posam
As filed with the Securities and Exchange Commission on
August 2, 2005
Registration No. 333-111861
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
POST-EFFECTIVE AMENDMENT NO. 1 TO FORM S-3
REGISTRATION STATEMENT ON
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FINISAR CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware |
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3674 |
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77-0398779 |
(State or other jurisdiction of
incorporation or organization) |
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(Primary Standard Industrial
Classification Code number) |
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(I.R.S. Employer
Identification No.) |
1308 Moffett Park Drive
Sunnyvale, California 94089
(408) 548-1000
(Address, including zip code, and telephone number,
including area code, of Registrants principal executive
offices)
Jerry S. Rawls
Chief Executive Officer
Finisar Corporation
1308 Moffett Park Drive
Sunnyvale, California 94089
(408) 548-1000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Please send copies of all communications to:
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Stephen K. Workman
Senior Vice President, Finance, Chief Financial
Officer and Secretary
Finisar Corporation
1308 Moffett Park Drive
Sunnyvale, California 94089
(408) 548-1000 |
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Dennis C. Sullivan, Esq.
Joe C. Sorenson, Esq.
DLA Piper Rudnick Gray Cary US LLP
2000 University Avenue
East Palo Alto, California 94303-2248
(650) 833-2000 |
Approximate date of commencement of proposed sale to the
public: As soon as practicable after the effective date of
this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box. þ
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering. o
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. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following
box. o
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 or until this Registration Statement shall
become effective on such date as the Securities and Exchange
Commission, acting pursuant to 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 such
State.
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SUBJECT TO COMPLETION, DATED
AUGUST 2, 2005
$150,000,000
21/2% Convertible
Subordinated Notes due 2010 and the Common Stock Issuable Upon
Conversion of the Notes
We issued the notes in a private placement in October 2003. This
prospectus will be used by selling securityholders to resell
their notes and the common stock issuable upon conversion of
their notes.
Finisar will pay interest on the notes on April 15 and October
15 of each year, beginning April 15, 2004. The notes will
mature on October 15, 2010.
The notes are convertible, at the option of the holder, at any
time on or prior to maturity into shares of Finisars
common stock. The notes are convertible at a conversion price of
$3.705 per share, which is equal to a conversion rate of
approximately 269.9055 shares per $1,000 principal amount
of notes, subject to adjustment.
Holders of the notes have the right to require Finisar to
repurchase some or all of the notes on October 15, 2007 or
upon the occurrence of a change in control, as described in this
prospectus, at a repurchase price equal to 100% of the principal
amount of the notes being repurchased, plus accrued and unpaid
interest, if any, to, but excluding, the repurchase date.
Finisar may choose to pay the repurchase price of such notes in
cash, common stock (valued as described in this prospectus) or a
combination thereof.
Finisar may redeem some or all of the notes at any time on or
after October 15, 2007 at the redemption prices described
in this prospectus.
The notes are Finisars general unsecured (except as
described below) obligations and are subordinated to all of
Finisars existing and future senior indebtedness and will
be effectively subordinated to all of the indebtedness and
liabilities of Finisars subsidiaries. The indenture
governing the notes does not limit the incurrence by Finisar or
its subsidiaries of senior indebtedness or other indebtedness.
Finisar has pledged a portfolio of U.S. government
securities as security for the first eight scheduled interest
payments on the notes.
The notes are eligible for trading in the PORTAL Market. Our
common stock is traded on the Nasdaq National Market under the
symbol FNSR. On August 1, 2005, the last
reported sales price for the common stock was $1.07 per
share.
INVESTING IN THE COMMON STOCK OFFERED IN THIS PROSPECTUS
INVOLVES A HIGH DEGREE OF RISK. SEE RISK FACTORS
BEGINNING ON PAGE 10.
The selling securityholders and any brokers executing selling
orders on behalf of the selling stockholder may be deemed to be
underwriters within the meaning of the Securities
Act of 1933. Commissions received by a broker executing selling
orders may be deemed to be underwriting commissions under the
Securities Act.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is
August , 2005.
TABLE OF CONTENTS
You should rely only on the information contained or
incorporated by reference in this prospectus. We have not
authorized anyone to provide you with different information. If
anyone provides you with different or inconsistent information,
you should not rely on it. The selling securityholders are not
making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate only as
of the date on the front cover of this prospectus. Our business,
financial condition, results of operations and prospects may
have changed since that date.
Finisar is a registered trademark of Finisar Corporation. This
prospectus contains product names, trade names and trademarks of
Finisar and other organizations.
Except with respect to the section entitled Description of
Notes, the terms Finisar, we,
us, our, and the company
refer only to Finisar Corporation and its consolidated
subsidiaries.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus and in the documents
incorporated by reference constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995. We use words like anticipates,
believes, plans, expects,
future, intends and similar expressions
to identify these forward-looking statements. We have based
these forward-looking statements on our current expectations and
projections about future events; however, our business and
operations are subject to a variety of risks and uncertainties,
including those listed under Risk Factors and
elsewhere in this prospectus, and, consequently, actual results
may materially differ from those projected by any
forward-looking statements.
2
You should not place undue reliance on these forward-looking
statements. Factors that could cause actual results to differ
from those projected include, but are not limited to, the
following:
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uncertainty regarding our future operating results; |
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our ability to introduce new products in a cost-effective manner
that are accepted in the marketplace; |
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delays or loss of sales due to long product qualification cycles
for our products; |
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the possibility of lower prices, reduced gross margins and loss
of market share due to increased competition; |
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increased demands on our resources due to the integration of
several companies and product lines that we have acquired or may
acquire; |
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cost reductions related to our current or future operations
which may further reduce our available resources and negatively
impact our competitive market position; and |
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the sufficiency of cash flow to meet our debt service
obligations and the potential dilution that would result from
the conversion of our outstanding subordinated convertible notes. |
3
SUMMARY
This summary may not contain all of the information that you
should consider before investing in our notes or shares of
common stock issuable upon conversion of the notes. You should
read the entire prospectus and the documents incorporated by
reference in this prospectus carefully before making an
investment decision.
Finisar Corporation
We are a leading provider of optical subsystems and components
and network performance test and monitoring systems. These
products enable high-speed data communications over local area
networks, or LANs, storage area networks, or SANs, and
metropolitan area networks, or MANs. Optical subsystems consist
primarily of transceivers sold to manufacturers of storage and
networking equipment for SAN, LAN and MAN applications. Optical
subsystems also include multiplexers, demultiplexers and optical
add/drop modules used in MAN applications. We are focused on the
application of digital fiber optics to provide a broad line of
high-performance, reliable, value-added optical subsystems for
data networking and storage equipment manufacturers. Our line of
optical subsystems supports a wide range of network protocols,
transmission speeds, distances, physical mediums and
configurations. Our line of optical components consists
primarily of packaged lasers and photodetectors used in
transceivers, primarily for LAN and SAN applications. We also
provide network performance test and monitoring systems to
original equipment manufacturers for testing and validating
equipment designs and to operators of networking and storage
data centers for testing, monitoring and troubleshooting the
performance of their installed systems. We sell our products
primarily to leading storage and networking equipment
manufacturers such as Brocade, Cisco Systems, EMC, Emulex,
Hewlett-Packard Company and Qlogic.
We were incorporated in California in April 1987 and
reincorporated in Delaware in November 1999. Our principal
executive offices are located at 1308 Moffett Park Drive,
Sunnyvale, California 94089, and our telephone number is
(408) 548-1000 and our website is located at
www.finisar.com. Information on our website is not a part of
this prospectus.
Recent Developments
During our fiscal year ended April 30, 2005, we acquired
one company and certain assets and businesses of two other
companies. In the first quarter of fiscal 2006, we completed the
acquisition of another company. These acquisitions have enabled
us to broaden our product offerings, add new sources of revenues
and obtain advanced technologies.
Acquisition of Assets of Data Transit Corp.
On August 6, 2004, we completed the purchase of
substantially all the assets of Data Transit Corp. in exchange
for a cash payment of $500,000 and the issuance of a convertible
installment note in the original principal amount of
approximately $16.3 million, convertible into shares of our
common stock. The acquired business, previously based in
San Jose, California, manufactures protocol analyzers and
traffic generators and is now operated as a part of our Network
Tools Division at our facility in Sunnyvale, California.
Acquisition of Transceiver and Transponder Product Line from
Infineon Technologies AG
On April 29, 2004, we entered into an agreement with
Infineon Technologies AG to acquire Infineons fiber optics
business unit. On October 11, 2004, we entered into an
amended purchase agreement under which the terms of the original
acquisition agreement were modified. On January 25, 2005,
we and Infineon terminated the amended purchase agreement and
entered into a new agreement under which we acquired certain
assets of Infineons fiber optics business unit associated
with the design, development and manufacture of optical
transceiver and transponder products in exchange for
34 million shares of our common stock. The closing of the
acquisition took place on January 31, 2005, the first day
of our fourth quarter of fiscal 2005. The
4
transaction involved the acquisition of product lines, equipment
and intellectual property related to Infineons optical
transceiver and transponder products.
Acquisition of I-TECH CORP.
On April 8, 2005, we completed the acquisition of I-TECH
CORP., a privately-held network test and monitoring company
based in Eden Prairie, Minnesota in exchange for promissory
notes in the aggregate principal amount of approximately
$12.1 million, convertible into shares of our common stock.
The acquired business is being consolidated with the other
operations of our Network Tools Division located in Sunnyvale,
California.
Acquisition of InterSAN, Inc.
On May 12, 2005, we completed the acquisition of InterSAN,
Inc., a privately-held company located in Scotts Valley,
California in exchange for approximately 7.1 million shares
of our common stock. InterSAN provides network testing and
monitoring software and is now operated as a part of our Network
Tools Division located in Sunnyvale, California.
5
The Offering
The following is a brief summary of certain terms of this
offering. For a more complete description of the terms of the
notes see Description of Notes in this
prospectus.
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Issuer |
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Finisar Corporation |
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Securities offered |
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$150,000,000 aggregate principal amount of
21/2% convertible
subordinated notes due 2010 and shares of common stock issuable
upon conversion of the notes. |
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Maturity of Notes |
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October 15, 2010 |
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Interest on Notes |
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21/2% per
year on the principal amount, payable semiannually on April 15
and October 15, beginning on April 15, 2004. |
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Conversion rights |
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The notes are initially convertible, at the option of the
holder, at any time and from time to time on or prior to the
close of business on the final maturity date into shares of our
common stock at a conversion price of $3.705 per share,
which is equal to a conversion rate of approximately
269.9055 shares per $1,000 principal amount of notes. The
conversion price is subject to adjustment. See Description
of Notes Conversion Rights. |
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Security |
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We have purchased and pledged to the collateral agent, as
security for the exclusive benefit of the holders of the notes,
approximately $15.0 million aggregate principal amount at
maturity of U.S. government securities, which will be
sufficient upon receipt of scheduled principal and interest
payments thereon, to provide for the payment in full of the
first eight scheduled interest payments due on the notes. The
notes are not otherwise secured. See Description of
Notes Security. |
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Ranking |
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The notes are unsecured (except as described above under
Security) and subordinated to all of our existing
and future Senior Indebtedness (as defined under
Description of Notes Subordination of
Notes) and effectively subordinated to all existing and
future indebtedness and other liabilities of our subsidiaries.
Because the notes are subordinated, in the event of bankruptcy,
liquidation, dissolution or acceleration of payment on the
Senior Indebtedness, holders of the notes will not receive any
payment until holders of the Senior Indebtedness have been paid
in full. The notes will rank equally in right of payment with
our
51/4% convertible
subordinated notes due 2008, except to the extent of the
U.S. government securities pledged for the exclusive
benefit of the holders of the notes and the
51/4% convertible
subordinated notes, respectively. The indenture does not limit
the incurrence by us or our subsidiaries of Senior Indebtedness
or other indebtedness. As of April 30, 2005, we had
approximately $35 million of Senior Indebtedness
outstanding. |
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Optional redemption |
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We are entitled to redeem some or all of the notes at any time
and from time to time on or after October 15, 2007, at a
redemption price equal to 100% of the principal amount of notes
being redeemed, plus accrued and unpaid interest, if any, on
such notes to, but excluding, the redemption date, if the
closing price of our common stock has exceeded 150% of the
conversion price then in |
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effect for at least 20 trading days within a period of 30
consecutive trading days ending on the trading day immediately
preceding the date of mailing notice to holders of such optional
redemption. |
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Optional Repurchase |
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Each holder of the notes will have the right to require us to
repurchase some or all of such holders notes on
October 15, 2007, at a repurchase price equal to 100% of
the principal amount of the notes being repurchased, plus
accrued and unpaid interest, if any, on such notes to, but
excluding, the repurchase date. We may, at our option, elect to
pay the repurchase price in cash, shares of our common stock
valued at 95% of the average of the closing prices of our common
stock for the five trading days immediately preceding and
including the third trading day prior to the date we are
required to repurchase the notes, or a combination thereof. We
cannot pay the repurchase price in common stock unless we
satisfy the conditions described in the indenture under which
the notes have been issued. See Description of the
Notes Repurchase at Option of the Holder. |
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Optional Repurchase Upon a Change in Control |
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Upon a change in control, as described in this prospectus, each
holder of the notes will have the right to require us to
repurchase some or all of such holders notes at a
repurchase price equal to 100% of the principal amount of the
notes being repurchased, plus accrued and unpaid interest, if
any, on such notes to, but excluding, the repurchase date. We
may, at our option, elect to pay the change of control purchase
price in cash, shares of our common stock valued at 95% of the
average of the closing prices of our common stock for the five
trading days immediately preceding and including the third
trading day prior to the date we are required to repurchase the
notes, or a combination thereof. We cannot pay the change in
control purchase price in common stock unless we satisfy the
conditions described in the indenture under which the notes have
been issued. See Description of Notes
Repurchase at Option of Holders Upon a Change in Control. |
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DTC eligibility |
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The notes have been issued in fully registered form. The notes
are represented by one or more global notes, deposited with the
trustee as custodian for The Depository Trust Company, or DTC,
and registered in the name of Cede & Co., DTCs
nominee. Beneficial interests in the global notes will be shown
on, and transfers will be effected only through, records
maintained by DTC and its participants. See Description of
Notes Global Notes; Book-Entry; Form. |
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Registration rights |
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We have agreed to use our best efforts keep the shelf
registration statement, of which this prospectus forms a part,
effective until two years after the latest date on which we
issued the notes (or such earlier date when the holders of the
notes and the common stock issuable upon conversion of the notes
are able to sell their securities immediately pursuant to
Rule 144(k) under the Securities Act of 1933, as amended,
or the Securities Act). If we do not comply with these
registration obligations, we will be required, subject to
exceptions, to pay additional interest in the form of liquidated
damages to the holders of the notes or the common stock issuable |
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upon conversion of the notes. See Description of
Notes Registration Rights. |
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Use of proceeds |
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We will not receive any of the proceeds from the sale by any
selling securityholders of the notes or the underlying common
stock. |
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Trading |
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The notes are eligible for trading in the PORTAL market;
however, we cannot predict whether an active trading market for
the notes will develop or, if such market develops, how liquid
it will be. Our common stock is quoted on the Nasdaq National
Market under the symbol FNSR. |
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Risk factors |
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See Risk Factors and other information in this
prospectus for a discussion of factors you should consider
carefully before deciding to invest in the notes or shares of
common stock issuable upon conversion of the notes. |
8
Summary Financial Data
(In thousands, except per share data)
The following summary financial data should be read together
with Managements Discussion and Analysis of
Financial Condition and Results of Operations and our
consolidated financial statements and the notes thereto included
elsewhere in this prospectus. The statement of operations data
set forth below for the fiscal years ended April 30, 2005,
2004 and 2003 and the balance sheet data as of April 30,
2005 and 2004 are derived from, and are qualified by reference
to, our audited consolidated financial statements included
elsewhere in this prospectus. The statement of operations data
set forth below for the fiscal years ended April 30, 2002
and 2001 and the balance sheet data as of April 30, 2003,
2002 and 2001 are derived from audited financial statements not
included in this prospectus. The Managements
Discussion and Analysis of Financial Consolidation and Results
of Operations related to the statement of operations and
balance sheet data for the fiscal years ended April 30,
2002 and 2001 are not included in this prospectus.
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Fiscal Years Ended April 30, | |
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2005 | |
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2004 | |
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2003 | |
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2002 | |
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2001 | |
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Statement of Operations Data:
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Revenues
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$ |
280,823 |
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$ |
185,618 |
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$ |
166,482 |
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$ |
147,265 |
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$ |
188,800 |
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Gross profit (loss)
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49,268 |
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22,794 |
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13,998 |
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(16,480 |
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46,349 |
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Loss from operations
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(88,597 |
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(83,451 |
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(100,931 |
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(258,596 |
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(117,192 |
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Net loss
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$ |
(114,107 |
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$ |
(113,833 |
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$ |
(619,753 |
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$ |
(218,738 |
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$ |
(85,449 |
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Net loss per share basic and diluted:
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$ |
(0.49 |
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$ |
(0.53 |
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$ |
(3.17 |
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$ |
(1.21 |
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$ |
(0.53 |
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Shares used in per share calculations:
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Basic and diluted
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232,210 |
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216,117 |
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195,666 |
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181,136 |
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160,014 |
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As of April 30, | |
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2005 | |
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2004 | |
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2003 | |
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2002 | |
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2001 | |
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Balance Sheet Data:
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Cash, cash equivalents and short-term investments
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$ |
102,362 |
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$ |
143,398 |
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$ |
119,438 |
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$ |
144,097 |
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$ |
146,111 |
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Working capital
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120,272 |
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172,892 |
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149,967 |
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222,603 |
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249,000 |
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Total assets
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488,985 |
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494,705 |
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423,606 |
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1,041,281 |
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1,029,995 |
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Long-term liabilities
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265,274 |
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233,732 |
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101,531 |
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106,869 |
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45,354 |
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Convertible preferred stock
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1 |
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Total stockholders equity
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144,290 |
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202,845 |
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274,980 |
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879,002 |
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941,851 |
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Net income in fiscal 2003 reflects our adoption of Statements of
Financial Accounting Standards 141 and 142 on May 1,
2002. As a result of our adoption, reported net loss decreased
by approximately $127.8 million, or $0.65 per share,
due to the cessation of the amortization of goodwill and the
amortization of acquired workforce and customer base.
9
RISK FACTORS
An investment in the securities offered by this prospectus
involves a high degree of risk. You should carefully consider
the following factors and other information in this prospectus
and in the documents incorporated by reference in this
prospectus before deciding to purchase shares of our common
stock. If any of these risks occur, our business could be
harmed, the trading price of our stock could decline and you may
lose all or part of your investment.
Risks Related To Our Business
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We are subject to a number of special risks as a result of
our recent acquisition of the fiber optics transceiver business
of Infineon Technologies AG |
On January 25, 2005, we entered into an agreement with
Infineon Technologies AG to acquire certain assets associated
with the design, development and manufacture of the optical
transceiver and transponder products of Infineons fiber
optics business unit in exchange for 34,000,000 shares of
Finisar common stock. The acquisition closed on January 31,
2005. Our future results of operation will be substantially
influenced by the operations of the new business, and we are
subject to a number of risks and uncertainties related to the
acquisition, including the following:
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The integration of the former Infineon transceiver and
transponder products and technology with our products and
technology and the transition of the manufacturing operations
for such products to our facilities will be complex,
time-consuming and expensive. The execution of these activities
could potentially disrupt our ongoing business operations and
distract management from day-to-day operational matters, as well
as other strategic opportunities, and could strain our financial
and managerial controls and reporting systems and procedures. In
addition, unanticipated costs could arise during the integration
of the products and technology and the transition of
manufacturing operations to our facilities. If we are unable to
successfully integrate the former Infineon products and
technology with our products and technology, or if actual
integration and transition costs are significantly greater than
currently anticipated, we may not achieve the anticipated
benefits of the acquisition and our revenues and operating
results could be adversely affected. |
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We will be dependent on Infineon to supply us with finished
goods for a transition period of up to one year while we
transfer manufacturing operations to our facilities.
