefit of and bind Maker and the Shareholder and their respective heirs, legal representatives and successors and assigns. e. Time is of the essence with respect to all matters set forth in this Note. 2 f. If this Note is destroyed, lost or stolen, Maker will deliver a new note to the Shareholder on the same terms and conditions as this Note with a notation of the unpaid principal and accrued and unpaid interest in substitution of the prior Note. Shareholder shall furnish to Maker reasonable evidence that the Note was destroyed, lost or stolen and any security or indemnity that may be reasonably required by Maker in connection with the replacement of this Note. IN WITNESS WHEREOF, Maker has executed this Note as of the date and year first above written. MAKER: _____________________________ UNIPHASE CORPORATION By:__________________________ Its:__________________________ 3 EXHIBIT A-2 PROMISSORY NOTE --------------- $_____________ May___, 1996 FOR VALUE RECEIVED, and pursuant to Section [ ] of the Stock Purchase Agreement (the "Purchase Agreement") made between and by the undersigned, Uniphase Corporation, a Delaware corporation ("Maker"), Fiberoptic Alignment Solutions, Inc., an Illinois corporation, Jonathan Timothy Greaves ("Greaves"), and others, Maker promises to pay to Greaves, at such place as Greaves shall designate, without counterclaim, deduction or offset of any kind, in lawful money of the United Kingdom, the principal sum of (Pounds) plus interest thereon, as set forth below. 1. INTEREST - -- -------- Interest on the principal sum of this Note shall accrue at the rate of 6% per annum, compounded annually, based on a 365 day year and the actual number of days elapsed. 2. PAYMENTS - -- -------- Subject to Section 3 below, accrued interest and principal shall be payable in one payment due on 31st August 1997. 1 3. PREPAYMENT; RIGHT OF OFFSET - -- --------------------------- This Note may be prepaid in whole or in part, at any time, after a date which is 6 months from the date hereof without penalty or premium. This Note shall be subject to a right of offset in favour of Maker as provided in Section 9.6 of the Stock Purchase Agreement. 4. PREPAYMENT IN DOLLARS - -- --------------------- (a) Maker shall have the option to prepay this Note in whole or in part in US dollars. (b) This option shall be exercisable by Maker giving Greaves notice in writing. (c) The notice may be given at any time falling within the period commencing 6 months after the date hereof and ending 11 months after the date hereof but not otherwise. (d) Prepayment pursuant to this Section shall be made on the date following 14 days after the date on which the notice is given. (e) The amount of US dollars to be prepaid pursuant to this Section shall be calculated at the following rate of exchange namely $1.51 per (Pounds)1 of principal being redeemed. 5. APPLICATION OF PAYMENTS - -- ----------------------- All payments and prepayments received by Greaves shall be applied first to accrued interest, then to other charges due with respect to this Note and then to the unpaid principal balance. 2 6. DEFAULT AND REMEDIES - -- -------------------- A. Default Maker will be in default under this Note if: (i) Maker fails to make a payment of principal and/or interest hereunder when due or declared due, whether at scheduled maturity, by acceleration or otherwise, within ten (10) business days after receipt of written notice of such nonpayment; (ii) Maker breaches any other material covenant, agreement or understanding under this Note and such breach continues for ten (10) or more business days after the receipt of written notice from Greaves of the occurrence of such breach; or (iii) Maker files a petition in bankruptcy, is adjudicated insolvent, petitions or applies to any tribunal for the appointment of a receiver, custodian, or any trustee for Maker or commences any proceeding under any bankruptcy, reorganisation, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction or any such proceeding has been commenced against Maker which remains undismissed for a period of sixty days. B. Remedies -------- Upon Maker's default, Greaves may: (i) upon written notice to Maker, declare the entire principal sum and all accrued and unpaid interest hereunder immediately due and payable; and (ii) exercise any and all of the remedies provided in the Purchase Agreement and applicable law. 3 C. Attorneys' Fees and Costs ------------------------- Maker promises to pay on demand all out-of-pocket costs and expenses of Greaves in connection with the collection of amounts due hereunder, including, without limitation, attorneys' fees and expenses incurred in connection therewith, whether or not any lawsuit is ever filed with respect thereto. 