Infineons failure to supply us with high quality products
in a timely manner could adversely affect our operating results
and our ability to retain the former customers of Infineon. In
addition, we expect to realize lower gross profit margins on the
sale of products supplied by Infineon than on the sale of
products we manufacture until such time as those products are
manufactured by us. |
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We plan to transition the manufacture of the former Infineon
transceiver and transponder products from Infineons
production facilities to our facilities over a period of time.
Some of the former Infineon customers may be unwilling to
purchase products manufactured at our facilities without
subjecting the products to new qualification testing procedures,
and some customers may be unwilling to undertake these
procedures and may elect to buy products from other suppliers.
Delays in or losses of sales due to these requalification issues
could result in lower revenues which could adversely affect our
future operating results. |
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Some of the existing customers for the Infineon products may
decide for other reasons to purchase similar products from other
competitors. The loss of one or more significant customers of
the former Infineon business could result in lower revenues
which would adversely affect our future operating results. |
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Immediately prior to the acquisition, Infineon was engaged in a
number of ongoing research and development projects related to
its transceiver products and related technologies. We may not be
able to successfully complete some or all of these projects, and
our inability to do so could prevent us from achieving some of
the strategic objectives and other anticipated potential
benefits of the acquisition, and could have a material adverse
effect on our revenues and operating results. |
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We may incur charges to operations in amounts that are not
currently estimable to reflect costs associated with integrating
the acquired business with our company. These costs could
adversely affect our future operating results. |
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At the closing of the acquisition, we issued 34 million
shares of our common stock to Infineon, which represented
approximately 13% of the outstanding capital stock of Finisar at
that time. The issuance of these shares caused a significant
reduction in the relative percentage interest of current Finisar
stockholders. In April 2005, Infineon sold the 34 million
shares to certain funds managed by VantagePoint Venture Partners
in a private transaction. |
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As a result of the acquisition, Finisar has become a
substantiality larger organization, and if our management is
unable to effectively manage the combined business, our
operating results will suffer. |
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Past and future acquisitions could be difficult to
integrate, disrupt our business, dilute stockholder value and
harm our operating results |
Since October 2000, we have completed the acquisition of eight
privately-held companies, including our recent acquisitions of
I-TECH CORP. in April 2005 and InterSAN, Inc. in May 2005, and
certain businesses and assets from five other companies,
including our recently completed acquisitions of certain assets
related to the transceiver and transponder business of the fiber
optics business unit of Infineon. We continue to review
opportunities to acquire other businesses, product lines or
technologies that would complement our current products, expand
the breadth of our markets or enhance our technical
capabilities, or that may otherwise offer growth opportunities,
and we from time to time make proposals and offers, and take
other steps, to acquire businesses, products and technologies.
Several of our past acquisitions have been material, and
acquisitions that we may complete in the future may be material.
In 10 of our 13 acquisitions, we issued stock as all or a
portion of the consideration. We will issue additional shares
upon conversion of the promissory notes issued as consideration
for the acquisitions of Data Transit and I-TECH. The issuance of
stock in these and any future transactions has or would dilute
stockholders percentage ownership.
Other risks associated with acquiring the operations of other
companies include:
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problems assimilating the purchased operations, technologies or
products; |
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unanticipated costs associated with the acquisition; |
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diversion of managements attention from our core business; |
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adverse effects on existing business relationships with
suppliers and customers; |
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risks associated with entering markets in which we have no or
limited prior experience; and |
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potential loss of key employees of purchased organizations. |
Several of our past acquisitions have not been successful.
During fiscal 2003, we sold some of the assets acquired in two
prior acquisitions, discontinued a product line and closed one
of our acquired facilities. As a result of these activities, we
have incurred significant restructuring charges and charges for
the write-down of assets associated with those acquisitions. We
cannot assure you that we will be successful in overcoming
future problems encountered in connection with our past or
future acquisitions, and our inability to do so could
significantly harm our business. In addition, to the extent that
the economic benefits associated with any of our acquisitions
diminish in the future, we may be required to record additional
write downs of goodwill, intangible assets or other assets
associated with such acquisitions, which would adversely affect
our operating results.
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We have incurred significant net losses, our future
revenues are inherently unpredictable, our operating results are
likely to fluctuate from period to period, and if we fail to
meet the expectations of securities analysts or investors, our
stock price could decline significantly |
We incurred net losses of $114.1 million,
$113.8 million and $619.8 million in our fiscal years
ended April 30, 2005, 2004 and 2003, respectively. Our
operating results for future periods are subject to numerous
uncertainties, and we cannot assure you that we will be able to
achieve or sustain profitability.
Our quarterly and annual operating results have fluctuated
substantially in the past and are likely to fluctuate
significantly in the future due to a variety of factors, some of
which are outside of our control. Accordingly, we believe that
period-to-period comparisons of our results of operations are
not meaningful and should not be relied upon as indications of
future performance. Some of the factors that could cause our
quarterly or annual operating results to fluctuate include
market acceptance of our products, market demand for the
products manufactured by our customers, the introduction of new
products and manufacturing processes, manufacturing yields,
competitive pressures and customer retention.
We may experience a delay in generating or recognizing revenues
for a number of reasons. Orders at the beginning of each quarter
typically represent a small percentage of expected revenues for
that quarter and are generally cancelable at any time.
Accordingly, we depend on obtaining orders during each quarter
for shipment in that quarter to achieve our revenue objectives.
Failure to ship these products by the end of a quarter may
adversely affect our operating results. Furthermore, our
customer agreements typically provide that the customer may
delay scheduled delivery dates and cancel orders within
specified timeframes without significant penalty. Because we
base our operating expenses on anticipated revenue trends and a
high percentage of our expenses are fixed in the short term, any
delay in generating or recognizing forecasted revenues could
significantly harm our business. It is likely that in some
future quarters our operating results will again decrease from
the previous quarter or fall below the expectations of
securities analysts and investors. In this event, it is likely
that the trading price of our common stock would significantly
decline.
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We may have insufficient cash flow to meet our debt
service obligations, including payments due on our subordinated
convertible notes |
We will be required to generate cash sufficient to conduct our
business operations and pay our indebtedness and other
liabilities, including all amounts due on our outstanding
21/2%
and
51/4% convertible
subordinated notes due 2010 and 2008, respectively. The
aggregate outstanding principal amount of these notes was
$250 million at April 30, 2005. Holders of the notes
due in 2010 have the right to require us to repurchase some or
all of their notes on October 15, 2007. We may choose to
pay the repurchase price in cash, shares of our common stock or
a combination thereof. We may not be able to cover our
anticipated debt service obligations from our cash flow. This
may materially hinder our ability to make payments on the notes.
Our ability to meet our future debt service obligations will
depend upon our future performance, which will be subject to
financial, business and other factors affecting our operations,
many of which are beyond our control. Accordingly, we cannot
assure you that we will be able to make required principal and
interest payments on the notes when due.
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We may not be able to obtain additional capital in the
future, and failure to do so may harm our business |
We believe that our existing balances of cash, cash equivalents
and short-term investments will be sufficient to meet our cash
needs for working capital and capital expenditures for at least
the next 12 months. We may, however, require additional
financing to fund our operations in the future or to repay the
principal of our outstanding
21/2%
and
51/4% convertible
subordinated notes due 2010 and 2008, respectively. The
significant contraction in the capital markets, particularly in
the technology sector, may make it difficult for us to raise
additional capital if and when it is required, especially if we
continue to experience disappointing operating results. If
adequate capital is not available to us as required, or is not
available on favorable terms, we could be required to
significantly reduce or restructure our business operations.
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Failure to accurately forecast our revenues could result
in additional charges for obsolete or excess inventories or
non-cancelable purchase commitments |
We base many of our operating decisions, and enter into purchase
commitments, on the basis of anticipated revenue trends which
are highly unpredictable. Some of our purchase commitments are
not cancelable, and in some cases we are required to recognize a
charge representing the amount of material or capital equipment
purchased or ordered which exceeds our actual requirements. In
the past, we have sometimes experienced significant growth
followed by a significant decrease in customer demand such as
occurred in fiscal 2001, when revenues increased by 181%
followed by a decrease of 22% in fiscal 2002. Based on projected
revenue trends during these periods, we acquired inventories and
entered into purchase commitments in order to meet anticipated
increases in demand for our products which did not materialize.
As a result, we recorded significant charges for obsolete and
excess inventories and non-cancelable purchase commitments which
contributed to substantial operating losses in fiscal 2002.
Should revenue in future periods again fall substantially below
our expectations, or should we fail again to accurately forecast
changes in demand mix, we could be required to record additional
charges for obsolete or excess inventories or non-cancelable
purchase commitments.
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Our operating expenses may need to be further reduced
which could impact our future growth |
We experienced a significant decline in revenues and operating
results during fiscal 2002. While revenues have recovered to
some extent beginning in fiscal 2003, they have not yet reached
levels required to operate on a profitable basis due primarily
to higher fixed expenses related to a number of acquisitions,
low gross margins and continued high levels of spending for
research and development in anticipation of future revenue
growth. While we continue to expect future revenue growth, we
have taken steps to reduce our operating expenses in order to
conserve our cash, and we may be required to take further action
to reduce expenses. These expense reduction measures may
adversely affect our ability to market our products, introduce
new and improved products and increase our revenues, which could
adversely affect our business and cause the price of our stock
to decline. In order to be successful in the future, we must
reduce our operating and product expenses, while at the same
time completing our key product development programs and
penetrating new customers.
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We are dependent on widespread market acceptance of two
product families, and our revenues will decline if the market
does not continue to accept either of these product
families |
We currently derive substantially all of our revenue from sales
of our optical subsystems and components and network performance
test and monitoring systems. We expect that revenue from these
products will continue to account for substantially all of our
revenue for the foreseeable future. Accordingly, widespread
acceptance of these products is critical to our future success.
If the market does not continue to accept either our optical
subsystems and components or our network performance test and
monitoring systems, our revenues will decline significantly.
Factors that may affect the market acceptance of our products
include the continued growth of the markets for LANs, SANs, and
MANs and, in particular, Gigabit Ethernet and Fibre
Channel-based technologies, as well as the performance, price
and total cost of ownership of our products and the
availability, functionality and price of competing products and
technologies.
Many of these factors are beyond our control. In addition, in
order to achieve widespread market acceptance, we must
differentiate ourselves from our competition through product
offerings and brand name recognition. We cannot assure you that
we will be successful in making this differentiation or
achieving widespread acceptance of our products. Failure of our
existing or future products to maintain and achieve widespread
levels of market acceptance will significantly impair our
revenue growth.
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We depend on large purchases from a few significant
customers, and any loss, cancellation, reduction or delay in
purchases by these customers could harm our business |
A small number of customers have accounted for a significant
portion of our revenues. For example, sales to our top three
customers represented 39% of our revenues in fiscal 2005,
including sales to Cisco Systems, which represented 28%. Our
success will depend on our continued ability to develop and
manage relationships
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with significant customers. Although we are attempting to expand
our customer base, we expect that significant customer
concentration will continue for the foreseeable future.
The markets in which we sell our products are dominated by a
relatively small number of systems manufacturers, thereby
limiting the number of our potential customers. Our dependence
on large orders from a relatively small number of customers
makes our relationship with each customer critically important
to our business. We cannot assure you that we will be able to
retain our largest customers, that we will be able to attract
additional customers or that our customers will be successful in
selling their products that incorporate our products. We have in
the past experienced delays and reductions in orders from some
of our major customers. In addition, our customers have in the
past sought price concessions from us, and we expect that they
will continue to do so in the future. Cost reduction measures
that we have implemented during the past several quarters, and
additional action we may take to reduce costs, may adversely
affect our ability to introduce new and improved products which
may, in turn, adversely affect our relationships with some of
our key customers. Further, some of our customers may in the
future shift their purchases of products from us to our
competitors or to joint ventures between these customers and our
competitors. The loss of one or more of our largest customers,
any reduction or delay in sales to these customers, our
inability to successfully develop relationships with additional
customers or future price concessions that we may make could
significantly harm our business.
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Because we do not have long-term contracts with our
customers, our customers may cease purchasing our products at
any time if we fail to meet our customers needs |
Typically, we do not have long-term contracts with our
customers. As a result, our agreements with our customers do not
provide any assurance of future sales. Accordingly:
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our customers can stop purchasing our products at any time
without penalty; |
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our customers are free to purchase products from our
competitors; and |
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our customers are not required to make minimum purchases. |
Sales are typically made pursuant to individual purchase orders,
often with extremely short lead times. If we are unable to
fulfill these orders in a timely manner, it is likely that we
will lose sales and customers.
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Our market is subject to rapid technological change, and
to compete effectively we must continually introduce new
products that achieve market acceptance |
The markets for our products are characterized by rapid
technological change, frequent new product introductions,
changes in customer requirements and evolving industry standards
with respect to the protocols used in data communications
networks. We expect that new technologies will emerge as
competition and the need for higher and more cost-effective
bandwidth increases. Our future performance will depend on the
successful development, introduction and market acceptance of
new and enhanced products that address these changes as well as
current and potential customer requirements. The introduction of
new and enhanced products may cause our customers to defer or
cancel orders for existing products. In addition, a slowdown in
demand for existing products ahead of a new product introduction
could result in a write-down in the value of inventory on hand
related to existing products. We have in the past experienced a
slowdown in demand for existing products and delays in new
product development and such delays may occur in the future. To
the extent customers defer or cancel orders for existing
products due to a slowdown in demand or in the expectation of a
new product release or if there is any delay in development or
introduction of our new products or enhancements of our
products, our operating results would suffer. We also may not be
able to develop the underlying core technologies necessary to
create new products and enhancements, or to license these
technologies from third parties. Product development delays may
result from numerous factors, including:
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changing product specifications and customer requirements; |
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unanticipated engineering complexities; |
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expense reduction measures we have implemented, and others we
may implement, to conserve our cash and attempt to accelerate
our return to profitability; |
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difficulties in hiring and retaining necessary technical
personnel; |
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difficulties in reallocating engineering resources and
overcoming resource limitations; and |
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changing market or competitive product requirements. |
The development of new, technologically advanced products is a
complex and uncertain process requiring high levels of
innovation and highly skilled engineering and development
personnel, as well as the accurate anticipation of technological
and market trends. We cannot assure you that we will be able to
identify, develop, manufacture, market or support new or
enhanced products successfully, if at all, or on a timely basis.
Further, we cannot assure you that our new products will gain
market acceptance or that we will be able to respond effectively
to product announcements by competitors, technological changes
or emerging industry standards. Any failure to respond to
technological change would significantly harm our business.
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Continued competition in our markets may lead to a
reduction in our prices, revenues and market share |
The markets for optical subsystems and components and network
performance test and monitoring systems for use in LANs, SANs
and MANs are highly competitive. Our current competitors include
a number of domestic and international companies, many of which
have substantially greater financial, technical, marketing and
distribution resources and brand name recognition than we have.
Other companies, including some of our customers, may enter the
market for optical subsystems and network test and monitoring
systems. We may not be able to compete successfully against
either current or future competitors. Increased competition
could result in significant price erosion, reduced revenue,
lower margins or loss of market share, any of which would
significantly harm our business. For optical subsystems, we
compete primarily with Agilent Technologies, Inc. and JDS
Uniphase Corporation and a number of smaller venders. Our
competitors continue to introduce improved products with lower
prices, and we will have to do the same to remain competitive.
In addition, some of our current and potential customers may
attempt to integrate their operations by producing their own
optical components and subsystems and network test and
monitoring systems or acquiring one of our competitors, thereby
eliminating the need to purchase our products. Furthermore,
larger companies in other related industries, such as the
telecommunications industry, may develop or acquire technologies
and apply their significant resources, including their
distribution channels and brand name recognition, to capture
significant market share.
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Decreases in average selling prices of our products may
reduce gross margins |
The market for optical subsystems is characterized by declining
average selling prices resulting from factors such as increased
competition, overcapacity, the introduction of new products and
increased unit volumes as manufacturers continue to deploy
network and storage systems. We have in the past experienced,
and in the future may experience, substantial period-to-period
fluctuations in operating results due to declining average
selling prices. We anticipate that average selling prices will
decrease in the future in response to product introductions by
competitors or us, or by other factors, including price
pressures from significant customers. Therefore, in order to
achieve and sustain profitable operations, we must continue to
develop and introduce on a timely basis new products that
incorporate features that can be sold at higher average selling
prices. Failure to do so could cause our revenues and gross
margins to decline, which would result in additional operating
losses and significantly harm our business.
We may be unable to reduce the cost of our products sufficiently
to enable us to compete with others. Our cost reduction efforts
may not allow us to keep pace with competitive pricing pressures
and could adversely affect our margins. In order to remain
competitive, we must continually reduce the cost of
manufacturing our products through design and engineering
changes. We may not be successful in redesigning our products or
delivering our products to market in a timely manner. We cannot
assure you that any redesign will result in sufficient cost
reductions to allow us to reduce the price of our products to
remain competitive or improve our gross margins.
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Shifts in our product mix may result in declines in gross
margins |
Our gross profit margins vary among our product families, and
are generally higher on our network test and monitoring systems
than on our optical subsystems and components. Our optical
products sold for longer distance MAN and telecom applications
typically have higher gross margins than our products for
shorter distance LAN or SAN applications. Our gross margins are
generally lower for newly introduced products and improve as
unit volumes increase. Our overall gross margins have fluctuated
from period to period as a result of shifts in product mix, the
introduction of new products, decreases in average selling
prices for older products and our ability to reduce product
costs, and these fluctuations are expected to continue in the
future.
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Our customers often evaluate our products for long and
variable periods, which causes the timing of our revenues and
results of operations to be unpredictable |
The period of time between our initial contact with a customer
and the receipt of an actual purchase order may span a year or
more. During this time, customers may perform, or require us to
perform, extensive and lengthy evaluation and testing of our
products before purchasing and using them in their equipment.
Our customers do not typically share information on the duration
or magnitude of these qualification procedures. The length of
these qualification processes also may vary substantially by
product and customer, and, thus, cause our results of operations
to be unpredictable. While our potential customers are
qualifying our products and before they place an order with us,
we may incur substantial research and development and sales and
marketing expenses and expend significant management effort.
Even after incurring such costs we ultimately may not sell any
products to such potential customers. In addition, these
qualification processes often make it difficult to obtain new
customers, as customers are reluctant to expend the resources
necessary to qualify a new supplier if they have one or more
existing qualified sources. Once our products have been
qualified, the agreements that we enter into with our customers
typically contain no minimum purchase commitments. Failure of
our customers to incorporate our products into their systems
would significantly harm our business.