7. MISCELLANEOUS - -- ------------- (a) All communications or notices required or given under this Note shall be given in accordance with the provisions of Section 11.5 of the Purchase Agreement. (b) This Note may be modified only by a written agreement executed by Maker and Greaves. (c) This Note shall be governed by the laws of the State of California to the non exclusive jurisdiction of whose courts the parties submit. (d) The terms of this Note shall inure to the benefit of and bind Maker and Greaves and their respective heirs, legal representatives and successors and assigns. (e) Time is of the essence with respect to all matters set forth in this Note. 4 (f) If this Note is destroyed, lost or stolen, Maker will deliver a new note to Greaves on the same terms and conditions as this Note with a notation of the unpaid principal and accrued and unpaid interest in substitution of the prior Note. Shareholder shall furnish to Maker reasonable evidence that the Note was destroyed, lost or stolen and any security or indemnity that may be reasonably required by Maker in connection with the replacement of this Note. IN WITNESS WHEREOF, Maker has executed this Note as of the date and year first above written. MAKER: _____________________________ UNIPHASE CORPORATION By: ________________ Its: _______________ EXHIBIT B SHAREHOLDER SCHEDULE
Shareholder Number of Shares Total Consideration Cash/Note ----------- ---------------- ------------------- --------- - -------------------------------------------------------------------------------- Tim Greaves 737.77 $4,571,891.39* $4,571,891.39 (Note) - -------------------------------------------------------------------------------- Aaron Hollander 113.64 $ 704,216.40 $ 633,794.76 (Cash) $ 70,421.64 (Note) - -------------------------------------------------------------------------------- Fred Kautz 61.19 $ 379,188.68 $ 341,269.81 (Cash) $ 37,918.87 (Note) - -------------------------------------------------------------------------------- Dan Crews 43.71 $ 270,866.76 $ 243,780.09 (Cash) $ 27,086.68 (Note) - -------------------------------------------------------------------------------- Steve Seyller 43.71 $ 270,866.76 $ 243,780.09 (Cash) $ 27,086.68 (Note) - -------------------------------------------------------------------------------- TOTAL 1000.02 $6,197,030.00 $6,197,030.00 - --------------------------------------------------------------------------------
* PAYABLE IN POUNDS STERLING AT WALL STREET JOURNAL COMMERCIAL EXCHANGE RATE (FOR PURCHASE OF POUNDS STERLING WITH U.S. DOLLARS) AS OF THE CLOSING DATE. EXHIBIT C NON-COMPETE AGREEMENT This NON-COMPETE AGREEMENT (this "Agreement") dated _______ , 1996 is made among and by Uniphase Corporation. ("Uniphase"), a Delaware corporation, Fiberoptic Alignment Solutions, Inc. ("FAS"), an Illinois corporation and __________________ (the "Shareholder"). RECITALS Pursuant to a Stock Purchase Agreement dated as of May __, 1996 (the "Stock Purchase Agreement"), by and among Uniphase, FAS and the stockholders of FAS, Uniphase is acquiring all of the outstanding Shares of the common stock of FAS. Capitalized terms used herein and not otherwise defined have the meanings assigned to them in the Stock Purchase Agreement. The Shareholder has agreed in Section 6.9 of the Stock Purchase Agreement to execute and deliver to Uniphase at the Closing of the Exchange a Non-Compete Agreement. The parties hereto agree as follows: AGREEMENT 1. Non-Compete Obligation. The Shareholder agrees that for a period of five years after the Effective Date he shall neither directly nor indirectly: (a) Make known to any Person the names and addresses of any of the customers of Uniphase or FAS or any other information pertaining to them. (b) Take away any of the customers of Uniphase or FAS on whom he has called, or with whom he has dealt or become acquainted with, either for himself or for any other Person. (c) Accept a position with, or otherwise become affiliated with, any other Person for the purpose of competing with Uniphase's or FAS' business. The Shareholder acknowledges and understands that this provision not to compete is necessary to protect Uniphase's and FAS' trade secrets, proprietary information, confidential information, and know-how by avoiding such situations which would inherently create a fraud with the potentiality of intentional or unintentional revelations of such trade secrets, information and know-how. (d) Interfere with the business of Uniphase or FAS in any manner whatsoever including, without limitation, recruiting or hiring employees of Uniphase or FAS or ex-employees of Uniphase or FAS whose employment with Uniphase or FAS was terminated less than one (1) year prior to the date of such interference. 1 2. Specific Performance. The Shareholder acknowledges that any violation of the provisions of this Agreement would cause irreparable damage for which monetary damages would be inadequate and therefore agrees that Uniphase shall have the right to obtain, in addition to all other remedies it may have, such injunctive and other equitable relief from a court of competent jurisdiction as may be necessary or appropriate to prevent or remedy any violation of this Agreement. 