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We depend on facilities located outside of the United
States to manufacture a substantial portion of our products,
which subjects us to additional risks |
In addition to our principal manufacturing facility in Malaysia,
we operate smaller facilities in China and Singapore and also
rely on two contract manufacturers located outside of the United
States. We also rely on Infineon to manufacture transceiver and
transponder products for us until we are able to transfer
manufacturing operations to our production facilities. Each of
these facilities and manufacturers subjects us to additional
risks associated with international manufacturing, including:
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unexpected changes in regulatory requirements; |
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legal uncertainties regarding liability, tariffs and other trade
barriers; |
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inadequate protection of intellectual property in some countries; |
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greater incidence of shipping delays; |
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greater difficulty in overseeing manufacturing operations; |
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greater difficulty in hiring technical talent needed to oversee
manufacturing operations; |
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potential political and economic instability; |
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currency fluctuations; and |
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the outbreak of infectious diseases such as severe acute
respiratory syndrome, or SARS, which could result in travel
restrictions or the closure of our facilities or the facilities
of our customers and suppliers. |
Any of these factors could significantly impair our ability to
source our contract manufacturing requirements internationally.
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Our business and future operating results are subject to a
wide range of uncertainties arising out of the continuing threat
of terrorist attacks and ongoing military action in the Middle
East |
Like other U.S. companies, our business and operating
results are subject to uncertainties arising out of the
continuing threat of terrorist attacks on the United States and
ongoing military action in the Middle East, including the
potential worsening or extension of the current global economic
slowdown, the economic consequences of the war in Iraq or
additional terrorist activities and associated political
instability, and the impact of heightened security concerns on
domestic and international travel and commerce. In particular,
due to these uncertainties we are subject to:
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increased risks related to the operations of our manufacturing
facilities in Malaysia; |
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greater risks of disruption in the operations of our Asian
contract manufacturers and more frequent instances of shipping
delays; and |
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the risk that future tightening of immigration controls may
adversely affect the residence status of non-U.S. engineers
and other key technical employees in our U.S. facilities or
our ability to hire new non-U.S. employees in such
facilities. |
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We may lose sales if our suppliers fail to meet our
needs |
We currently purchase several key components used in the
manufacture of our products from single or limited sources. We
are also dependent on Infineon to supply finished transceiver
and transponder products during a transition period of up to one
year until we have transitioned the manufacturing operations to
other facilities. We depend on these current and future sources
to meet our production needs. Moreover, we depend on the quality
of the products supplied to us over which we have limited
control. We have encountered shortages and delays in obtaining
components in the past and expect to encounter shortages and
delays in the future. If we cannot supply products due to a lack
of components, or are unable to redesign products with other
components in a timely manner, our business will be
significantly harmed. We generally have no long-term contracts
for any of our components. As a result, a supplier can
discontinue supplying components to us without penalty. If a
supplier discontinued supplying a component, our business may be
harmed by the resulting product manufacturing and delivery
delays. We are also subject to potential delays in the
development by our suppliers of key components which may affect
our ability to introduce new products.
We use rolling forecasts based on anticipated product orders to
determine our component requirements. Lead times for materials
and components that we order vary significantly and depend on
factors such as specific supplier requirements, contract terms
and current market demand for particular components. If we
overestimate our component requirements, we may have excess
inventory, which would increase our costs. If we underestimate
our component requirements, we may have inadequate inventory,
which could interrupt our manufacturing and delay delivery of
our products to our customers. Any of these occurrences would
significantly harm our business.
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We have made and may continue to make strategic
investments which may not be successful and may result in the
loss of all or part of our invested capital |
Through fiscal 2005, we recorded minority equity investments in
early-stage technology companies, totaling $52.4 million.
Our recent investment of $4.75 million in CyOptics is a
similar minority equity investment. Our investments in these
early stage companies were primarily motivated by our desire to
gain early access to new technology. We intend to review
additional opportunities to make strategic equity investments in
pre-public companies where we believe such investments will
provide us with opportunities to gain access to important
technologies or otherwise enhance important commercial
relationships. We have little or no influence over the
early-stage companies in which we have made or may make these
strategic, minority equity investments. Each of these
investments in pre-public companies involves a high degree of
risk. We may not be successful in achieving the financial,
technological or commercial advantage upon which any given
investment is premised, and failure by the early-stage company
to achieve its own business objectives or to raise capital
needed on acceptable economic terms could result in a loss of
all or part of our invested capital. In
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fiscal 2003, we wrote off $12.0 million in two investments
which became impaired. In fiscal 2004, we wrote off
$1.6 million in two additional investments, and in fiscal
2005, we wrote off $10.0 million in another investment. We
may be required to write off all or a portion of the
$21.4 million in such investments remaining on our balance
sheet as of April 30, 2005 in future periods.
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We are subject to pending legal proceedings |
A securities class action lawsuit was filed on November 30,
2001 in the United States District Court for the Southern
District of New York, purportedly on behalf of all persons who
purchased our common stock from November 17, 1999 through
December 6, 2000. The complaint named as defendants
Finisar, Jerry S. Rawls, our President and Chief Executive
Officer, Frank H. Levinson, our Chairman of the Board and Chief
Technical Officer, Stephen K. Workman, our Senior Vice President
and Chief Financial Officer, and an investment banking firm that
served as an underwriter for our initial public offering in
November 1999 and a secondary offering in April 2000. The
complaint, as amended, alleges violations of Sections 11
and 15 of the Securities Act of 1933 and Sections 10(b) and
20(b) of the Securities Exchange Act of 1934. No specific
damages are claimed. Similar allegations have been made in
lawsuits relating to more than 300 other initial public
offerings conducted in 1999 and 2000, which were consolidated
for pretrial purposes. In October 2002, all claims against the
individual defendants were dismissed without prejudice. On
February 19, 2003, our motion to dismiss the complaint was
denied. In July 2004, we and the individual defendants accepted
a settlement proposal made to all of the issuer defendants.
Under the terms of the settlement, the plaintiffs will dismiss
and release all claims against participating defendants in
exchange for a contingent payment guaranty by the insurance
companies collectively responsible for insuring the issuers in
all related cases, and the assignment or surrender to the
plaintiffs of certain claims the issuer defendants may have
against the underwriters. Under the guaranty, the insurers will
be required to pay the amount, if any, by which $1 billion
exceeds the aggregate amount ultimately collected by the
plaintiffs from the underwriter defendants in all the cases. If
the plaintiffs fail to recover $1 billion and payment is
required under the guaranty, we would be responsible to pay our
pro rata portion of the shortfall, up to the amount of the
self-insured retention under our insurance policy, which may be
up to $2 million. The timing and amount of payments that we
could be required to make under the proposed settlement will
depend on several factors, principally the timing and amount of
any payment that the insurers may be required to make pursuant
to the $1 billion guaranty. On February 15, 2005, the
Court issued an order providing preliminary approval of the
proposed settlement except insofar as the settlement would have
cut off contractual indemnification claims that underwriters may
have against securities issuers, such as the Company. On
April 13, 2005, the Court held a further conference to
determine the final form, substance and program of class notice
and set a hearing for January 9, 2006 to consider final
approval of the settlement. If the settlement is not approved by
the Court, we intend to defend the lawsuit vigorously. Because
of the inherent uncertainty of litigation, however, we cannot
predict its outcome. If, as a result of this dispute, we are
required to pay significant monetary damages, our business would
be substantially harmed.
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We have identified material weaknesses in our internal
control over financial reporting which could lead to errors in
our financial statements |
We identified material weaknesses in our internal control over
financial reporting, as discussed in this prospectus in the
section of Managements Discussion and Analysis titled
Managements Report on Internal Control Over
Financial Reporting. Although steps are being taken to
remediate these deficiencies, there can be no assurance that
these remediation steps will be successful or that, as a result
of our ongoing evaluation of our internal control over financial
reporting, we will not identify additional material weaknesses.
Although management determined that the material weaknesses did
not affect the financial results reported in our consolidated
financial statements as of, and for the year ended,
April 30, 2005, there can be no assurance that unremediated
weaknesses in our internal control over financial reporting will
not result in errors that are material to the financial results
reported in our consolidated financial statements for future
periods.
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Because of competition for technical personnel, we may not
be able to recruit or retain necessary personnel |
We believe our future success will depend in large part upon our
ability to attract and retain highly skilled managerial,
technical, sales and marketing, finance and manufacturing
personnel. In particular, we may need to increase the number of
technical staff members with experience in high-speed networking
applications as we further develop our product lines.
Competition for these highly skilled employees in our industry
is intense. Our failure to attract and retain these qualified
employees could significantly harm our business. The loss of the
services of any of our qualified employees, the inability to
attract or retain qualified personnel in the future or delays in
hiring required personnel could hinder the development and
introduction of and negatively impact our ability to sell our
products. In addition, employees may leave our company and
subsequently compete against us. Moreover, companies in our
industry whose employees accept positions with competitors
frequently claim that their competitors have engaged in unfair
hiring practices. We have been subject to claims of this type
and may be subject to such claims in the future as we seek to
hire qualified personnel. Some of these claims may result in
material litigation. We could incur substantial costs in
defending ourselves against these claims, regardless of their
merits.
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Our products may contain defects that may cause us to
incur significant costs, divert our attention from product
development efforts and result in a loss of customers |
Networking products frequently contain undetected software or
hardware defects when first introduced or as new versions are
released. Our products are complex and defects may be found from
time to time. In addition, our products are often embedded in or
deployed in conjunction with our customers products which
incorporate a variety of components produced by third parties.
As a result, when problems occur, it may be difficult to
identify the source of the problem. These problems may cause us
to incur significant damages or warranty and repair costs,
divert the attention of our engineering personnel from our
product development efforts and cause significant customer
relation problems or loss of customers, all of which would harm
our business.
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Our failure to protect our intellectual property may
significantly harm our business |
Our success and ability to compete is dependent in part on our
proprietary technology. We rely on a combination of patent,
copyright, trademark and trade secret laws, as well as
confidentiality agreements to establish and protect our
proprietary rights. We license certain of our proprietary
technology, including our digital diagnostics technology, to
customers who include current and potential competitors, and we
rely largely on provisions of our licensing agreements to
protect our intellectual property rights in this technology.
Although a number of patents have been issued to us, we have
obtained a number of other patents as a result of our
acquisitions, and we have filed applications for additional
patents, we cannot assure you that any patents will issue as a
result of pending patent applications or that our issued patents
will be upheld. Any infringement of our proprietary rights could
result in significant litigation costs, and any failure to
adequately protect our proprietary rights could result in our
competitors offering similar products, potentially resulting in
loss of a competitive advantage and decreased revenues. Despite
our efforts to protect our proprietary rights, existing patent,
copyright, trademark and trade secret laws afford only limited
protection. In addition, the laws of some foreign countries do
not protect our proprietary rights to the same extent as do the
laws of the United States. Attempts may be made to copy or
reverse engineer aspects of our products or to obtain and use
information that we regard as proprietary. Accordingly, we may
not be able to prevent misappropriation of our technology or
deter others from developing similar technology. Furthermore,
policing the unauthorized use of our products is difficult. We
are currently engaged in pending litigation to enforce certain
of our patents, and additional litigation may be necessary in
the future to enforce our intellectual property rights or to
determine the validity and scope of the proprietary rights of
others. This litigation could result in substantial costs and
diversion of resources and could significantly harm our business.
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Claims that we infringe third-party intellectual property
rights could result in significant expenses or restrictions on
our ability to sell our products |
The networking industry is characterized by the existence of a
large number of patents and frequent litigation based on
allegations of patent infringement. We have been involved in the
past in patent infringement lawsuits. From time to time, other
parties may assert patent, copyright, trademark and other
intellectual property rights to technologies and in various
jurisdictions that are important to our business. Any claims
asserting that our products infringe or may infringe proprietary
rights of third parties, if determined adversely to us, could
significantly harm our business. Any claims, with or without
merit, could be time-consuming, result in costly litigation,
divert the efforts of our technical and management personnel,
cause product shipment delays or require us to enter into
royalty or licensing agreements, any of which could
significantly harm our business. Royalty or licensing
agreements, if required, may not be available on terms
acceptable to us, if at all. In addition, our agreements with
our customers typically require us to indemnify our customers
from any expense or liability resulting from claimed
infringement of third party intellectual property rights. In the
event a claim against us was successful and we could not obtain
a license to the relevant technology on acceptable terms or
license a substitute technology or redesign our products to
avoid infringement, our business would be significantly harmed.
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Our executive officers and directors and entities
affiliated with them own a large percentage of our voting stock,
and VantagePoint Venture Partners has recently acquired a large
block of our common stock, that has resulted in a substantial
concentration of control and could have the effect of delaying
or preventing a change in our control |
As of June 30, 2005, our executive officers and directors
and certain entities affiliated with them beneficially owned
approximately 36.7 million shares of our common stock, or
approximately 13.1% of the outstanding shares. These
stockholders, acting together, may be able to substantially
influence the outcome of matters requiring approval by
stockholders, including the election or removal of directors and
the approval of mergers or other business combination
transactions. In addition, certain funds managed by VantagePoint
Venture Partners, of which David C. Fries, a director of the
Company, is a managing director hold approximately 12.3% of our
outstanding common stock. Accordingly, if VantagePoint Venture
Partners continues to hold its shares, it may also be able to
influence the outcome of matters requiring stockholder approval,
and VantagePoint Venture Partners, our executive officers,
directors and entities affiliated with them, voting together,
may be able to effectively control the outcome of such matters.
This concentration of ownership could have the effect of
delaying or preventing a change in control or otherwise
discouraging a potential acquirer from attempting to obtain
control of us, which in turn could have an adverse effect on the
market price of our common stock or prevent our stockholders
from realizing a premium over the market price for their shares
of common stock.
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The conversion of our outstanding convertible subordinated
notes would result in substantial dilution to our current
stockholders |
We currently have outstanding
51/4% convertible
subordinated notes due 2008 in the principal amount of
$100.3 million and
21/2% convertible
subordinated notes due 2010 in the principal amount of
$150.0 million. The 5 1/4% notes are convertible, at
the option of the holder, at any time on or prior to maturity
into shares of our common stock at a conversion price of
$5.52 per share. The
21/2% notes
are convertible, at the option of the holder, at any time on or
prior to maturity into shares of our common stock at a
conversion price of $3.705 per share. An aggregate of
58,647,060 shares of common stock would be issued upon the
conversion of all outstanding convertible subordinated notes at
these exchange rates, which would significantly dilute the
voting power and ownership percentage of our existing
stockholders. Holders of the notes due in 2010 have the right to
require us to repurchase some or all of their notes on
October 15, 2007. We may choose to pay the repurchase price
in cash, shares of our common stock or a combination thereof.
Our right to repurchase the notes, in whole or in part, with
shares of our common stock is subject to the registration of the
shares of our common stock to be issued upon repurchase under
the Securities Act, if required, and registration with or
approval of any state or federal governmental authority if such
registration or approval is required before such
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shares may be issued. We have previously entered into privately
negotiated transactions with certain holders of our convertible
subordinated notes for the repurchase of notes in exchange for a
greater number of shares of our common stock than would have
been issued had the principal amount of the notes been converted
at the original conversion rate specified in the notes, thus
resulting in more dilution. Although we do not currently have
any plans to enter into similar transactions in the future, if
we were to do so there would be additional dilution to the
voting power and percentage ownership of our existing
stockholders.
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Delaware law, our charter documents and our stockholder
rights plan contain provisions that could discourage or prevent
a potential takeover, even if such a transaction would be
beneficial to our stockholders |
Some provisions of our certificate of incorporation and bylaws,
as well as provisions of Delaware law, may discourage, delay or
prevent a merger or acquisition that a stockholder may consider
favorable. These include provisions:
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authorizing the board of directors to issue additional preferred
stock; |
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prohibiting cumulative voting in the election of directors; |
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limiting the persons who may call special meetings of
stockholders; |
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prohibiting stockholder actions by written consent; |
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creating a classified board of directors pursuant to which our
directors are elected for staggered three-year terms; |
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permitting the board of directors to increase the size of the
board and to fill vacancies; |
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requiring a super-majority vote of our stockholders to amend our
bylaws and certain provisions of our certificate of
incorporation; and |
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establishing advance notice requirements for nominations for
election to the board of directors or for proposing matters that
can be acted on by stockholders at stockholder meetings. |
We are subject to the provisions of Section 203 of the
Delaware General Corporation Law which limit the right of a
corporation to engage in a business combination with a holder of
15% or more of the corporations outstanding voting
securities, or certain affiliated persons.
In addition, in September 2002, our board of directors adopted a
stockholder rights plan under which our stockholders received
one share purchase right for each share of our common stock held
by them. Subject to certain exceptions, the rights become
exercisable when a person or group (other than certain exempt
persons) acquires, or announces its intention to commence a
tender or exchange offer upon completion of which such person or
group would acquire, 20% or more of our common stock without
prior board approval. Should such an event occur, then, unless
the rights are redeemed or have expired, our stockholders, other
than the acquirer, will be entitled to purchase shares of our
common stock at a 50% discount from its then-Current Market
Price (as defined) or, in the case of certain business
combinations, purchase the common stock of the acquirer at a 50%
discount.
Although we believe that these charter and bylaw provisions,
provisions of Delaware law and our stockholder rights plan
provide an opportunity for the board to assure that our
stockholders realize full value for their investment, they could
have the effect of delaying or preventing a change of control,
even under circumstances that some stockholders may consider
beneficial.
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Our business and future operating results may be adversely
affected by events outside of our control |
Our business and operating results are vulnerable to events
outside of our control, such as earthquakes, fire, power loss,
telecommunications failures and uncertainties arising out of
terrorist attacks in the United States and overseas. Our
corporate headquarters and a portion of our manufacturing
operations are located in California. California in particular
has been vulnerable to natural disasters, such as earthquakes,
fires and
21
floods, and other risks which at times have disrupted the local
economy and posed physical risks to our property. We are also
dependent on communications links with our overseas
manufacturing locations and would be significantly harmed if
these links were interrupted for any significant length of time.
We presently do not have adequate redundant, multiple site
capacity if any of these events were to occur, nor can we be
certain that the insurance we maintain against these events
would be adequate.
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Our stock price has been and is likely to continue to be
volatile |
The trading price of our common stock has been and is likely to
continue to be subject to large fluctuations. Our stock price
may increase or decrease in response to a number of events and
factors, including:
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trends in our industry and the markets in which we operate; |
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changes in the market price of the products we sell; |
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changes in financial estimates and recommendations by securities
analysts; |
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acquisitions and financings; |
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quarterly variations in our operating results; |
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the operating and stock price performance of other companies
that investors in our common stock may deem comparable; and |
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purchases or sales of blocks of our common stock. |
Part of this volatility is attributable to the current state of
the stock market, in which wide price swings are common. This
volatility may adversely affect the prices of our common stock
regardless of our operating performance.
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Our future operating results may be subject to volatility
as a result of exposure to foreign exchange risks |
We are also exposed to foreign exchange risks. Foreign currency
fluctuations may affect both our revenues and our costs and
expenses and significantly affect our operating results. Prices
for our products are currently denominated in U.S. dollars
for sales to our customers throughout the world. If there is a
significant devaluation of the currency in a specific country
relative to the dollar, the prices of our products will increase
relative to that countrys currency, our products may be
less competitive in that country and our revenues may be
adversely affected.
Although we price our products in U.S. dollars, portions of
both our cost of revenues and operating expenses are incurred in
foreign currencies, principally the Malaysian ringit, the
Chinese yuan and the Euro. As a result, we bear the risk that
the rate of inflation in one or more countries will exceed the
rate of the devaluation of that countrys currency in
relation to the U.S. dollar, which would increase our costs
as expressed in U.S. dollars. On July 21, 2005, the
Peoples Bank of China announced that the yuan will no
longer be pegged to the U.S. dollar but will be allowed to
float in a band (and, to a limited extent, increase in value)
against a basket of foreign currencies. This development
increases the risk that Chinese-sourced materials and labor
could become more expensive for us. To date, we have not engaged
in currency hedging transactions to decrease the risk of
financial exposure from fluctuations in foreign exchange rates.
Risks Related To The Notes
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We may have insufficient cash flow to meet our debt
service obligations, including payments due on the notes |
We will be required to generate cash sufficient to pay our
indebtedness and other liabilities, including all amounts due on
our outstanding
21/2%
and
51/4% convertible
subordinated notes due 2010 and 2008, respectively, and to
conduct our business operations. We may not be able to cover our
anticipated debt service obligations from our cash flow. This
may materially hinder our ability to make payments on the notes.
Our
22
ability to meet our future debt service obligations will depend
upon our future performance, which will be subject to financial,
business and other factors affecting our operations, many of
which are beyond our control. Accordingly, we cannot assure you
that we will be able to make required principal and interest
payments on the notes when due.
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Our stock price has been and may continue to be
volatile |
The trading price of our common stock has been and may continue
to be subject to large fluctuations and, therefore, the trading
price of the notes may fluctuate significantly, which may result
in losses to holders of the notes. Our stock price and the value
of the notes may increase or decrease in response to a number of
events and factors, including:
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trends in our industry and the markets in which we operate; |
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changes in the market price of the products we sell; |
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changes in financial estimates and recommendations by securities
analysts; |
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acquisitions and financings; |
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quarterly variations in operating results; |
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the operating and stock price performance of other companies
that investors in our common stock may deem comparable; and |
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purchases or sales of blocks of our common stock. |
Part of this volatility is attributable to the current state of
the stock market, in which wide price swings are common. This
volatility may adversely affect the prices of our common stock
and the notes regardless of our operating performance.
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The notes are unsecured and subordinated |
Except as described in the Description of
Notes Security and Description of
Notes Subordination of Notes sections of this
prospectus, the notes are unsecured and subordinated in right of
payment to all of our existing and future Senior Indebtedness
(as defined under Description of Notes
Subordination of Notes). As a result, in the event of our
bankruptcy, liquidation or reorganization or upon the
acceleration of payment of the notes due to an event of default,
as defined below, and in specific other events, our assets will
be available to pay obligations on the notes only after all
Senior Indebtedness has been paid in full in cash or other
payment satisfactory to the holders of Senior Indebtedness.
There may not be sufficient assets remaining to pay amounts due
on any or all of the notes then outstanding. As of
April 30, 2005, Finisar, excluding its subsidiaries, had
approximately $35 million of Senior Indebtedness
outstanding. The notes are also effectively subordinated to the
indebtedness and other liabilities, including trade payables, of
our subsidiaries. As of April 30, 2005, our subsidiaries
did not have any indebtedness and other liabilities (excluding
indebtedness and other liabilities owed to us and other
intercompany indebtedness and other liabilities).
The notes rank equally in right of payment with our
51/4% convertible
subordinated notes due 2008, except to the extent of the
U.S. government securities pledged for the exclusive
benefit of the holders of the notes and the
51/4% convertible
subordinated notes, respectively.
The indenture does not prohibit or limit the incurrence of
Senior Indebtedness or the incurrence of other indebtedness and
other liabilities by us or our subsidiaries. The incurrence of
additional indebtedness or other liabilities by us or our
subsidiaries could adversely affect our ability to pay our
obligations on the notes. We anticipate that from time to time
we and our subsidiaries will incur additional indebtedness,
including Senior Indebtedness.
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The notes are not protected by restrictive
covenants |
The indenture governing the notes does not contain any financial
or operating covenants or restrictions on the payments of
dividends, the incurrence of indebtedness or the issuance or
repurchase of securities by us or any of our subsidiaries. The
indenture contains no covenants or other provisions to afford
protection to holders of the notes in the event of a change in
control involving Finisar, except to the extent described under
Description of Notes.
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We may not have the funds necessary, and may not be
permitted, to repurchase the notes at the option of the holders
or upon a change in control |
On October 15, 2007, holders of the notes may require us to
repurchase their notes. It is possible that we would not have
sufficient funds to make the required repurchase. As a result,
we may be required to pay all or a portion of the repurchase
price in shares of our common stock, subject to satisfying the
conditions in the indenture for making such payments. If we were
unable to satisfy the conditions in the indenture to use our
common stock to pay the repurchase price, we could be in default
of our obligations on the notes. Furthermore, the use of
available cash to fund any required repurchase may impair our
ability to obtain additional financing in the future. Our
failure to repurchase any notes as and when required would
constitute an event of default, allowing holders of all of the
notes to demand immediate repayment, which, under cross-default
provisions, would in turn allow the holders of our
51/4% convertible
subordinated notes due 2008 to demand immediate repayment as
well. We cannot assure you that we would have funds available to
repay all of this indebtedness were it to be accelerated.
In addition, upon the occurrence of certain specific kinds of
change in control events, we could be required to repurchase
some or all of our outstanding notes for cash, common stock or a
combination thereof. However, it is possible that upon a change
in control we would not have sufficient funds to make the
required repurchase of the notes or that restrictions in our
outstanding indebtedness would not allow those repurchases. The
occurrence of a change in control could cause an event of
default under, or be prohibited or limited by, the terms of
existing or future Senior Indebtedness. As a result, any
repurchase of the notes would, absent a waiver, be prohibited
under the subordination provisions of the indenture until the
Senior Indebtedness is paid in full. In addition, certain
important corporate events, such as leveraged recapitalizations
that would increase the level of our outstanding indebtedness,
would not necessarily constitute a change in control
under the indenture. See Description of Notes
Repurchase at Option of Holders Upon a Change in Control.
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There are risks to holders in the event of a
bankruptcy |
Access to the U.S. government securities that are pledged
to secure our payment of the initial eight scheduled
installments of interest on the notes may be subject to the
automatic stay provisions of the Bankruptcy Code in the event of
our bankruptcy. Therefore, it is possible that there will be a
delay while the bankruptcy court considers the issue, in which
case our bankruptcy may cause a delay in receipt of amounts
pledged.
In addition, if we fail to deliver our common stock upon a
conversion of a note and thereafter become the subject of
bankruptcy proceedings, a holders claim for damages
arising from such failure could be subordinated to all of our
existing and future obligations. See Description of
Notes Subordination of Notes.
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We have substantially increased our indebtedness |
As a result of the sale of the notes in October 2003, we have
incurred $150 million of additional indebtedness,
substantially increasing our ratio of debt to total
capitalization. We may incur substantial additional indebtedness
in the future. The level of our indebtedness, among other
things, could:
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make it difficult for us to make payments on the notes; |
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make it difficult for us to obtain any necessary future
financing for working capital, capital expenditures, debt
service requirements or other purposes; |
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limit our flexibility in planning for, or reacting to changes
in, our business; and |
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make us more vulnerable in the event of a downturn in our
business. |
There can be no assurance that we will be able to meet our debt
service obligations, including our obligations under the notes.
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Because there is no current market for the notes, an
active trading market for the notes may not develop |
There is no established trading market for the notes. We have
been informed by the initial purchasers that they intend to make
a market in the notes. However, the initial purchasers are not
required to make a market in the notes, and they may cease their
market-making at any time. Accordingly, there can be no
assurance that a market for the notes will develop or as to the
liquidity of any market that may develop. Furthermore, if a
market were to develop, the market price for the notes may be
adversely affected by changes in our financial performance,
changes in the overall market for similar securities and
performance or prospects for companies in our industry.
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Holders of the notes will suffer immediate dilution in net
tangible book value on conversion of the notes into common
stock |
Net tangible book value represents the amount of our total
tangible assets less total liabilities. Upon conversion of the
notes into shares of common stock, holders of the notes will
suffer immediate substantial dilution in the net tangible book
value per share of the common stock issued upon such conversion.
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Shares eligible for public sale after this offering could
adversely affect our stock price |
As of April 30, 2005, 48,766,741 shares of our common
stock were issuable upon exercise of options outstanding under
our stock option plans and assumed option plans, of which
36,254,932 shares were underlying vested stock options
that, upon exercise of such options, would be currently eligible
for sale in the public market. We currently have on file a
registration statement on Form S-8 under the Securities Act
covering the shares underlying these options. In addition,
18,161,231 shares of our common stock were issuable upon
the conversion of our
51/4% convertible
subordinated notes due 2008, 942,332 shares of our common
stock were issuable upon exercise of warrants outstanding at
April 30, 2005 and additional shares of our common stock
were issuable upon conversion of outstanding convertible
promissory notes issued in connection with our acquisitions of
I-TECH CORP. and the assets of Data Transit. The exact number of
shares of our common stock issuance upon conversion of the
convertible promissory notes is dependent on the trading price
of our common stock on the dates of conversion of the notes. We
cannot predict the effect, if any, that market sales of those
shares of common stock or the availability of those shares of
common stock for sale will have on the market price of our
common stock from time to time. The sale of a substantial number
of shares held by our existing stockholders in the public
market, including shares issued upon exercise of outstanding
options or warrants, or upon the conversion of outstanding
notes, whether pursuant to a public offering or otherwise, or
the perception that these sales could occur, could adversely
affect the market price of our common stock. Such sales could
materially impair our ability to raise capital through an
offering of equity securities in the future at a time and price
we deem appropriate.
USE OF PROCEEDS
We will not receive any proceeds from the sale by the selling
securityholders of the common stock offered hereby.
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PRICE RANGE OF OUR COMMON STOCK
Our common stock is traded on the Nasdaq National Market under
the symbol FNSR. The following table sets forth the
range of high and low closing sales prices of our common stock
for the periods indicated:
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Low | |
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Fiscal 2006 Quarter Ended:
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July 31, 2005
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$ |
1.30 |
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$ |
1.01 |
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Fiscal 2005 Quarter Ended:
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April 30, 2005
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$ |
1.26 |
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$ |
1.12 |
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January 31, 2005
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$ |
1.78 |
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$ |
1.66 |
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October 31, 2004
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$ |
1.47 |
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$ |
1.42 |
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July 31, 2004
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$ |
1.53 |
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$ |
1.41 |
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Fiscal 2004 Quarter Ended:
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April 30, 2004
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$ |
3.26 |
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$ |
1.77 |
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January 31, 2004
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$ |
4.14 |
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$ |
2.80 |
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October 31, 2003
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$ |
3.41 |
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$ |
1.62 |
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July 31, 2003
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$ |
1.94 |
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$ |
1.09 |
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The closing price of our common stock as reported on the Nasdaq
National Market on July 29, 2005 was $1.09. The approximate
number of stockholders of record on June 30, 2005 was 471.
This number does not include stockholders whose shares are held
in trust by other entities. The number of beneficial
stockholders of our shares is greater than the number of
stockholders of record.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common
stock and currently intend to retain earnings for use in our
business and do not anticipate paying any cash dividends in the
foreseeable future. The payment of dividends in the future will
be subject to the discretion of our Board of Directors, will be
subject to applicable law and will depend on our results of
operations, earnings, financial condition, contractual
limitations, cash requirements, future prospects and other
factors deemed relevant by our Board of Directors.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of our earnings to our fixed charges for each of the
periods indicated is as follows:
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Fiscal Year Ended April 30, | |
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2001 | |
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Ratio of earnings to fixed charges(1)
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x |
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x |
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(1) |
The ratio of earnings to fixed charges is computed by dividing
the sum of income (loss) from continuing operations before
provision for income taxes and cumulative effect of change in
accounting principle plus fixed charges by fixed charges. Fixed
charges consist of interest expense and that portion of rental
payments under operating leases we believe to be representative
of interest. Earnings, as defined, were insufficient to cover
fixed charges by $113.3 million, $113.5 million,
$158.9 million, $257.3 million and $84.4 million
for the fiscal years ended April 30, 2005, 2004, 2003, 2002
and 2001 respectively. |
DESCRIPTION OF NOTES
The notes have been issued under an indenture dated as of
October 15, 2003 between us and U.S. Bank Trust
National Association, as trustee. The terms of the notes include
those provided in the indenture and those made part of the
indenture by reference to the Trust Indenture Act of 1939, as
amended. The pledge agreement, which we entered into on
October 15, 2003 with the initial purchasers and is
referred to below
26
under the caption Security, defines the
terms of the pledged securities that secure the payment of the
first eight scheduled interest payments on the notes when due.
The following description is a summary of the material
provisions of the indenture, the pledge agreement and the
registration rights agreement, which we entered into on
October 15, 2003 with the initial purchasers. It does not
restate those agreements in their entirety. We urge you to read
the indenture, the registration rights agreement and the pledge
agreement because they, and not this description, define your
rights as a holder of the notes. A copy of the form of
indenture, the registration rights agreement and the pledge
agreement will be available upon request to us and are on file
with the Securities and Exchange Commission.
Terms not defined in this description have the meanings given to
them in the indenture. In this section, the words
we, us, our or
Finisar do not include any current or future
subsidiary of Finisar Corporation.
General
Except to the extent described under
Security below, the notes:
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are unsecured general subordinated obligations of Finisar; |
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rank junior in right of payment to all existing and future
senior indebtedness of Finisar; |
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rank equal in right of payment to any existing and future
subordinated debt of Finisar; and |
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are structurally subordinated to any existing and future
indebtedness and other liabilities of Finisars
subsidiaries. |
As of April 30, 2005, we had approximately $35 million
of outstanding Senior Indebtedness, as defined under
Subordination of Notes. As indicated
above and as discussed below under the caption
Subordination of Notes, payments on the
notes will be subordinated in right of payment to the payment of
our Senior Indebtedness. The indenture permits us to incur
additional Senior Indebtedness.
The notes are convertible into shares of our common stock as
described under Conversion Rights below.
The notes are limited to $150,000,000 aggregate principal amount
and will mature on October 15, 2010.
The notes bear interest at the rate of
21/2% per
year from the date of original issuance of the notes. Interest
is payable semi-annually in arrears on April 15 and
October 15 of each year, commencing on April 15, 2004,
to holders of record at the close of business on the preceding
April 1 and October 1, respectively. Interest will be
computed on the basis of a 360-day year comprised of twelve
30-day months. In the event of the maturity, conversion,
redemption or repurchase by us at the option of the holder or
upon a change in control of a note, interest will cease to
accrue on the note under the terms of and subject to the
conditions of the indenture.
The indenture does not contain any financial covenants or any
restrictions on the payment of dividends, the repurchase of our
securities or the incurrence of Senior Indebtedness or any other
indebtedness. The indenture also does not contain any covenants
or other provisions to afford protection to holders of the notes
in the event of a highly leveraged transaction or a change in
control of Finisar except to the extent described under
Repurchase at Option of Holders Upon a Change
in Control below.
Security
We have purchased and pledged to the collateral agent as
security for the exclusive benefit of the holders of the notes
(and not for the benefit of our other creditors),
U.S. government securities in the amount of $14,402,038,
which will be sufficient upon receipt of scheduled interest and
principal payments of such securities to provide for payment in
full of the first eight scheduled interest payments due on the
notes.
The U.S. government securities have been pledged by us to
the collateral agent for the exclusive benefit of the trustee
and the ratable benefit of the holders of the notes and are held
by the collateral agent in a pledge account. Immediately prior
to an interest payment date, the collateral agent will release
from the pledge account proceeds sufficient to pay the interest
then due on the notes. A failure to pay interest on the notes in
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full when due through the first eight scheduled interest payment
dates will constitute an immediate event of default under the
indenture, with no ability to cure or any grace period.
The pledged U.S. government securities and the pledge
account will also secure the repayment of the principal amount
on the notes. If prior to October 15, 2007:
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an event of default under the indenture occurs and is
continuing, and |
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the trustee or the holders of 25% in aggregate principal amount
of the notes accelerate the notes by declaring the principal
amount of the notes to be immediately due and payable (by
written consent, at a meeting of holders of the notes or
otherwise), except for the occurrence of an event of default
relating to our bankruptcy or insolvency or the bankruptcy or
insolvency of any significant subsidiary, upon which the notes
will be accelerated automatically, |
then the proceeds from the pledge account will be promptly paid
to the trustee for the benefit of the note holders, subject to
applicable bankruptcy laws. Distributions from the pledge
account will be applied for the ratable benefit of the note
holders, as follows:
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first, to any accrued and unpaid interest on the notes, and |
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second, the balance of the proceeds of the pledge account to the
repayment of the remaining obligations secured by the pledge
account, including the principal amount of the notes and
liquidated damages, if any, due on the notes. |
However, if any event of default is cured prior to the
acceleration of the notes by the trustee or holders of the notes
referred to above, the trustee and the holders of the notes will
not be able to accelerate the notes as a result of that event of
default.
For example, if the first two interest payments were made when
due but the third interest payment was not made when due and the
trustee or the holders of 25% in aggregate principal amount of
the notes exercised their right to declare the principal amount
of the notes, together with accrued interest, to be immediately
due and payable then, assuming automatic stay provisions of
bankruptcy law are inapplicable and the proceeds of the pledged
U.S. government securities are promptly distributed from
the pledge account,
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an amount equal to the interest payment due on the third
interest payment would be distributed to the trustee for the
benefit of the note holders from the pledge account, and |
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the balance of the proceeds of the pledge account would be
distributed to the trustee for the benefit of the note holders
as a portion of the principal amount of the notes and liquidated
damages, if any, due on the notes. |
In addition, holders of the notes would have an unsecured claim
against us for the remainder of the unpaid principal amount of
their notes.
Once we make the first eight scheduled interest payments on the
notes, all of the remaining pledged U.S. government
securities and other proceeds in the pledge account, if any,
will be released to us from the pledge account and thereafter
the notes will be unsecured. If, in the opinion of
Ernst & Young LLP or another nationally recognized
firm of independent public accountants selected by us, the
pledged U.S. government securities and other proceeds in
the pledge account exceed the amount sufficient to provide for
payment in full of the first eight scheduled interest payments
due on the notes, any excess U.S. government securities may
be released to us.
Conversion Rights
The holders of the notes may, at any time and from time to time
on or prior to the close of business on the final maturity date
of the notes, convert any outstanding notes, or portions
thereof, into our common stock, initially at the conversion
price set forth on the cover page of this prospectus, subject to
adjustment as described below. Holders may convert the notes
only in denominations of $1,000 and whole multiples of $1,000.
Except as described below, no payment or other adjustment will
be made on conversion of any notes
28
for interest accrued thereon or for dividends on any common
stock. In all events, including upon a repurchase at the option
of the holder, our delivery to the holder of the full number of
shares of our common stock into which a note is convertible,
together with any cash payment for such holders fractional
shares, will be deemed to satisfy our obligation to pay the
principal amount of the note and any accrued and unpaid interest
thereon. Accrued and unpaid interest will be deemed paid in full
rather than canceled, extinguished or forfeited.
If notes not called for redemption are converted after a record
date for the payment of interest but on or before the next
succeeding interest payment date, they must be accompanied by
funds equal to the interest payable on such succeeding interest
payment date on the principal amount so converted. No payment
will be required from a holder if we exercise our right to
redeem such notes during such period. We are not required to
issue fractional shares of common stock upon conversion of notes
and instead will pay a cash adjustment based upon the closing
price of our common stock on the last business day before the
date of conversion. In the case of notes repurchased or called
for redemption, conversion rights will expire at the close of
business on the business day preceding the day fixed for
redemption or repurchase, as the case may be, unless we default
in the payment of the redemption price or applicable repurchase
price, as the case may be.