3. Governing Law. This Agreement is governed by the laws of the State of California without regard to its conflict of law provisions, and shall inure to the benefit of and be binding upon the successors, assigns, heirs and personal representatives of the parties hereto. 4. Counterparts; Amendments. This Agreement may be executed in one or more counterparts, all of which documents shall be considered one and the same document. This Agreement may not be changed, amended or modified, in whole or in part, except by written agreement signed by all parties. 5. Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be deemed given when so delivered in person, by overnight courier, by facsimile transmission (with receipt confirmed by telephone or by automatic transmission report) or two business days after being sent by registered or certified mail (postage prepaid. return receipt requested), as follows: TO UNIPHASE: ----------- 163 Baypointe Parkway San Jose, CA 95134 Attention: Dan E. Pettit, Vice President, Finance and CFO Telephone: (408) 434-1800 Fax: (408) 954-0760 In each case with a copy to: Morrison & Foerster 755 Page Mill Road Palo Alto, CA 94304 Attention: Michael C. Phillips Telephone: (415) 813-5620 Fax: (415) 494-0792 TO THE SHAREHOLDER: ------------------- _________________ _________________ 2 _________________ Telephone Fax: With a copy to: Addresses may be changed by written notice given pursuant to this section. Any notice given hereunder may be given on behalf of any party by his counsel or other authorized representative. 3 6. Headings; Severability. All headings of this Agreement are for reference only and shall not affect its interpretation. In the event that any provisions of this Agreement should be held unenforceable by a court of competent jurisdiction, all remaining provisions shall continue in full force and effect without being impaired or invalidated in any way. 7. Attorney's Fees. In the event of any litigation among the parties hereto (including, without limitation, any arbitration proceeding described in Section 4(b) above), the prevailing party in such litigation or proceeding shall be entitled to recover all costs incurred in connection therewith, including, without limitation, reasonable attorneys fees, provided that the costs of any arbitration proceeding shall be allocated in the manner set forth in Section 4(b). IN WITNESS WHEREOF, the parties hereto have executed this Agreement under seal as of the date first stated above. UNIPHASE CORPORATION By: ____________________________________ Title: _________________________________ FIBEROPTIC ALIGNMENT SOLUTIONS, INC. By: ________________________________________ Its: ________________________________________ SHAREHOLDER ________________________________________ EXHIBIT D ______________ __, 1996 Uniphase Corporation 163 Baypointe Parkway San Jose, California 95134 Attention: Chief Financial Officer Dear Sirs: I am furnishing this opinion to you pursuant to Section 7.6 of the Stock Purchase Agreement dated as of May 24, 1996 (the "Stock Purchase Agreement") among Fiberoptic Alignment Solutions, Inc., ("FAS"), an Illinois corporation, Uniphase Corporation, a Delaware corporation, and all holders of the outstanding shares (the "Shares") of the common stock of FAS (individually a "Shareholder", collectively the "Shareholders"), providing for the purchase of the Shares by Uniphase (the "Purchase"). Capitalized terms not otherwise defined herein have the meanings set forth in the Stock Purchase Agreement. I have acted as counsel to FAS and each Shareholder in connection with the preparation, execution and delivery of the Stock Purchase Agreement and the NonCompete Agreements (the "Documents") and consummation of the transactions contemplated thereby. In addition, I have examined such records, documents and certificates of public officials, made such inquiries of officials of FAS and considered such questions of law as I have deemed necessary for the purpose of rendering the opinions set forth herein. I have assumed the genuineness of all signatures and the authenticity of all items submitted to me as originals and the conformity with originals of all items submitted to me as copies. In making my examination of the Documents, I have assumed that each party to one or more of the Documents (other than FAS and the Shareholders) has the power and authority to execute and deliver, and to perform and observe the provisions of, the Documents and has duly authorized, executed and delivered such Documents, and that such Documents constitute the legal, valid and binding obligations of such party. My opinion in paragraphs (a) and (b) below as to the qualification and good standing of FAS is based upon certificates of public officials in the states referred to in those paragraphs. With respect to certain matters of fact, my opinions in paragraphs (b), (d), (e) and (f) are based on the representations in the certificate of J.T. and Aaron Hollander, officers of FAS, a copy of which certificate is attached hereto. Although I have made no independent investigation as to whether such certificate is accurate or complete, I have no actual knowledge that such certificate is inaccurate or incomplete in any material respect. Whenever my opinion herein with respect to the existence or absence of facts is indicated to be based on my knowledge, it is intended to signify that, in the course of my representation of FAS, I have not acquired actual knowledge of the existence or absence of such facts. I have not undertaken any independent investigation to determine the existence or absence of such facts, and no inference as to my knowledge of the existence or absence of such facts should be drawn from the fact of my representation of FAS. The opinions hereinafter expressed are subject to the following further qualifications and exceptions: (1) I express no opinion as to the effect of bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar laws relating to or affecting the rights of creditors generally, including, without limitation, laws relating to fraudulent transfers or conveyances, preferences and equitable subordination. (2) I express no opinion as to limitations imposed by general principles of equity upon the availability of equitable remedies or the enforcement of provisions of the Documents; and the effect of judicial decisions which have held that certain provisions are unenforceable where their enforcement would violate the implied covenant of good faith and fair dealing, or would be commercially unreasonable. (3) I express no opinion as to the effect of judicial decisions which may permit the introduction of extrinsic evidence to modify the terms or the interpretation of the Documents. (4) I express no opinion as to the enforceability of provisions of the Documents providing that rights or remedies are not exclusive, that every right or remedy is cumulative, or that the election of a particular remedy or remedies does not preclude recourse to one or more remedies. (5) I express no opinion as to the enforceability of a requirement that provisions of the Documents may only be modified in writing to the extent that an oral agreement has been entered into modifying provisions of the Document. Based upon and subject to the foregoing, I am of the opinion that: a. FAS is a corporation duly organized, validly existing and in good under the laws of Illinois and has the corporate power and authority to enter into and perform the Stock Purchase Agreement. b. FAS is duly qualified or otherwise authorized to transact business as a foreign corporation in all jurisdictions in which such qualification or authorization is required, except for jurisdictions in which the failure to be so qualified or authorized would not have a material adverse effect on the business of FAS, and has the corporate power and authority to own its assets as now owned and to conduct the Business as presently conducted. c. FAS has all requisite corporate power and corporate authority to execute and deliver, and to perform and observe the provisions of the Documents, to the extent it is party thereto. d. The Documents have each been duly and validly authorized, executed and delivered by FAS and each of the Shareholders and constitute the valid and binding obligation of FAS and each of the Shareholders, to the extent each is a party thereto, enforceable against FAS and the Shareholders, as the case may be, in accordance with its terms. e. The authorized capital stock of FAS consists of I 0,000 shares of Common Stock, at no par value per share ("FAS Common Stock"), of which 1,000.2 shares are issued, 1,000.2 shares are outstanding, and no shares are treasury shares. To the best of my knowledge, there are no outstanding warrants, options, preemptive rights or other rights of any kind to purchase or receive from FAS any shares of capital stock or other securities of FAS. f. To the best of my knowledge, there are no lawsuits, claims or proceedings pending or threatened against FAS that individually or in the aggregate would have a material adverse effect upon the business of FAS or on the ability of FAS to consummate the transactions contemplated by the Stock Purchase Agreement. g. Except for such filings, notices, permits, consents and approvals as have been made, given or obtained, the execution, delivery, and performance of the Documents by FAS and the Shareholders will not (i) violate any provision of the Articles of Incorporation or By-Laws of FAS; (ii) violate, conflict with or result in the breach of any of the terms or conditions or result in modification of the effect, or otherwise give any other contracting party, other than Dukane Corporation, the right to terminate, or constitute (or with notice or lapse of time or both constitute) a default under any material instrument, contract or other agreement known