A holder may exercise the right of conversion by delivering the
note to be converted to the specified office of a conversion
agent, with a completed notice of conversion, together with any
funds that may be required as described below. The conversion
date will be the date on which the notes, the notice of
conversion and any required funds have been so delivered. A
holder delivering a note for conversion will not be required to
pay any taxes or duties relating to the issuance or delivery of
the common stock for such conversion, but will be required to
pay any tax or duty which may be payable relating to any
transfer involved in the issuance or delivery of the common
stock in a name other than the holder of the note. Certificates
representing shares of common stock will be issued or delivered
only after all applicable taxes and duties, if any, payable by
the holder have been paid. If a note is to be converted in part
only, a new note or notes equal in principal amount of the
unconverted portion of the note surrendered for conversion will
be issued.
The initial conversion price will be adjusted for certain future
events, including:
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1. the issuance of our common stock as a dividend or
distribution on our common stock; |
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2. certain subdivisions and combinations of our common
stock; |
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3. the issuance to all holders of our common stock of
certain rights or warrants to purchase our common stock or
securities convertible into our common stock at a price (or a
conversion price) per share less than the then current market
price of our common stock; |
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4. the dividend or other distribution to all holders of our
common stock of shares of our capital stock, other than our
common stock, or evidences of our indebtedness or our assets,
including securities, but excluding those rights and warrants
referred to in clause (3) above and dividends and
distributions in connection with a reclassification, change,
consolidation, merger, combination, sale or conveyance resulting
in a change in the conversion consideration pursuant to the
third succeeding paragraph below and dividends or distributions
paid exclusively in cash; |
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5. dividends or other distributions consisting exclusively
of cash to all holders of our common stock, excluding any cash
that is distributed as part of a distribution referred to in
clause (4) above; and |
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6. the purchase of our common stock pursuant to a tender
offer or exchange offer made by us or any of our subsidiaries to
the extent that the cash and value of any other consideration
included in the payment per share of common stock exceeds the
closing price per share of our common stock on the trading day
next succeeding the last date on which tenders or exchanges may
be made pursuant to such tender or exchange offer. |
We will not make any adjustments to the conversion price if all
holders of notes may participate in the transactions described
above without converting their notes.
In the event that we pay a dividend or make a distribution on
shares of our common stock consisting of capital stock of, or
similar equity interests in, as described in clause (4)
above, a subsidiary or other business
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unit of ours, the conversion price will be adjusted based on the
market value of the securities so distributed relative to the
market value of our common stock, in each case based on the
average closing prices of those securities for the
10 trading days commencing on and including the fifth
trading day after the date on which ex-dividend
trading commences for such dividend or distribution on the
Nasdaq National Market or such other national or regional
exchange or market on which the securities are then listed or
quoted.
No adjustment in the conversion price will be required unless
such adjustment would require a change of at least 1% in the
conversion price then in effect at such time. Any adjustment
that would otherwise be required to be made shall be carried
forward and taken into account in any subsequent adjustment.
Except as stated above, the conversion price will not be
adjusted for the issuance of common stock or any securities
convertible into or exchangeable for our common stock or
carrying the right to purchase any of the foregoing.
In the case of:
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any reclassification or change of our common stock (other than
changes resulting from a subdivision or combination); |
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a consolidation, merger or combination involving us; |
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a sale or conveyance to another corporation of all or
substantially all of our property and assets; or |
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any statutory share exchange; |
in each case as a result of which holders of our common stock
are entitled to receive stock, other securities, other property
or assets (including cash or any combination thereof) with
respect to or in exchange for our common stock, the holders of
the notes then outstanding will be entitled thereafter to
convert such notes into the kind and amount of shares of stock,
other securities or other property or assets (including cash or
any combination thereof) which they would have owned or been
entitled to receive upon such reclassification or change of our
common stock, consolidation, merger, combination, sale,
conveyance or statutory share exchange had such notes been
converted into our common stock immediately prior to such
reclassification, change, consolidation, merger, combination,
sale, conveyance or statutory share exchange. We may not become
a party to any such transaction unless its terms are consistent
with the foregoing.
In addition, the indenture provides that upon conversion of the
notes, the holders of such notes will receive, in addition to
the shares of common stock issuable upon such conversion, the
rights related to such common stock pursuant to any future
stockholder rights plan, whether or not such rights have
separated from the common stock at the time of such conversion.
However, there shall not be any adjustment to the conversion
rate as a result of:
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the issuance of the rights; |
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the distribution of separate certificates representing the
rights; |
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the exercise or redemption of such rights in accordance with any
rights agreement; or |
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the termination or invalidation of the rights. |
If a taxable distribution to holders of our common stock or
certain other transactions occur which result in any adjustment
of the conversion price, the holders of notes may, in certain
circumstances, be deemed to have received a distribution subject
to United States federal income tax as a dividend. In certain
other circumstances, the absence of such an adjustment may
result in a taxable dividend to the holders of common stock. See
Certain United States Federal Income Tax
Considerations.
We may from time to time, to the extent permitted by law, reduce
the conversion price of the notes by any amount for any period
of at least 20 days. In that case, we will give at least
15 days notice of such reduction. We may, but are
under no obligation to, make such reductions in the conversion
price, in addition to those set forth above, as our board of
directors deems advisable to avoid or diminish any income tax to
holders of our common stock resulting from any dividend or
distribution of stock or rights to acquire stock or from any
event treated as such for income tax purposes. See Certain
United States Federal Income Tax Considerations.
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Optional Redemption by Finisar
We will be entitled to redeem some or all of the notes at any
time and from time to time on or after October 15, 2007, on
at least 30 but not more than 60 days notice to the
holders of the notes, at a redemption price equal to 100% of the
principal amount of notes being redeemed, plus accrued and
unpaid interest, if any, to, but excluding, the redemption date,
if the closing price of our common stock has exceeded 150% of
the conversion price then in effect for at least 20 trading
days within a period of 30 consecutive trading days ending
on the trading day immediately preceding the date of mailing
notice to holders of such optional redemption. However, if a
redemption date is an interest payment date, the scheduled
payment of interest due on such date shall be payable to the
holder of record as of the relevant record date and the
redemption price shall not include such interest payment.
If we do not redeem all of the notes, the trustee will select
the notes to be redeemed in principal amounts of $1,000 or whole
multiples of $1,000 by lot, on a pro rata basis or in accordance
with any other method the trustee considers fair and
appropriate. If any notes are to be redeemed in part only, a new
note or notes in a principal amount equal to the unredeemed
principal portion thereof will be issued. If a portion of a
holders notes is selected for partial redemption and the
holder converts a portion of its notes, the converted portion
will be deemed to be taken from the portion selected for
redemption.
Sinking Fund
There is no sinking fund for the notes.
Repurchase at Option of the Holder
Each holder of the notes has the right to require us to
repurchase some or all of such holders notes on
October 15, 2007, or the repurchase date. The repurchase
price payable for a note will be equal to 100% of its principal
amount, plus accrued and unpaid interest, if any, on such note
to, but excluding, the repurchase date. We will be required to
repurchase any outstanding note for which a holder delivers a
written repurchase notice to the paying agent. This notice must
be delivered during the period beginning at any time from the
opening of business on the date that is 20 business days prior
to the repurchase date until the close of business on the
repurchase date. If a repurchase notice is given and withdrawn
during that period, we will not be obligated to repurchase the
notes listed in such withdrawn notice. Our repurchase obligation
will be subject to certain additional conditions described in
the indenture.
We may, at our option, pay the repurchase price in cash, in
shares of our common stock or a combination thereof, as
indicated in the notice we deliver to holders of notes referred
to below. The shares of common stock a holder will receive will
be valued at 95% of the average of the closing prices of our
common stock for the five consecutive trading days immediately
preceding and including the third trading day prior to the
repurchase date. If we elect to pay the repurchase price, in
whole or in part, in shares of our common stock, we will pay
cash for all fractional shares of our common stock in an amount
based on the value of our common stock determined in accordance
with the preceding sentence. However, we may not pay in common
stock unless we satisfy certain conditions prior to the
repurchase date, as provided in the indenture.
A holders right to require us to repurchase notes is
exercisable by delivering a written repurchase notice to the
paying agent within 20 business days prior to the repurchase
date until the close of business on the repurchase date. The
paying agent initially will be the trustee.
The repurchase notice must state:
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if certificated notes have been issued, the note certificate
numbers (or, if a holders notes are not certificated,
information needed to comply with appropriate DTC procedures); |
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the portion of the principal amount of notes to be repurchased,
which must be in whole multiples of $1,000; |
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that the notes are to be repurchased by us pursuant to the
applicable provisions of the notes and the indenture; and |
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in the event we elect, pursuant to the notice we are required to
give, to pay the repurchase price in shares of our common stock,
in whole or in part, but the repurchase price is ultimately to
be paid to the holder entirely in cash because any of the
conditions to payment of the repurchase price or portion of the
repurchase price in shares of our common stock is not satisfied
prior to the close of business on the business day immediately
preceding the repurchase date, whether such holder elects: |
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(A) |
to withdraw the repurchase notice as to some or all of the notes
to which it relates; or |
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(B) |
to receive cash in respect of the entire repurchase price for
all notes or portions of notes subject to the repurchase notice. |
If a holder fails to indicate a choice with respect to the
election described in the final bullet point above, it will be
deemed to have elected to receive cash in respect of the entire
repurchase price for all notes subject to the repurchase notice
in these circumstances.
A holder of the notes may withdraw any written repurchase notice
by delivering a written notice of withdrawal to the paying agent
prior to the close of business on the repurchase date.
The withdrawal notice must state:
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the principal amount of the withdrawn notes; |
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if certificated notes have been issued, the certificate numbers
of the withdrawn notes (or, if a holders notes are not
certificated, information needed to comply with appropriate DTC
procedures); and |
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the principal amount, if any, which remains subject to the
repurchase notice. |
We must give notice of the repurchase date to all holders of
notes not less than 20 business days prior to the repurchase
date at their addresses shown in the register of the registrar.
Such notice will indicate whether we will pay the repurchase
price in cash, common stock or a combination thereof. We will
also give notice to beneficial owners as required by applicable
law. This notice will state, among other things, the procedures
that holders must follow to require us to repurchase their notes.
Payment of the repurchase price for a note for which a
repurchase notice has been delivered and not withdrawn is
conditioned upon book-entry transfer or delivery of the note,
together with necessary endorsements, to the paying agent at its
office in the Borough of Manhattan, The City of New York,
or any other office of the paying agent, at any time after
delivery of the repurchase notice. Payment of the repurchase
price for a note will be made promptly following the later of
the repurchase date and the time of book-entry transfer or
delivery of the note. If the paying agent holds money or
securities sufficient to pay the repurchase price of the note on
the business day following the repurchase date, then, on and
after the date:
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the note will cease to be outstanding; |
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interest will cease to accrue; and |
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all other rights of the holder will terminate. |
This will be the case whether or not book-entry transfer of the
note has been made or the note has been delivered to the paying
agent, and all other rights of the note holder will terminate,
other than the right to receive the repurchase price upon
delivery of the note.
Our ability to repurchase notes with cash may be limited by the
terms of our then-existing borrowing agreements. Even though we
become obligated to repurchase any outstanding note on a
repurchase date, we may not have sufficient funds to pay the
repurchase price on that repurchase date. If we fail to
repurchase the notes when required, this failure will constitute
an event of default under the indenture. See Risk
Factors We may not have the funds necessary, and may
not be permitted, to repurchase the notes at the option of the
holders or upon a change in control.
Our ability to repurchase notes with common stock is conditional
upon our satisfaction of certain conditions prior to the
repurchase date, as provided in the indenture. Even though we
may have indicated in
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our notice of the repurchase date that we intend to pay the
repurchase price with common stock, we may be unable to satisfy
those conditions.
We will comply with any applicable provisions of Rule 13e-4
and any other tender offer rules under the Securities Exchange
Act of 1934, as amended.
Repurchase at Option of Holders Upon a Change in Control
If a change in control occurs, as described below, each holder
of notes will have the right to require us to repurchase all of
such holders notes not previously called for redemption,
or any portion of those notes that is equal to $1,000 or a whole
multiple of $1,000, on the date that is 45 business days after
the date we give notice of the change in control at a repurchase
price equal to 100% of the principal amount of the notes to be
repurchased, together with interest accrued and unpaid, if any,
on the notes to, but excluding, the change in control repurchase
date; provided that, if such change in control repurchase date
is an interest payment date, then the interest payable on such
date shall be paid to the holder of record of the notes on the
relevant record date.
We may, at our option, pay the change in control repurchase
price in cash, in shares of our common stock or a combination
thereof, as indicated in the notice we deliver to holders of
notes referred to below. The shares of common stock a holder
will receive will be valued at 95% of the average of the closing
prices of our common stock for the five trading days immediately
preceding and including the third trading day prior to the
change in control repurchase date. If we elect to pay the change
in control repurchase price, in whole or in part, in shares of
our common stock, we will pay cash for all fractional shares of
our common stock in an amount based on the value of our common
stock determined in accordance with the preceding sentence.
However, we may not pay in common stock unless we satisfy
certain conditions prior to the change in control repurchase
date as provided in the indenture.
Within 30 days after the occurrence of a change in control,
we are required to give notice to all holders of record of
notes, as provided in the indenture, of the occurrence of the
change in control and of their resulting repurchase right. Such
notice will indicate whether we will pay the change in control
repurchase price in cash, common stock or a combination thereof.
We must also deliver a copy of our notice to the trustee. In
order to exercise the change in control repurchase right, a
holder of notes must deliver, on or before the 45th business day
after the date of our notice of the change in control, written
notice to the paying agent of the holders exercise of its
change in control repurchase right, together with the notes with
respect to which the right is being exercised.
The change in control repurchase notice to be provided by a
holder to the paying agent must state:
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if certificated notes have been issued, the note certificate
numbers (or, if a holders notes are not certificated,
information needed to comply with appropriate DTC procedures); |
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the portion of the principal amount of notes to be repurchased,
which must be in whole multiples of $1,000; |
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that the notes are to be repurchased by us pursuant to the
applicable provisions of the notes and the indenture; and |
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in the event we elect, pursuant to the notice we are required to
give, to pay the change in control repurchase price in shares of
our common stock, in whole or in part, but the change in control
repurchase price is ultimately to be paid to the holder entirely
in cash because any of the conditions to payment of the change
in control repurchase price or portion of the change in control
repurchase price in shares of our common stock is not satisfied
prior to the close of business on the business day immediately
preceding the repurchase date, whether such holder elects: |
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(A) to withdraw the change in control repurchase notice as
to some or all of the notes to which it relates; or |
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(B) to receive cash in respect of the entire change in
control repurchase price for all notes or portions of notes
subject to the repurchase notice. |
If a holder fails to indicate a choice with respect to the
election described in the final bullet point above, it will be
deemed to have elected to receive cash in respect of the entire
change in control repurchase price for all notes subject to the
change in control repurchase notice in these circumstances.
A holder of the notes may withdraw any written change in control
repurchase notice by delivering a written notice of withdrawal
to the paying agent prior to the close of business on the
repurchase date.
The withdrawal notice must state:
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the principal amount of the withdrawn notes; |
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if certificated notes have been issued, the certificate numbers
of the withdrawn notes (or, if a holders notes are not
certificated, information needed to comply with appropriate DTC
procedures); and |
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the principal amount, if any, which remains subject to the
repurchase notice. |
Under the indenture, a change in control of Finisar
will be deemed to have occurred at such time after the original
issuance of the notes when the following has occurred:
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the acquisition by any person, including any syndicate or group
deemed to be a person under Section 13(d)(3) of
the Exchange Act, of beneficial ownership, directly or
indirectly, through a purchase, merger or other acquisition
transaction or series of transactions, of shares of our capital
stock entitling that person to exercise 50% or more of the total
voting power of all shares of our capital stock entitled to vote
generally in elections of directors, other than any acquisition
by us, any of our subsidiaries or any of our employee benefit
plans; |
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our consolidation or merger with or into any other person, any
merger of another person into us, or any conveyance, transfer,
sale, lease or other disposition of all or substantially all of
our properties and assets to another person, other than: |
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1. any transaction (A) that does not result in any
reclassification, conversion, exchange or cancellation of
outstanding shares of our capital stock and (B) pursuant to
which holders of our capital stock immediately prior to the
transaction are entitled to exercise, directly or indirectly,
50% or more of the total voting power of all shares of our
capital stock entitled to vote generally in the election of
directors of the continuing or surviving person immediately
after the transaction; or |
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2. any merger solely for the purpose of changing our
jurisdiction of incorporation and resulting in a
reclassification, conversion or exchange of outstanding shares
of common stock solely into shares of common stock of the
surviving entity; |
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during any consecutive two-year period, individuals who at the
beginning of that two-year period constituted our board of
directors (together with any new directors whose election to our
board of directors, or whose nomination for election by our
stockholders, was approved by a vote of a majority of the
directors then still in office who were either directors at the
beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to
constitute a majority of our board of directors then in office;
or |
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we are liquidated or dissolved or our stockholders pass a
resolution approving a plan of liquidation or dissolution other
than in a transaction that complies with the provisions of the
indenture regarding merger or transfer of assets. |
Beneficial ownership shall be determined in accordance with
Rule 13d-3 promulgated by the Commission under the Exchange
Act. The term person includes any syndicate or group
that would be deemed to be a person under
Section 13(d)(3) of the Exchange Act.
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Rule 13e-4 under the Exchange Act requires the
dissemination of information to security holders if an issuer
tender offer occurs and may apply if the repurchase option
becomes available to holders of the notes. We will comply with
this rule to the extent applicable at that time.
We may, to the extent permitted by applicable law, at any time
purchase the notes in the open market or by tender at any price
or by private agreement. Any note so purchased by us may, to the
extent permitted by applicable law, be reissued or resold or may
be surrendered to the trustee for cancellation. Any notes
surrendered to the trustee may not be reissued or resold and
will be canceled promptly.
Our ability to repurchase notes upon the occurrence of a change
in control is subject to important limitations. The occurrence
of a change in control could cause an event of default under or
be prohibited or limited by, the terms of existing or future
Senior Indebtedness. As a result, any repurchase of the notes
would, absent a waiver, be prohibited under the subordination
provisions of the indenture until the Senior Indebtedness is
paid in full. Further, we cannot assure you that we would have
the financial resources, or would be able to arrange financing,
to pay the change in control repurchase price for all the notes
that might be delivered by holders of notes seeking to exercise
the change in control repurchase right. Any failure by us to
repurchase the notes when required following a change in control
would result in an event of default under the indenture, whether
or not such repurchase is permitted by the subordination
provisions of the indenture. See Risk Factors
We may not have the funds necessary, and may not be permitted,
to repurchase the notes at the option of the holders or upon a
change in control. Any such default may, in turn, cause a
default under existing or future Senior Indebtedness. See
Subordination of Notes below.
Our ability to repurchase notes upon a change in control with
common stock is conditional upon our satisfaction of certain
conditions prior to the change in control repurchase date. Even
though we may have indicated in our notice of the change in
control that we intend to pay for the change in control
repurchase price with our common stock, we may be unable to
satisfy those conditions.