to us to which FAS is a party or to which it may be bound or subject; (iii) violate any law, ordinance or regulation or, to the best of my knowledge, any order, judgment, injunction, decree or other requirement of any court, arbitrator or of any governmental or regulatory body applicable to FAS; (iv) require any filing with, notice to, or permit, consent to or approval of, any governmental or regulatory body; or (v) result in the creation of any lien or other encumbrance on the assets of properties of FAS, excluding from the foregoing clauses (ii), (iii), (iv and (v) any exceptions to the foregoing that, in the aggregate, would not have a material adverse effect on the business of FAS or on the ability of FAS and the Shareholders to consummate the transactions contemplated by the Documents. h. In the absence of any intent to defraud, the delivery of the certificates representing the Shares and the endorsements thereof by the Shareholders and the consummation of the actions contemplated by the Stock Purchase Agreement will be legally sufficient to convey title to all of the shares to Uniphase. I express no opinion as to matters governed by any laws other than the substantive laws of the State of Illinois and federal laws of the United States which are in effect on the date hereof. This opinion is solely for your benefit and may not be relied upon by, nor may copies be delivered to, any other person without my prior written consent. Yours sincerely, Timothy P. McHugh EXHIBIT E __________ ___, 1996 Fiberoptic Alignment Solutions, Inc. 203 Oswald Avenue Batavia, Illinois 10510 Attention: Aaron Hollander Ladies and Gentlemen: We are furnishing this opinion to you pursuant to the Stock Purchase Agreement dated as of May ___, 1996 (the "Stock Purchase Agreement") among Fiberoptic Alignment Solutions, Inc., ("FAS"), an Illinois corporation, Uniphase Corporation, ("Uniphase"), a Delaware corporation, and all holders of the outstanding shares (the "Shares") of the common stock of FAS (individually a "Shareholder", collectively the "Shareholders"), providing for the purchase of the Shares by Uniphase (the "Purchase"). Capitalized terms not otherwise defined herein have the meanings set forth in the Stock Purchase Agreement. We have acted as counsel to Uniphase in connection with the preparation, execution and delivery of the Stock Purchase Agreement, the Escrow Agreement and the Non-Compete Agreements (the "Documents") and consummation of the transactions contemplated thereby. In addition, we have examined such records, documents and certificates of public officials, made such inquiries of officials of Uniphase and considered such questions of law as we have deemed necessary for the purpose of rendering the opinions set forth herein. We have assumed the genuineness of all signatures and the authenticity of all items submitted to us as originals and the conformity with originals of all items submitted to us as copies. In making our examination of the Documents, we have assumed that each party to one or more of the Documents (other than Uniphase) has the power and authority to execute and deliver, and to perform and observe the provisions of, the Documents and has duly authorized, executed and delivered such Documents, and that such Documents constitute the legal, valid and binding obligations of such party. Our opinion in paragraph (a) below as to the qualification and good standing of Uniphase is based upon certificates of public officials in the states referred to in that paragraph. Whenever our opinion herein with respect to the existence or absence of facts is indicated to be based on our knowledge, it is intended to signify that, in the course of our representation of Uniphase and none of Michael C. Phillips, Stephan Goeckeler, or Janet S. Herman (the attorneys performing significant substantive work in connection with such representation) has acquired actual knowledge of the existence or absence of such facts. We 1 __________________________ ________ ___, 1996 Page 2 have not undertaken any independent investigation to determine the existence or absence of such facts, and no inference as to our knowledge of the existence or absence of such facts should be drawn from the fact of our representation of Uniphase. The opinions hereinafter expressed are subject to the following further qualifications and exceptions: (1) We express no opinion as to the effect of bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar laws relating to or affecting the rights of creditors generally, including, without limitation, laws relating to fraudulent transfers or conveyances, preferences and equitable subordination. (2) We express no opinion as to limitations imposed by general principles of equity upon the availability of equitable remedies or the enforcement of provisions of the Documents; and the effect of judicial decisions which have held that certain provisions are unenforceable where their enforcement