Subordination of Notes
Except to the extent described in the section entitled
Security, the payment of principal of,
and interest (including liquidated damages, if any) on, the
notes is subordinated in right of payment, as set forth in the
indenture, to the prior payment in full in cash or cash
equivalents (or otherwise to the extent holders accept
satisfaction of amounts due by settlement in other than cash or
cash equivalents) of all Senior Indebtedness (as defined below)
whether outstanding on the date of the indenture or thereafter
incurred. The notes also are effectively subordinated to all
indebtedness and other liabilities, including trade payables and
lease obligations, if any, of our subsidiaries. The notes rank
equally in right of payment with our
51/4% convertible
subordinated notes, except to the extent of the
U.S. government securities pledged for the exclusive
benefit of the holders of the notes and the
51/4% convertible
subordinated notes, as applicable.
In the event of any insolvency or bankruptcy case or proceeding,
or any receivership, liquidation, reorganization or other
similar case or proceeding in connection therewith, relating to
us or to our assets, or our liquidation, dissolution or other
winding-up, whether voluntary or involuntary, or any assignment
for the benefit of our creditors or other marshaling of our
assets or liabilities, except in connection with our
consolidation or merger or our liquidation or dissolution
following the conveyance, transfer or lease of our properties
and assets substantially upon the terms and conditions described
under Consolidation, Mergers and Sales of
Assets below, the holders of Senior Indebtedness will be
entitled to receive payment in full in cash or cash equivalents
(or otherwise to the extent holders accept satisfaction of
amounts due by settlement in other than cash and cash
equivalents) of all Senior Indebtedness, or provision shall be
made for such payment in full, before the holders of notes will
be entitled to receive any payment or distribution of any kind
or character (other than (a) payments contemplated under
Security above and (b) any payments
or distributions in the form of Permitted Junior Securities (as
defined below), on account of principal of or interest or
liquidated damages, if any, on the notes); and any payment or
distribution of our assets of any kind or character, whether in
cash, property or securities (other than (a) payments
contemplated under Security above and
(b) a payment or distribution in the form of Permitted
Junior Securities), by set-off or otherwise, to which the
holders of the notes or the trustee would be entitled but for
the provisions of the
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indenture relating to subordination, shall be paid by the
liquidating trustee or agent or other person making such payment
or distribution directly to the holders of Senior Indebtedness
or their representatives ratably according to the aggregate
amounts remaining unpaid on account of the Senior Indebtedness
to the extent necessary to make payment in full in cash or cash
equivalents (or otherwise to the extent holders accept
satisfaction of amounts due by settlement in other than cash or
cash equivalents) of all Senior Indebtedness remaining unpaid,
after giving effect to any current payment or distribution to
the holders of such Senior Indebtedness.
No payment or distribution of any of our assets of any kind or
character, whether in cash, property or securities (other than
(a) payments contemplated under
Security above and (b) payments or
distributions in the form of Permitted Junior Securities), may
be made by or on behalf of us on account of principal of or
interest or liquidated damages, if any, on the notes or on
account of the purchase, redemption or other acquisition of
notes upon the occurrence of any Payment Default (as defined
below) until such Payment Default shall have been cured or
waived in writing or shall have ceased to exist or such
Designated Senior Indebtedness (as defined below) shall have
been discharged or paid in full in cash or cash equivalents (or
otherwise to the extent holders accept satisfaction of amounts
due by settlement in other than cash or cash equivalents). A
Payment Default shall mean a default in payment,
whether at scheduled maturity, upon scheduled installment, by
acceleration or otherwise, of principal of or interest or
liquidated damages, if any, on Designated Senior Indebtedness
beyond any applicable grace period.
No payment or distribution of any of our assets of any kind or
character, whether in cash, property or securities (other than
(a) payments contemplated under
Securities above and (b) payments
or distributions in the form of Permitted Junior Securities),
may be made by or on our behalf on account of principal of or
interest or liquidated damages, if any, on the notes or on
account of the purchase, redemption or other acquisition of
notes during a Payment Blockage Period (as defined below),
arising as a result of a Non-Payment Default (as defined below).
The foregoing provisions would not necessarily protect holders
of the notes if highly leveraged or other transactions involving
us occur that may adversely affect holders.
The Payment Blockage Period will commence upon the
date of receipt by the trustee of written notice from the
trustee or such other representative of the holders of the
Designated Senior Indebtedness in respect of which the
Non-Payment Default exists and shall end on the earliest of:
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179 days thereafter provided that any Designated Senior
Indebtedness as to which notice was given shall not theretofore
have been accelerated; |
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the date on which such Non-Payment Default is cured, waived or
ceases to exist; |
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the date on which such Designated Senior Indebtedness is
discharged or paid in full; or |
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the date on which such Payment Blockage Period shall have been
terminated by written notice to the trustee or us from the
trustee or such other representative initiating such Payment
Blockage Period; |
after which we will resume making any and all required payments
in respect of the notes, including any missed payments. In any
event, not more than one Payment Blockage Period may be
commenced during any period of 365 consecutive days. No
Non-Payment Default that existed or was continuing on the date
of the commencement of any Payment Blockage Period will be, or
can be made, the basis for the commencement of a subsequent
Payment Blockage Period, unless such Non-Payment Default has
been cured or waived for a period of not less than 90
consecutive days subsequent to the commencement of such initial
Payment Blockage Period.
In the event that, notwithstanding the provisions of the
preceding four paragraphs, any payment or distribution shall be
received by the trustee or any holder of the notes that is
prohibited by such provisions, then and in such event such
payment shall be held for the benefit of and paid over and
delivered by such trustee or holder to the trustee or any other
representatives of holders of Senior Indebtedness, as their
interest may appear, for application to Senior Indebtedness.
After all Senior Indebtedness is paid in full and until the
notes are paid in full, holders of the notes shall be subrogated
(equally and ratably with all other indebtedness
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that is equal in right of payment to the notes) to the rights of
holders of Senior Indebtedness to receive distributions
applicable to Senior Indebtedness to the extent that
distributions otherwise payable to the holders of the notes have
been applied to the payment of Senior Indebtedness. See
Events of Default below.
By reason of such subordination, in the event of our
liquidation, receivership, reorganization or insolvency, our
general creditors may recover less, ratably, than holders of
Senior Indebtedness and such general creditors may recover more,
ratably, than holders of notes. Moreover, except to the extent
described under Security, the notes will
be structurally subordinated to the liabilities of our
subsidiaries.
Designated Senior Indebtedness means our obligations
under any particular Senior Indebtedness that expressly provides
that such Senior Indebtedness shall be Designated Senior
Indebtedness for purposes of the indenture.
indebtedness means, with respect to any person,
without duplication:
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all indebtedness, obligations and other liabilities contingent
or otherwise of such person for borrowed money (including
overdrafts) or for the deferred purchase price of property or
services, excluding any trade payables and other accrued current
liabilities incurred in the ordinary course of business, but
including, without limitation, all obligations, contingent or
otherwise, of such person in connection with any letters of
credit and acceptances issued under letter of credit facilities,
acceptance facilities or other similar facilities; |
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all obligations of such person evidenced by bonds, credit or
loan agreements, notes, debentures or other similar instruments; |
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indebtedness of such person created or arising under any
conditional sale or other title retention agreement with respect
to property acquired by such person, even if the rights and
remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such
property, but excluding trade payables arising in the ordinary
course of business; |
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all obligations and liabilities contingent or otherwise in
respect of leases of the person required, in conformity with
generally accepted accounting principles, to be accounted for as
capitalized lease obligations on the balance sheet of the person
and all obligations and other liabilities contingent or
otherwise under any lease or related document, including a
purchase agreement, in connection with the lease of real
property or improvements thereon which provides that the person
is contractually obligated to purchase or cause a third party to
purchase the leased property or pay an agreed upon residual
value of the leased property to the lessor and the obligations
of the person under the lease or related document to purchase or
to cause a third party to purchase the leased property whether
or not such lease transaction is characterized as an operating
lease or a capitalized lease in accordance with generally
accepted accounting principles, including, without limitation,
synthetic lease obligations; |
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all obligations of such person under or in respect of interest
rate agreements, currency agreements or other swap, cap floor or
collar agreement, hedge agreement, forward contract or similar
instrument or agreement or foreign currency, hedge, exchange or
purchase or similar instrument or agreement; |
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all indebtedness referred to in, but not excluded from, the
preceding clauses of other persons and all dividends of other
persons, the payment of which is secured by or for which the
holder of such indebtedness has an existing right, contingent or
otherwise, to be secured by any lien or with respect to
property, including, without limitation, accounts and contract
rights, owned by such person, even though such person has not
assumed or become liable for the payment of such indebtedness,
the amount of such obligation being deemed to be the lesser of
the value of such property or asset or the amount of the
obligation so secured; |
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all guarantees by such person of indebtedness referred to in
this definition or of any other person; |
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all Redeemable Capital Stock of such person valued at the
greater of its voluntary or involuntary maximum fixed repurchase
price plus accrued and unpaid dividends; |
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the present value of the obligation of such person as lessee for
net rental payments, excluding all amounts required to be paid
on account of maintenance and repairs, insurance, taxes,
assessments, water, utilities and similar charges to the extent
included in such rental payments, during the remaining term of
the lease included in any such sale and leaseback transaction
including any period for which such lease has been extended or
may, at the option of the lessor, be extended. This present
value shall be calculated using a discount rate equal to the
rate of interest implicit in such transaction, determined in
accordance with accounting principles generally accepted in the
United States; and |
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any and all refinancings, replacements, deferrals, renewals,
extensions and refundings of or amendments, modifications or
supplements to, any indebtedness, obligation or liability of
kind described in the clauses above. |
Non-Payment Default means any event of default with
respect to any Designated Senior Indebtedness other than any
Payment Default pursuant to which maturity thereof may be
accelerated.
Permitted Junior Securities means any payment or
distribution in the form of our equity securities or
subordinated securities or any successor obligor that, in the
case of any such subordinated securities, are subordinated in
right of payment to all Senior Indebtedness that may at the time
be outstanding to at least the same extent as the notes are
subordinated.
Redeemable Capital Stock means any class of our
capital stock that, either by its terms, by the terms of any
securities into which it is convertible or exchangeable or by
contract or otherwise, is, or upon the happening of an event or
passage of time would be, required to be redeemed, whether by
sinking fund or otherwise, prior to the date that is
91 days after the final scheduled maturity of the notes or
is redeemable at the option of the holder thereof at any time
prior to such date, or is convertible into or exchangeable for
debt securities at any time prior to such date unless it is
convertible or exchangeable solely at our option.
Senior Indebtedness means:
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the principal of and premium, if any, and interest on, and fees,
costs, enforcement expenses, collateral protection expenses and
other reimbursement or indemnity obligations in respect of all
of our indebtedness or obligations to any person for money
borrowed that is evidenced by a note, bond, debenture, loan
agreement, or similar instrument or agreement including default
interest and interest accruing after a bankruptcy; |
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commitment or standby fees due and payable to lending
institutions with respect to credit facilities available to us; |
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all of our noncontingent obligations (1) for the
reimbursement of any obligor on any letter of credit,
bankers acceptance or similar credit transaction,
(2) under interest rate swaps, caps, collars, options and
similar arrangements, and (3) under any foreign exchange
contract, currency swap agreement, futures contract, currency
option contract or other foreign currency hedge; |
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all of our obligations under leases for real estate, facilities,
equipment or related assets, whether or not capitalized, entered
into or leased for financing purposes; |
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any liabilities of others described in the preceding clauses
that we have guaranteed or which are otherwise our legal
liability; and |
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renewals, extensions, refundings, refinancings, restructurings,
amendments and modifications of any such indebtedness or
guarantee. |
Notwithstanding the foregoing, Senior Indebtedness
shall not include:
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indebtedness or other obligations of ours that by its terms
ranks equal or junior in right of payment to the notes; |
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indebtedness evidenced by the notes; |
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indebtedness evidenced by our
51/4% convertible
subordinated notes due in 2008, which rank equal in right of
payment to the notes, except with respect to the
U.S. government securities pledged for the exclusive
benefit of the holders of the notes and the
51/4% convertible
subordinated notes, respectively. |
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indebtedness of ours that by operation of law is subordinate to
any of our general unsecured obligations; |
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accounts payable or other liabilities owed or owing by us to
trade creditors including guarantees thereof or instruments
evidencing such liabilities; |
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amounts owed by us for compensation to employees or for services
rendered to us; |
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indebtedness of ours to any subsidiary or any other affiliate of
ours or any of such affiliates subsidiaries except if it
is pledged as security for any Senior Indebtedness; |
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our capital stock; |
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indebtedness evidenced by any guarantee of any indebtedness
ranking equal or junior in right of payment to the
notes; and |
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indebtedness which, when incurred and without respect to any
election under Section 1111(b) of the Bankruptcy Code, is
without recourse to us. |
The notes will also be effectively subordinated to all
liabilities, including trade payables and lease obligations, if
any, of our subsidiaries. Any right by us to receive the assets
of any of our subsidiaries upon the liquidation or
reorganization thereof, and the consequent right of the holders
of the notes to participate in these assets, will be effectively
subordinated to the claims of that subsidiarys creditors
including trade creditors, except to the extent that we are
recognized as a creditor of such subsidiary, in which case our
claims would still be subordinate to any security interests in
the assets of such subsidiary and any indebtedness of such
subsidiary senior to that held by us.
Our subsidiaries are separate and distinct legal entities and
have no obligation, contingent or otherwise, to pay any amounts
due pursuant to the notes or to make any funds available
therefor, whether by dividends, loans or other payments. In
addition, the payment of dividends and the making of loans and
advances to us by our subsidiaries may be subject to statutory,
contractual or other restrictions and are dependent upon the
earnings or financial condition of those subsidiaries and
subject to various business considerations. As a result, we may
be unable to gain access to the cash flow or assets of our
subsidiaries.
The indenture does not limit the amount of additional
indebtedness, including Senior Indebtedness, which we can
create, incur, assume or guarantee, nor does the indenture limit
the amount of indebtedness or other liabilities that our
subsidiaries can create, incur, assume or guarantee. We are
obligated to pay reasonable compensation to the trustee and to
indemnify the trustee against certain losses, liabilities or
expenses incurred by it in connection with its duties relating
to the notes. The trustees claims for such payments will
generally be senior to those of the holders of the notes in
respect of all funds collected or held by the trustee.
Event of Default
Each of the following constitutes an event of default under the
indenture:
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our failure to pay when due the principal on any of the notes at
maturity, upon redemption or exercise of a repurchase right or
otherwise, whether or not such payment is prohibited by the
subordination provisions of the indenture; |
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our failure to pay an installment of interest, including
liquidated damages, if any, on any of the notes that continues
for 30 days after the date when due, whether or not such
payment is prohibited by the subordination provisions of the
indenture; provided that a failure to make any of the first
eight scheduled interest payments on the notes on the applicable
interest payment date will constitute an event of default
without regard to any period of grace or other cure period; |
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our failure to deliver shares of common stock, together with
cash instead of fractional shares, when those shares of common
stock or cash instead of fractional shares are required to be
delivered upon conversion of a note, and that failure continues
for ten days after such delivery date; |
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our failure to perform or observe any other term, covenant or
agreement contained in the notes or the indenture for a period
of 60 days after written notice of such failure, requiring
us to remedy the same, shall have been given to us by the
trustee or to us and the trustee by the holders of at least 25%
in aggregate principal amount of the notes then outstanding; |
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our failure to make any payment by the end of the applicable
grace period, if any, after the scheduled maturity of any of our
indebtedness in an amount in excess of $5 million, or there
is an acceleration of indebtedness in an amount in excess of
$5 million because of a default with respect to such
indebtedness without such indebtedness having been discharged or
such acceleration having been cured, waived, rescinded or
annulled, in either case, for a period of 30 days after
written notice to us by the trustee or to us and the trustee by
holders of at least 25% in aggregate principal amounts of the
notes then outstanding; |
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certain events of our bankruptcy, insolvency or reorganization
or that of any significant subsidiaries; |
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our filing of, or any of our significant subsidiaries
filing of, a voluntary petition seeking liquidation,
reorganization arrangement, readjustment of debts or for any
other relief under the federal bankruptcy code; and |
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the pledge agreement shall cease to be in full force and effect
or enforceable in accordance with its terms. |
For these purposes, significant subsidiary shall
have the meaning set forth in Rule 1-02(w) of
Regulation S-X.
The indenture provides that the trustee shall, within
90 days of the occurrence of a default, give to the
registered holders of the notes notice of all uncured defaults
known to it, but the trustee shall be protected in withholding
such notice if it, in good faith, determines that the
withholding of such notice is in the best interest of such
registered holders, except in the case of a default in the
payment of the principal of or interest or liquidated damages,
if any, on, any of the notes when due or in the payment of any
redemption or repurchase obligation.
If an event of default specified in the sixth or seventh bullet
above occurs and is continuing, then automatically the principal
of all the notes and the interest thereon shall become
immediately due and payable. If an event of default shall occur
and be continuing, other than with respect to the sixth or
seventh bullet above, the default not having been cured or
waived as provided under Modifications and
Waiver below, the trustee or the holders of at least 25%
in aggregate principal amount of the notes then outstanding may
declare the notes due and payable at their principal amount
together with accrued interest, and thereupon the trustee may,
at its discretion, proceed to protect and enforce the rights of
the holders of notes by appropriate judicial proceedings. Such
declaration may be rescinded or annulled with the written
consent of the holders of a majority in aggregate principal
amount of the notes then outstanding upon the conditions
provided in the indenture.
The indenture contains a provision entitling the trustee,
subject to the duty of the trustee during default to act with
the required standard of care, to be indemnified by the holders
of notes before proceeding to exercise any right or power under
the indenture at the request of such holders. The indenture
provides that the holders of a majority in aggregate principal
amount of the notes then outstanding through their written
consent may direct the time, method and place of conducting any
proceeding for any remedy available to the trustee or exercising
any trust or power conferred upon the trustee.
We will be required to furnish annually to the trustee a
statement as to the fulfillment of our obligations under the
indenture.