would violate the implied covenant of good faith and fair dealing, or would be commercially unreasonable. (3) We express no opinion as to the effect of judicial decisions which may permit the introduction of extrinsic evidence to modify the terms or the interpretation of the Documents. (4) We express no opinion as to the enforceability of provisions of the Documents providing that rights or remedies are not exclusive, that every right or remedy is cumulative, or that the election of a particular remedy or remedies does not preclude recourse to one or more remedies. (5) We express no opinion as to the enforceability of a requirement that provisions of the Documents may only be modified in writing to the extent that an oral agreement has been entered into modifying provisions of the Document. Based upon and subject to the foregoing, we are of the opinion that: a. Uniphase is a corporation duly organized, validly existing and in good standing under the laws of Delaware and has the corporate power and authority to enter into and perform the Documents. b. The execution and delivery of the Documents and the consummation of the transactions contemplated thereby have been duly authorized by all necessary corporate action on the part of Uniphase. The Documents have been duly executed and delivered by Uniphase and constitute the valid and binding obligation of Uniphase, enforceable against Uniphase in accordance with its terms. We express no opinion as to matters governed by any laws other than the substantive laws of the State of California, the General Corporation Law of the State of Delaware and federal laws of the United States which are in effect on the date hereof. 2 __________________________ ________ ___, 1996 Page 3 This opinion is solely for your benefit and may not be relied upon by, nor may copies be delivered to, any other person without our prior written consent. Very truly yours, Morrison & Foerster AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT among UNIPHASE CORPORATION. FIBEROPTIC ALIGNMENT SOLUTIONS, INC. and THE SHAREHOLDERS OF FIBEROPTIC ALIGNMENT SOLUTIONS, INC. This Amendment No. 1 (the "Amendment No. 1") dated and effective as of May 31, 1996, is made by and among Fiberoptic Alignment Solutions, Inc., a corporation organized and existing under the laws of the State of Illinois ("FAS"), Uniphase Corporation, a corporation organized and existing under the laws of the State of Delaware ("Uniphase") and each and every shareholder of FAS identified on the signature pages hereto (individually, a "Shareholder", and, collectively, the "Shareholders"). Certain capitalized terms in this Amendment No. 1 shall have the meanings ascribed to them in the Stock Purchase Agreement (the "Agreement"), dated and effective as of May 24, 1996, and made by and among the parties hereto. RECITALS WHEREAS, the parties hereto entered into the Agreement and now wish to amend the Agreement and Exhibit B hereto as set forth below; NOW THEREFORE, in consideration of the foregoing and the mutual promises contained herein, the parties agree as follows: AGREEMENT 1. Section 1.2 of the Agreement shall be, and hereby is, restated in its entirety as follows: "PURCHASE PRICE. In consideration of the sale of the Shares by the Shareholders, and in consideration of the representations, warranties and covenants of the Target Corporation and the Shareholders, the Acquiring Corporation agrees to pay to the Shareholders an aggregate consideration of $3,932,184 (the "Purchase Price"). The Purchase Price shall be paid by Uniphase to the Shareholders at the Closing by way of a certified or bank cashier's check or wire transfer ("Same Day Funds") or pursuant to an unsecured 1 promissory note delivered to the Shareholders at Closing in substantially the form attached hereto as Exhibit A-1 and, in the case of the promissory note deliverable to J. Timothy Greaves, Exhibit A-2 (the "Note(s)"). The allocation of the Purchase Price as to amounts and between cash and Notes to each Shareholder is set forth in Exhibit B, as revised and attached to this Amendment No. 1. 2. Section 9.4(c) shall be, and hereby is, restated in its entirety as follows: "(c) Except for claims arising out of an inaccuracy in or breach of a representation or warranty of a Shareholder contained in Article 3 hereof, all indemnification claims under Section 9.2 shall be satisfied in full from amounts off-set against the Notes pursuant to Section 9.6 below, and no person shall have any further right to recovery from any Shareholder. Without limitation of the foregoing, the maximum liability of any Shareholder (other than the Shareholder J. Timothy Greaves as provided in Section 9.4(d) below) for any breach of a representation, warranty or covenant of FAS shall be limited to ten percent (10%) of that portion of the Purchase Price paid or otherwise delivered to such person pursuant to Section 1.2 hereof; and the maximum liability of the Shareholder J. Timothy Greaves (other than as provided in Section 9.4(d) below for any breach of a representation, warranty or covenant of FAS shall be limited to the sum of $457,190. 