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Consolidation, Mergers and Sales of Assets
We may, without the consent of the holders of notes, consolidate
with, merge into or transfer or lease all or substantially all
of our assets to any corporation, limited liability company,
partnership or trust organized under the laws of the United
States or any of its political subdivisions provided that:
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we are the resulting or surviving corporation or the successor,
transferee or lessee, if other than us, (a) is organized
and existing, under the laws of the United States or any state
of the United States and (b) assumes all our obligations
under the indenture and the notes; |
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at the time of such transaction, no event of default, and no
event which, after notice or lapse of time, would become an
event of default, shall have happened and be continuing; and |
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an officers certificate and an opinion of counsel, each
stating that the consolidation, merger, transfer or lease
complies with the provisions of the indenture, have been
delivered to the trustee. |
Modifications and Waiver
The indenture, including the terms and conditions of the notes,
may be modified or amended by us and the trustee, without the
consent of the holder of any note, for the purposes of, among
other things:
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adding to our covenants for the benefit of the holders of notes; |
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surrendering any right or power conferred upon us; |
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providing for conversion rights of holders of notes if any
reclassification or change of our common stock or any
consolidation, merger or sale of all or substantially all of our
assets occurs; |
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reducing the conversion price, provided that the reduction will
not adversely affect the interests of holders of notes in any
material respect; |
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complying with the requirements of the Commission in order to
effect or maintain the qualification of the indenture under the
Trust Indenture Act of 1939, as amended; |
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making any changes or modifications to the indenture necessary
in connection with the registration of the notes under the
Securities Act as contemplated by the registration rights
agreement, provided that this action does not adversely affect
the interests of the holders of the notes in any material
respect; |
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curing any ambiguity, omission, inconsistency or correcting or
supplementing any defective provision contained in the
indenture; provided that such modification or amendment does
not, in the good faith opinion of our board of directors and the
trustee, adversely affect the interests of the holders of the
notes in any material respect; |
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modifying any provision in the Indenture or the notes in order
to conform the provision to the description set forth in this
prospectus; |
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adding or modifying any other provisions which we and the
trustee may deem necessary or desirable and which will not
adversely affect the interests of the holders of notes in any
material respect; |
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complying with the requirements of the indenture regarding
merger or transfer of assets; or |
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providing for uncertificated notes in addition to the
certificated notes so long as such uncertificated notes are in
registered form for purposes of the Internal Revenue Code of
1986, as amended. |
Modifications and amendments to the indenture or to the terms
and conditions of the notes may also be made, and noncompliance
by us may be waived, with the written consent of the holders of
at least a majority in aggregate principal amount of the notes
at the time outstanding or by the adoption of a resolution at a
meeting of holders at which a quorum is present by at least a
majority in aggregate principal amount of the
41
notes represented at the meeting. However, no such modification,
amendment or waiver may, without the written consent of the
holder of each note affected:
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change the maturity of the principal of or any installment of
interest on any note, including any payment of liquidated
damages; |
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reduce the principal amount of or interest on, including the
amount of liquidated damages, any note; |
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reduce the interest rate or interest, including any liquidated
damages, on any note; |
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change the currency of payment of principal or interest,
including any liquidated damages, of any note; |
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impair the right to institute suit for the enforcement of any
payment on or with respect to, or conversion of, any note; |
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except as otherwise permitted or contemplated by provisions of
the indenture concerning corporate reorganizations, adversely
affect the repurchase option of holders upon a change in control
or the conversion rights of holders of the notes; |
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modify the provisions of the indenture relating to the pledge of
securities as contemplated under
Security above in a manner that
adversely affects the interests of the holders of notes; |
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modify the subordination provisions of the notes in a manner
adverse to the holders of notes; or |
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reduce the percentage in aggregate principal amount of notes
outstanding necessary to modify or amend the indenture or to
waive any past default. |
Satisfaction and Discharge
We may discharge our obligations under the indenture while notes
remain outstanding, subject to certain conditions, if:
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all outstanding notes will become due and payable at their
scheduled maturity within one year; or |
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all outstanding notes are scheduled for redemption within one
year; |
and, in either case, we have deposited with the trustee an
amount sufficient to pay and discharge all outstanding notes on
the date of their scheduled maturity or the scheduled date of
redemption; provided that we shall remain obligated to issue
shares upon conversion of the notes.
Global Notes; Book-Entry; Form
The notes are evidenced by one global note. We have deposited
the global note with or on behalf of DTC and registered the
global note in the name of Cede & Co., as DTCs
nominee. Except as set forth below, a global note may be
transferred, in whole or in part, only to another nominee of DTC
or to a successor of DTC or its nominee.
A holder may hold its interest in a global note directly through
DTC if such holder is a participant in DTC, or indirectly
through organizations that are participants in DTC, which are
referred to as participants. Transfers between
participants will be effected in the ordinary way in accordance
with DTC rules and will be settled in clearing house funds. The
laws of some states require that certain persons take physical
delivery of securities in definitive form. As a result, the
ability to transfer beneficial interests in the global note to
such persons may be limited.
Persons who are not participants may beneficially own interests
in a global note held by DTC only through participants, or
certain banks, brokers, dealers, trust companies and other
parties that clear through or maintain a custodial relationship
with a participant, either directly or indirectly, which are
referred to as indirect participants. So long as
Cede & Co., as the nominee of DTC, is the registered
owner of a global
42
note, Cede & Co., for all purposes, will be considered
the sole holder of such global note. Except as provided below,
owners of beneficial interests in a global note will:
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not be entitled to have certificates registered in their names; |
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not receive physical delivery of certificates in definitive
registered form; and |
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not be considered holders of the global note. |
We will pay interest on and the redemption price of a global
note to Cede & Co., as the registered owner of the
global note, by wire transfer of immediately available funds on
each interest payment date or the redemption or repurchase date,
as the case may be. Neither we, the trustee nor any paying agent
will be responsible or liable:
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for the records relating to, or payments made on account of,
beneficial ownership interests in a global note; or |
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for maintaining, supervising or reviewing any records relating
to the beneficial ownership interests. |
We have been informed that DTCs practice is to credit
participants accounts on any payment date with payments in
amounts proportionate to their respective beneficial interests
in the principal amount represented by a global note as shown on
the records of DTC, unless DTC has reason to believe that it
will not receive payment on that payment date. Payments by
participants to owners of beneficial interests in the principal
amount represented by a global note held through participants
will be the responsibility of the participants, as is now the
case with securities held for the accounts of customers
registered in street name.
Because DTC can only act on behalf of participants, who in turn
act on behalf of indirect participants, the ability of a person
having a beneficial interest in the principal amount represented
by the global note to pledge such interest to persons or
entities that do not participate in the DTC system, or
otherwise take actions in respect of such interest, may be
affected by the lack of a physical certificate evidencing its
interest.
Neither we, the trustee, registrar, paying agent nor the
conversion agent will have any responsibility for the
performance by DTC or its participants or indirect participants
of their respective obligations under the rules and procedures
governing their operations. DTC has advised us that it will take
any action permitted to be taken by a holder of notes, including
the presentation of notes for exchange, only at the direction of
one or more participants to whose account with DTC interests in
the global note are credited, and only in respect of the
principal amount of the notes represented by the global note as
to which the participant or participants has or have given such
direction.
DTC has advised us that it is:
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a limited purpose trust company organized under the laws of the
State of New York; |
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a member of the Federal Reserve System; |
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a clearing corporation within the meaning of the
Uniform Commercial Code; and |
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a clearing agency registered pursuant to the
provisions of Section 17A of the Exchange Act. |
DTC was created to hold securities for its participants and to
facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry
changes to the accounts of its participants. Participants
include securities brokers, dealers, banks, trust companies,
clearing corporations and other organizations. Some of the
participants or their representatives, together with other
entities, own DTC. Indirect access to the DTC system is
available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
DTC has agreed to the foregoing procedures to facilitate
transfers of interests in a global note among participants.
However, DTC is under no obligation to perform or continue to
perform these procedures, and may discontinue these procedures
at any time. If DTC is at any time unwilling or unable to
continue as depositary and a successor depositary is not
appointed by us within 90 days, we will issue notes in
certificated form in exchange for global notes.
43
Information Concerning the Trustee and Transfer Agent
U.S. Bank Trust National Association, as trustee under
the indenture, has been appointed by us as paying agent,
conversion agent, registrar and custodian with regard to the
notes. American Stock Transfer and Trust Company is the transfer
agent and registrar for our common stock. The trustee, the
transfer agent or their affiliates may from time to time in the
future provide banking and other services to us in the ordinary
course of their business.
Registration Rights
Pursuant to a registration rights agreement dated as of
October 15, 2003 between us and the initial purchasers of
the notes, we agreed to, at our expense, file with the
Commission not later than 90 days after the earliest date
of original issuance of any of the notes, or the S-3 filing
deadline, subject to certain conditions set forth below, a shelf
registration statement on such form as we deem appropriate
covering resales by holders of all notes and the common stock
issuable upon conversion of the notes. We have summarized
portions of the registration rights agreement below. We will use
our best efforts to:
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cause such registration statement to become effective as
promptly as practicable, but in no event later than
180 days after the earliest date of original issuance of
any of the notes; and |
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keep the registration statement effective until the earliest of
(A) such date that is two years after the last date of
original issuance of any of the notes; (B) the date when
the holders of the notes and the common stock issuable upon
conversion of the notes are able to sell all such securities
immediately without restriction pursuant to the volume
limitation provisions of Rule 144 under the Securities Act
or any successor rule thereto or otherwise; or (C) the sale
pursuant to the shelf registration statement of all securities
registered thereunder. |
We will be permitted to suspend the use of the prospectus that
is part of the shelf registration statement under certain
circumstances relating to pending corporate developments, public
filings with the Commission and similar events for a period not
to exceed 30 days in any three-month period and not to
exceed an aggregate of 90 days in any 12-month period.
If:
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on the 181st day following the earliest date of original
issuance of any of the notes, the shelf registration statement
is not declared effective; |
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the registration statement, previously declared effective, shall
cease to be effective or usable for any reason without being
succeeded within five business days by a post-effective
amendment or a report filed with the Commission pursuant to the
Exchange Act that cures the failure of the registration
statement to be effective or usable; or |
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the prospectus has been suspended as described in the preceding
paragraph longer than the period permitted by such paragraph; |
each, a registration default, additional interest as liquidated
damages will accrue on the notes, from and including the day of
the registration default to, but excluding, the day on which the
registration default has been cured. Liquidated damages will be
paid semi-annually in arrears, with the first semi-annual
payment due on the first interest payment date, as applicable,
following the date on which such liquidated damages begin to
accrue, and will accrue at a rate per year equal to:
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0.25% of the principal amount to and including the 90th day
following such registration default; and |
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0.5% of the principal amount from and after the 91st day
following such registration default. |
In no event will liquidated damages accrue at a rate per year
exceeding 0.5%. If a holder has converted some or all of its
notes into common stock, the holder will be entitled to receive
equivalent amounts based on the principal amount of the notes
converted.
44
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
This section summarizes some of the U.S. federal income tax
considerations relating to the purchase, ownership and
disposition of the notes and the common stock received upon a
conversion or, in certain circumstances, a repurchase of the
notes. The summary does not describe the effect of
U.S. federal estate and gift tax laws or the effects of any
applicable foreign, state or local laws. We will not request a
ruling from the Internal Revenue Service (the IRS)
with respect to any of the consequences discussed below. The
information below is based on current U.S. federal income
tax authorities, which are subject to change or differing
interpretation, possibly with retroactive effect
The following discussion is limited to purchasers who hold the
notes or common stock as capital assets. The discussion does not
deal with all U.S. federal income tax considerations that
may be relevant to you, including those considerations that may
be relevant to you due to your particular circumstances, for
example, if you are a financial institution, a tax-exempt
entity, an insurance company, a regulated investment company, a
dealer in securities or currencies, a person that will hold the
notes in a tax-deferred or tax-advantaged account, a person
subject to the alternative minimum tax, a person that will not
hold the notes as capital assets, or a person that will hold the
notes as a hedge against currency risks, as a position in a
straddle or as part of a hedging or conversion transaction for
tax purposes. You should consult your own tax advisor
regarding the application and the consequences of
U.S. federal income tax laws to your particular situation
and the consequences of U.S. federal estate and gift tax
laws, foreign, state and local laws and tax treaties.
For purposes of this discussion, you are a U.S. Holder if
you are a beneficial owner of notes or common stock received
upon conversion or repurchase of the notes and you are:
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an individual citizen or resident of the U.S.; |
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a corporation, partnership or other entity created or organized
in or under the laws of the U.S., a U.S. state or the
District of Columbia; |
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an estate whose income is subject to U.S. federal income
tax regardless of its source; |
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a trust if (A) a U.S. court is able to exercise
primary supervision over the administration of the trust and one
or more U.S. persons have the authority to control all
substantial decisions of the trust, or (B) the trust has
validly made an election to be treated as a U.S. person
under the applicable U.S. Treasury regulations; or |
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otherwise subject to federal income tax on a net income basis
with respect to notes. |
You are a Non-U.S. Holder if you are not a
U.S. Holder. Non-U.S. Holders are subject to special
U.S. federal income tax considerations, some of which are
discussed below.
U.S. Holders
A U.S. Holder will be required to recognize as ordinary
income any interest paid or accrued on the notes (including any
accrued and unpaid interest deemed to have been paid in our
common stock upon conversion or repurchase), in accordance with
the holders regular method of tax accounting.
The possibility of an additional payment under the note may be
disregarded for purposes of determining the amount of interest
or original issue discount income to be recognized (or the
timing of such recognition) if the likelihood of the payment, as
of the date the notes are issued, is remote. As described
elsewhere in this prospectus, we will pay liquidated damages on
the notes if, among other things, we fail to maintain the
effectiveness of the registration statement. We believe that the
likelihood that we will be required to pay liquidated damages on
the notes is remote. If, contrary to our expectations,
liquidated damages are, in fact, paid, such liquidated damages
should be included in your income as interest when such interest
is received or accrued, in accordance with your regular method
of accounting.
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The acquisition and resale of notes may be affected by the
impact on a purchaser, at other than original issuance, of the
market discount provisions of the Internal Revenue
Code. Market discount will exist if the stated
redemption price at maturity exceeds the U.S. Holders
initial tax basis in the note. If the market discount is less
than 0.25% of the stated redemption price of the note at
maturity multiplied by the number of complete years until
maturity, then the market discount will be deemed to be zero.
A U.S. Holder may elect to include market discount in
income currently as it accrues. Any such election will apply to
all market discount bonds acquired during or after the taxable
year in which the election is made, and the election may be
terminated only with the consent of the IRS.
If a U.S. Holder does not make an election to include
market discount in income currently as it accrues, any principal
amount received or gain realized by a U.S. Holder on the
sale, exchange, retirement or other disposition of a note will
be treated as ordinary income to the extent of any accrued
market discount on the note. Unless a U.S. Holder
irrevocably elects to accrue market discount under a constant
yield method, accrued market discount is the total market
discount multiplied by a fraction, the numerator of which is the
number of days the U.S. Holder has held the note and the
denominator of which is the number of days from the date the
holder acquired the note until its maturity. If a
U.S. Holder exchanges or converts a note into common stock
in a transaction that is otherwise tax free (including the use
by us solely of our common stock to repurchase the notes in the
event the holder requires us to repurchase the notes), any
accrued market discount not previously included in income will
carry over and generally be recognized upon a disposition of the
common stock.
A U.S. Holder may be required to defer a portion of such
holders interest deductions for the taxable year
attributable to any indebtedness incurred or continued to
purchase or carry a note purchased with market discount. Any
such deferred interest expense may not exceed the market
discount that accrues during a taxable year and is, in general,
allowed as a deduction not later than the year in which the
market discount is includible in income. This interest expense
deferral will not apply if a U.S. Holder makes an election
to include market discount in income currently as it accrues.
A U.S. holder who purchases a note at a premium over its
stated principal amount, plus accrued interest, generally may
elect to amortize that premium, referred to as market premium,
from the purchase date to the notes maturity date (or, in
certain circumstances, over the period from the purchase date to
the date of a presumed redemption by us of the notes) under the
constant-yield method that reflects semiannual compounding based
on the notes payment period, with a corresponding decrease
in tax basis. In general, we will only be presumed to exercise
our option to redeem the notes for these purposes if the use of
an earlier redemption date results in a smaller amortizable
market premium for the period ending on the redemption date.
Market premium, however, will not include any premium
attributable to a notes conversion feature. In general,
the market premium attributable to the conversion feature is the
excess, if any, of the notes purchase price over what the
notes fair market value would be if there were no
conversion feature. Amortized market premium is treated as an
offset to interest income on a note and not as a separate
deduction. The election to amortize market premium under the
constant-yield method, once made, applies to all debt
obligations held or subsequently acquired by the electing
U.S. Holder on or after the first day of the first taxable
year to which the election applies and may not be revoked
without the consent of the IRS.
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Sale, Exchange, Conversion, Repurchase or Redemption of
Notes |
A U.S. Holder generally should not recognize income, gain
or loss upon conversion of the notes solely into our common
stock or the use by us solely of our common stock to repurchase
the notes (in case the holder requires us to repurchase the
notes), except with respect to any amounts received which are
attributable to accrued interest (which will be treated as such)
or cash received in lieu of fractional shares. A
U.S. Holders tax basis in the common stock received
on conversion or repurchase should be the same as the
holders adjusted tax basis in the notes exchanged therefor
at the time of conversion (reduced by any tax basis
46
allocable to a fractional share), and the holding period for the
common stock received on conversion or repurchase should include
the holding period of the notes that were converted or
repurchased. However, a U.S. Holders tax basis in
common stock attributable to accrued and unpaid interest should
be equal to the amount of such accrued and unpaid interest and
the holding period for common stock attributable to accrued and
unpaid interest may likely begin no earlier than the date the
interest accrued and may begin as late as on the day following
the date of conversion or repurchase. Cash received in lieu of a
fractional share of common stock upon conversion or repurchase
of the notes will generally be treated as a payment in exchange
for the fractional share of common stock. Accordingly, the
receipt of cash in lieu of a fractional share of common stock
generally will result in capital gain (subject to the market
discount provisions, as discussed above) or loss measured by the
difference between the cash received for the fractional share
and the holders adjusted tax basis in the fractional share
and will be long-term capital gain or loss if the holder held
the note for more than one year at the time of such conversion
or repurchase.
If a U.S. Holder elects to exercise such holders
right to require us to repurchase a note and we satisfy the
purchase price in a combination of cash and shares of our common
stock (other than cash received in lieu of a fractional share),
the U.S. Holder should recognize gain (but not loss) in an
amount equal to the lesser of (i) the excess of the amount
of cash plus the fair market value of stock received over the
holders adjusted tax basis in the note and (ii) the
amount of cash received, in each case excluding amounts
attributable to accrued interest (which will be treated as such)
or cash received in lieu of a fractional share (which will be
taxable as described above). Such gain will generally be a
capital gain (subject to the market discount provisions, as
discussed above), and will be long-term capital gain if the
repurchased note is held for more than one year. A
U.S. Holders tax basis in the common stock received
from us in exchange for the note upon such a conversion or
repurchase by us should be the same as the
U.S. Holders tax basis in the note less any basis
allocable to a fractional share. However, this basis should be
decreased by the amount of cash, other than cash received in
lieu of accrued and unpaid interest or a fractional share, if
any, received in exchange and increased by the amount of any
gain recognized by the U.S. Holder on the exchange, other
than gain with respect to a fractional share, as described
above. The holding period for common stock received upon such a
conversion or repurchase by us should include the holding period
for the note so converted or repurchased. However, the holding
period for common stock attributable to accrued and unpaid
interest may likely begin no earlier than the date the interest
accrued and may begin as late as on the day following the date
of conversion or repurchase.
If a U.S. Holder elects to exercise such holders
right to require us to repurchase a note and we deliver solely
cash in satisfaction of the purchase price, the U.S. Holder
should recognize gain or loss measured by the difference between
the amount of cash received (other than cash received
attributable to accrued interest, which will be treated as such)
and the U.S. Holders adjusted tax basis in the note.
Gain or loss recognized by the holder will generally be capital
gain (subject to the market discount provisions, as discussed
above) or loss, and will be long-term capital gain or loss if
the note is held for more than one year. The deductibility of
capital losses is subject to limitations.
A U.S. Holder generally will recognize capital gain or loss
upon a sale (including a redemption of a note at our option),
exchange, retirement at maturity, or other taxable disposition
of a note. The U.S. Holders gain or loss will equal
the difference between the proceeds received by the holder
(other than proceeds attributable to accrued interest, which
will be treated as such) and the holders adjusted tax
basis in the note. The proceeds received by a U.S. Holder
will include the amount of any cash and the fair market value of
any other property received for the note. A
U.S. Holders adjusted tax basis in a note generally
will equal the cost of the note to that holder increased by any
market discount previously included in income by the holder and
reduced by any amortized market premium. The gain or loss
recognized by a U.S. Holder on a disposition of the note
will be long-term capital gain (subject to the market discount
provisions, as discussed above) or loss if the holder held the
note for more than one year. The deductibility of capital losses
is subject to limitations.