3. Section 9.6(a) of the Agreement shall be, and is hereby, restated in its entirety as follows: (a) In the event that Acquiring Corporation shall become entitled to indemnification for any Losses pursuant to Section 9.2(a) above prior to the Note Payment Date (as defined below), Acquiring Corporation shall have the right to receive payment and reimbursement from such Losses by way of an off-set against any then outstanding Notes on a pro rata basis against the Shareholders so that the contribution by each Shareholder to such indemnification shall be equal on a percentage basis to that percentages of the total outstanding Shares held by such Shareholder immediately prior to the Closing Date. Following the Note Payment Date, Uniphase shall have the right to pursue any subsequent claims directly against the Shareholders. To the extent amounts are paid from an off- set from the Notes against any Shareholder on the basis of an indemnification claim under Section 9.2(b), such Shareholder agrees that such amounts shall not reduce the amount that such Shareholder is obligated to contribute for indemnification claims pursuant to Section 9.2(a) above. 4. Counterparts. This Amendment No. 1 may be executed in counterparts, each of which shall be deemed an original. 2 The parties have caused this Agreement to be fully executed and their respective corporate seals, if any, to be affixed hereto as of the date first above written. SEAL Target Corporation FIBEROPTIC ALIGNMENT SOLUTIONS, INC. ATTEST: By: /s/ Aaron Hollander --------------------------------- - -------------------------- Title: President Secretary ------------------------------ SEAL Acquiring Corporation UNIPHASE CORPORATION ATTEST: By: /s/ Joyce Appiah --------------------------------- - -------------------------- Title: Vice President and Controller Secretary ------------------------------ SHAREHOLDERS /s/ Timothy Greaves - -------------------------- Timothy Greaves /s/ Aaron Hollander - -------------------------- Aaron Hollander /s/ Fred Kautz - -------------------------- Fred Kautz /s/ Dan Crews - -------------------------- Dan Crews /s/ Steve Seyller - -------------------------- Steve Seyller 3 EXHIBIT B SHAREHOLDER SCHEDULE
- -------------------------------------------------------------------------------- Shareholder Number of Shares Total Consideration Cash/Note ----------- ---------------- ------------------- --------- - -------------------------------------------------------------------------------- Tim Greaves 737.77 $2,307,045.39* $2,307,045.39 (Note) - -------------------------------------------------------------------------------- Aaron Hollander 113.64 $ 704,216.40 $ 633,794.76 (Cash) $ 70,421.64 (Note) - -------------------------------------------------------------------------------- Fred Kautz 61.19 $ 379,188.68 $ 341,269.81 (Cash) $ 37,918.87 (Note) - -------------------------------------------------------------------------------- Dan Crews 43.71 $ 270,866.76 $ 243,780.09 (Cash) $ 27,086.68 (Note) - -------------------------------------------------------------------------------- Steve Seyller 43.71 $ 270,866.76 $ 243,780.09 (Cash) $ 27,086.68 (Note) - -------------------------------------------------------------------------------- TOTAL 1000.02 $3,932,184.00 $3,932,184.00 - --------------------------------------------------------------------------------
* PAYABLE IN POUNDS STERLING AT WALL STREET JOURNAL COMMERCIAL EXCHANGE RATE (FOR PURCHASE OF POUNDS STERLING WITH U.S. DOLLARS) AS OF THE CLOSING DATE. EX-23.1 3 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Selected Consolidated Financial Data" and "Experts" and to the use of our report dated July 31, 1995 with respect to the consolidated financial statements of Uniphase Corporation and to the use of our report dated May 28, 1996 with respect to the combined financial statements of GCA Fibreoptics Ltd. and Fiberoptic Alignment Solutions, Inc., in Amendment No. 1 to the Registration Statement (Form S-3 No. 333-04855) and related Prospectus of Uniphase Corporation for the registration of 2,300,000 shares of its common stock. Ernst & Young LLP San Jose, California June 7, 1996 EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 YEAR 9-MOS JUN-30-1995 JUN-30-1996 JUL-01-1994 JUL-01-1995 JUN-30-1995 MAR-31-1996 2,880 18,581 4,679 33,187 8,957 13,058 164 234 5,478 8,810 24,197 60,717 8,387 24,911 4,935 7,892 31,910 96,700 6,881 9,684 0 0 0 0 0 0 10 14 24,798 86,831 31,910 96,700 42,282 47,342 42,282 47,342 24,113 25,102 24,113 25,102 17,588 14,240 0 0 25 20 1,131 8,887 396 3,226 735 5,661 0 0 0 0 0 0 735 5,661 0.07 0.44 0.07 0.44 All information has been adjusted to reflect a two-for-one stock split in the form of a 100% stock dividend to be paid on June 3, 1996.
-----END PRIVACY-ENHANCED MESSAGE-----