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Distributions on Common Stock |
Distributions made on the common stock after a conversion or
repurchase generally will be included in your income as ordinary
dividend income to the extent of our current or accumulated
earnings and profits as
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determined under U.S. federal income tax principles. If you
are a corporation, you may qualify for a dividends received
deduction. In addition, pursuant to recently enacted
legislation, dividends in respect of our common stock paid to
certain non-corporate U.S. Holders (including individuals)
in taxable years beginning before January 1, 2009 generally
should be eligible to qualify for preferential rates of United
States federal income tax. Distributions in excess of amounts
treated as dividend income will be treated first as a return of
capital, to the extent of your basis in the common stock, and
then as capital gain.
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Adjustment of Conversion Price |
An adjustment to the conversion price of the notes may be
treated as if you received a distribution in respect of common
stock, unless the adjustment is made pursuant to a bona fide
reasonable adjustment formula which has the effect of preventing
dilution of the interest of the note holders. Certain of the
possible adjustments provided in the notes (including, for
example, adjustments in respect of taxable dividends to our
stockholders) will not qualify as being made pursuant to a bona
fide reasonable adjustment formula. If such adjustments are
made, you will be deemed to receive constructive distributions
taxable as dividends to the extent of our current and
accumulated earnings and profits, even though you will not have
received any cash or property as a result of such adjustments.
In certain circumstances, the failure to provide for such an
adjustment may result in taxable dividend income to our
stockholders.
If you sell common stock, you will recognize capital gain
(subject to the market discount provisions, as discussed above)
or loss equal to the difference between the sale proceeds you
receive and your adjusted tax basis in the common stock. Your
capital gain or loss will be long-term capital gain or loss if
your holding period in the common stock is more than one year at
the time of the sale or exchange. Long-term capital gains
recognized by certain non-corporate U.S. Holders, including
individuals, will generally be taxed at a lower
U.S. federal income tax rate than ordinary income. The
deductibility of capital losses is subject to limitations.
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Backup Withholding and Information Reporting |
Payments we make to you related to the notes or the common stock
will be reported to the IRS, unless you are an exempt recipient
or otherwise establish an exemption. Backup withholding may
apply to payments you receive if you fail to provide us with
certain identifying information (including your correct taxpayer
identification number) in the manner required and if you are not
otherwise exempt from this requirement. Generally, individuals
are not exempt recipients and corporations are exempt
recipients. The amount of backup withholding withheld from
payments to you will be allowed as a credit against your
U.S. federal income tax liability and may entitle you to a
refund.
Non-U.S. Holders
The following discussion is limited to certain of the
U.S. federal income tax consequences relevant to
Non-U.S. Holders. For purposes of this discussion,
interest, dividends and gain on the sale, exchange or other
disposition of a note or common stock will be
U.S. trade or business income if such income or
gain is effectively connected with the conduct of a
U.S. trade or business and, in the case of certain treaty
residents, is also attributable to a permanent establishment
(or, in the case of an individual, a fixed base) in the United
States.
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Portfolio Interest. Generally any interest paid to you
that is not U.S. trade or business income will not be
subject to U.S. tax if the interest qualifies as portfolio
interest. Generally interest on the notes will qualify as
portfolio interest if: you do not actually or
constructively own 10% or more of the total voting power of all
our voting stock and you are not a controlled foreign
corporation with respect to which we are a related
person within the meaning of the Internal Revenue
Code; you are not a bank receiving interest on an
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ordinary course of your trade or business; and you,
as the beneficial owner, under penalty of perjury, certify that
you are not a U.S. person and such certificate provides
your name and address and certain other information. This
certification generally can be made on IRS Form W-8BEN
or successor form and can be either provided directly to us or
our paying agent, or if you hold your interest through a
qualified financial institution, such certification can be
provided to the financial institution, with the financial
institution providing a copy to us. In the case of notes held by
a foreign partnership, the certification must be provided by the
partners rather than by the foreign partnership and the
partnership must provide certain information, including a
taxpayer identification number. A look-through rule applies in
the case of tiered partnerships. |
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U.S. Trade or Business Income. Interest paid to you
that is U.S. trade or business income will be taxed at
regular U.S. rates, on a net income basis, rather than at
the 30% gross tax rate, and will not be subject to withholding
if you provide us with a properly executed
IRS Form W-8ECI or successor form or otherwise
establish an exemption from withholding. If you are a foreign
corporation, such income may also be subject to the branch
profits tax (which is generally imposed on a foreign corporation
on the actual or deemed repatriation from the U.S. of
earnings and profits attributable to U.S. trade or business
income) at a 30% rate. The branch profits tax might not
apply (or may apply at a reduced rate) if you are a qualified
resident of a country with which the United States has an income
tax treaty which provides for an exemption from the branch
profits tax or a reduced branch profits tax rate. |
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Neither Portfolio Interest Nor U.S. Trade or Business
Income. Interest paid to you that does not qualify for the
portfolio interest exemption and that is not U.S. trade or
business income will be subject to U.S. federal income tax
withholding at the rate of 30%, unless a U.S. income tax
treaty applies to reduce or eliminate withholding. To claim the
benefit of a tax treaty, you must provide a properly executed
IRS Form W-8BEN or successor form, prior to the
payment of interest. |
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Sale, Exchange or Redemption of the Notes or Common
Stock |
You will not be subject to U.S. federal income tax or tax
withholding on gains realized on the sale or other taxable
disposition (including a redemption at our option and, in
certain circumstances, a repurchase) of a note or on common
stock received upon conversion or repurchase unless:
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you are an individual and you are present in the U.S. for
183 days or more in the taxable year of the disposition,
and certain conditions are met; |
|
|
|
such gain is effectively connected with your conduct of a trade
or business in the U.S. and, if required under an applicable
U.S. income tax treaty, is attributable to a
U.S. permanent establishment that you maintain; |
|
|
|
you are subject to special provisions applicable to certain
U.S. expatriates; or |
|
|
|
you hold more than 5% of our stock and we are or have been, at
any time within the shorter of the five-year period preceding
such disposition or the period you held the common stock, a
U.S. real property holding corporation for
U.S. federal income tax purposes. We do not believe that we
currently are or have been a U.S. real property holding
corporation or that we will become one in the future. |
|
|
|
Conversion or Repurchase of the Notes for Common
Stock |
You will not be subject to U.S. federal income tax or tax
withholding on the conversion of a note into common stock
(including the receipt of our common stock upon a repurchase of
a note). Cash received in lieu of a fractional share of stock
may give rise to gain that would be subject to the rules
described above with respect to the sale or exchange of a note
or common stock. See Sale, Exchange or Redemption of the
Notes or Common Stock above.
49
|
|
|
Adjustment of Conversion Price |
The conversion price of the notes is subject to adjustment in
certain circumstances. Any such adjustment could, in certain
circumstances, give rise to a deemed distribution that could be
treated as a dividend for U.S. federal income tax purposes.
See U.S. Holders Adjustment of Conversion
Price above. In such case, the deemed dividend would be
subject to the rules below regarding withholding of
U.S. federal income tax on dividends in respect of common
stock.
|
|
|
Distributions on Common Stock |
Distributions on common stock will be a dividend for
U.S. federal income tax purposes to the extent of our
current or accumulated earnings and profits as determined under
U.S. federal income tax principles. Dividends paid on
common stock will be subject to U.S. federal income tax
withholding at a rate of 30% (or lower treaty rate, if
applicable) unless the dividend is effectively connected with
the conduct of a U.S. trade or business and, if required by
a tax treaty, is attributable to a permanent establishment
maintained in the United States, in which case the dividend will
be subject to the same U.S. federal income tax on net
income that applies to U.S. persons generally (and with
respect to corporate holders under certain circumstances, the
branch profits tax). You may be required to satisfy certain
requirements in order to claim a reduction of or exemption from
withholding under these rules.
|
|
|
Backup Withholding and Information Reporting |
In general, backup withholding and information reporting will
not apply to principal or interest paid to you provided an
exemption has been established or we receive the requisite
certification that you are a Non-U.S. Holder (assuming that
neither we nor our paying agent has actual knowledge that you,
as the holder, are a U.S. Holder, or that the conditions of
any other exemption are not in fact satisfied). However, we and
other payors are required to report payments of interest on such
Non-U.S. Holders notes on IRS Form 1042-S
even if the payments are not otherwise subject to information
reporting requirements.
Dividends on common stock paid to you will be subject to certain
information reporting requirements and will be subject to
U.S. withholding tax (unless a tax treaty applies to
eliminate such withholding), but generally will be exempt from
U.S. backup withholding tax.
Payments of the proceeds of the sale of a note or common stock
to or through a foreign office of a U.S. broker or a
foreign broker that is a controlled foreign
corporation within the meaning of the Internal Revenue
Code or a foreign person, 50% or more of whose gross income from
all sources for the three-year period ending with the close of
its taxable year preceding the payment was effectively connected
with the conduct of a trade or business within the U.S. are
currently subject to certain information reporting requirements,
unless the payee is an exempt recipient or such broker has
evidence in its records that the payee is a Non-U.S. Holder
and no actual knowledge that such evidence is false and certain
other conditions are met. In general, such payments are not
currently subject to backup withholding.
Payments of the proceeds of a sale of a note or common stock to
or through the U.S. office of a broker will be subject to
information reporting and backup withholding unless the payee
certifies under penalties of perjury as to his or her status as
a Non-U.S. Holder and satisfies certain other
qualifications (and no agent of the broker who is responsible
for receiving or reviewing such statement has actual knowledge
that it is incorrect) and provides his or her name and address
or the payee otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules from a
payment to a Non-U.S. Holder of a note or common stock will
be allowed as a credit against such holders
U.S. federal income tax, if any, or will be otherwise
refundable provided that the required information is furnished
to the IRS in a timely manner.
Primary responsibility for withholding can be shifted to certain
financial intermediaries acting on behalf of beneficial owners.
You should consult with your tax advisor regarding the
application of the backup withholding rules to your particular
situation, the availability of an exemption from withholding or
backup withholding and the procedure for obtaining such an
exemption, if available.
50
THE PRECEDING DISCUSSION OF CERTAIN U.S. FEDERAL INCOME TAX
CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX
ADVICE. YOU SHOULD CONSULT YOUR OWN TAX ADVISER AS TO THE
PARTICULAR U.S. FEDERAL, STATE, AND LOCAL TAX CONSEQUENCES
OF PURCHASING, HOLDING AND DISPOSING OF THE NOTES AND OUR
COMMON STOCK. TAX ADVISORS SHOULD ALSO BE CONSULTED AS TO THE
U.S. ESTATE AND GIFT TAX CONSEQUENCES AND THE FOREIGN,
STATE AND LOCAL TAX CONSEQUENCES OF PURCHASING, HOLDING OR
DISPOSING OF OUR NOTES AND COMMON STOCK, AS WELL AS THE
CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.
51
CAPITALIZATION
The following table sets forth our total capitalization as of
April 30, 2005:
|
|
|
|
|
|
|
|
April 30, 2005 | |
|
|
| |
|
|
(In thousands, | |
|
|
except share data) | |
Current portion of long-term liabilities
|
|
$ |
2,242 |
|
|
|
|
|
Convertible notes, net of unamortized portion of beneficial
conversion feature, other long-term liabilities and deferred
income taxes
|
|
|
265,274 |
|
Stockholders equity:
|
|
|
|
|
|
Preferred stock, $0.001 par value; 5,000,000 shares
authorized, no shares issued or outstanding
|
|
|
|
|
|
Common stock, $0.001 par value; 500,000,000 shares
authorized, 258,931,278 shares issued and outstanding(1)
|
|
|
259 |
|
|
Additional paid-in capital
|
|
|
1,314,960 |
|
|
Accumulated other comprehensive income
|
|
|
381 |
|
|
Accumulated deficit
|
|
|
(1,171,310 |
) |
|
|
|
|
|
Total stockholders equity
|
|
|
144,290 |
|
|
|
|
|
Total capitalization
|
|
$ |
409,564 |
|
|
|
|
|
|
|
|
|
|
shares of common stock reserved for issuance under our stock
option plans and employee stock purchase plan and upon exercise
of stock options and warrants assumed in connection with our
acquisitions of six privately-held companies; |
|
|
|
shares of common stock reserved for issuance upon conversion of
the promissory notes issued as consideration for our acquisition
of the assets of Data Transit Corp. in August 2004; |
|
|
|
shares of common stock issued in connection with the acquisition
of InterSAN, Inc. in May 2005; |
|
|
|
shares of common stock reserved for issuance upon conversion of
promissory notes issued as consideration for our acquisition of
I-TECH CORP in April 2005; and |
|
|
|
shares reserved for issuance upon conversion of the CyOptics
Note. |
See Management Equity Compensation Plan
Information, Description of Capital Stock and
Note 14 to our audited consolidated financial statements
included elsewhere in this prospectus.
52
SELECTED FINANCIAL DATA
The following summary financial data should be read together
with Managements Discussion and Analysis of
Financial Condition and Results of Operations and our
consolidated financial statements and the notes thereto included
elsewhere in this prospectus. The statement of operations data
set forth below for the fiscal years ended April 30, 2005,
2004 and 2003 and the balance sheet data as of April 30,
2005 and 2004 are derived from, and are qualified by reference
to, our audited consolidated financial statements included
elsewhere in this prospectus. The statement of operations data
set forth below for the fiscal years ended April 30, 2002
and 2001 and the balance sheet data as of April 30, 2003,
2002 and 2001 are derived from audited financial statements not
included in this prospectus. The Managements
Discussion and Analysis of Financial Consolidation and Results
of Operations related to the statement of operations and
balance sheet data for the fiscal years ended April 30,
2002 and 2001 are not included in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
280,823 |
|
|
$ |
185,618 |
|
|
$ |
166,482 |
|
|
$ |
147,265 |
|
|
$ |
188,800 |
|
Cost of revenues
|
|
|
205,631 |
|
|
|
143,585 |
|
|
|
130,501 |
|
|
|
136,626 |
|
|
|
131,551 |
|
Amortization of acquired developed technology
|
|
|
22,268 |
|
|
|
19,239 |
|
|
|
21,983 |
|
|
|
27,119 |
|
|
|
10,900 |
|
Impairment of acquired developed technology
|
|
|
3,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
49,268 |
|
|
|
22,794 |
|
|
|
13,998 |
|
|
|
(16,480 |
) |
|
|
46,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
62,799 |
|
|
|
62,193 |
|
|
|
60,295 |
|
|
|
54,372 |
|
|
|
33,696 |
|
|
Sales and marketing
|
|
|
29,783 |
|
|
|
20,063 |
|
|
|
20,232 |
|
|
|
21,448 |
|
|
|
16,673 |
|
|
General and administrative
|
|
|
23,374 |
|
|
|
16,738 |
|
|
|
15,201 |
|
|
|
19,419 |
|
|
|
10,160 |
|
|
Amortization of (benefit from) deferred stock compensation
|
|
|
162 |
|
|
|
(105 |
) |
|
|
(1,719 |
) |
|
|
11,963 |
|
|
|
13,542 |
|
|
Acquired in-process research and development
|
|
|
1,558 |
|
|
|
6,180 |
|
|
|
|
|
|
|
2,696 |
|
|
|
35,218 |
|
|
Amortization of goodwill and other purchased intangibles
|
|
|
1,104 |
|
|
|
572 |
|
|
|
758 |
|
|
|
129,099 |
|
|
|
53,122 |
|
|
Impairment of tangible assets
|
|
|
18,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill and intangible assets
|
|
|
|
|
|
|
|
|
|
|
10,586 |
|
|
|
|
|
|
|
|
|
|
Restructuring costs
|
|
|
287 |
|
|
|
382 |
|
|
|
9,378 |
|
|
|
|
|
|
|
|
|
|
Other acquisition costs
|
|
|
|
|
|
|
222 |
|
|
|
198 |
|
|
|
3,119 |
|
|
|
1,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
137,865 |
|
|
|
106,245 |
|
|
|
114,929 |
|
|
|
242,116 |
|
|
|
163,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(88,597 |
) |
|
|
(83,451 |
) |
|
|
(100,931 |
) |
|
|
(258,596 |
) |
|
|
(117,192 |
) |
Interest income (expense), net
|
|
|
(12,072 |
) |
|
|
(25,701 |
) |
|
|
(6,699 |
) |
|
|
(68 |
) |
|
|
14,217 |
|
Other income (expense), net
|
|
|
(12,582 |
) |
|
|
(4,347 |
) |
|
|
(51,314 |
) |
|
|
1,360 |
|
|
|
18,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and cumulative effect of an accounting
change
|
|
|
(113,251 |
) |
|
|
(113,499 |
) |
|
|
(158,944 |
) |
|
|
(257,304 |
) |
|
|
(84,429 |
) |
Provision (benefit) for income taxes
|
|
|
856 |
|
|
|
334 |
|
|
|
229 |
|
|
|
(38,566 |
) |
|
|
1,020 |
|
Loss before cumulative effect of an accounting change
|
|
|
(114,107 |
) |
|
|
(113,833 |
) |
|
|
(159,173 |
) |
|
|
(218,738 |
) |
|
|
(85,449 |
) |
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
Cumulative effect of an accounting change to adopt SFAS 142
|
|
|
|
|
|
|
|
|
|
|
(460,580 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(114,107 |
) |
|
$ |
(113,833 |
) |
|
$ |
(619,753 |
) |
|
$ |
(218,738 |
) |
|
$ |
(85,449 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before cumulative effect of an accounting change
|
|
$ |
(0.49 |
) |
|
$ |
(0.53 |
) |
|
$ |
(0.82 |
) |
|
$ |
(1.21 |
) |
|
$ |
(0.53 |
) |
|
Cumulative effect of an accounting change to adopt SFAS 142
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(2.35 |
) |
|
$ |
|
|
|
$ |
|
|
|
Net loss per share
|
|
$ |
(0.49 |
) |
|
$ |
(0.53 |
) |
|
$ |
(3.17 |
) |
|
$ |
(1.21 |
) |
|
$ |
(0.53 |
) |
|
Shares used in per share calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
232,210 |
|
|
|
216,117 |
|
|
|
195,666 |
|
|
|
181,136 |
|
|
|
160,014 |
|
Pro forma amounts assuming the change in accounting principle
was applied retroactively (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(114,107 |
) |
|
$ |
(113,833 |
) |
|
$ |
(619,753 |
) |
|
$ |
(90,957 |
) |
|
$ |
(32,857 |
) |
|
Net loss per share basic and diluted
|
|
$ |
(0.49 |
) |
|
$ |
(0.53 |
) |
|
$ |
(3.17 |
) |
|
$ |
(0.50 |
) |
|
$ |
(0.21 |
) |
Shares used in computing pro forma net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
232,210 |
|
|
|
216,117 |
|
|
|
195,666 |
|
|
|
181,136 |
|
|
|
160,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
$ |
102,362 |
|
|
$ |
143,398 |
|
|
$ |
119,438 |
|
|
$ |
144,097 |
|
|
$ |
146,111 |
|
Working capital
|
|
|
120,272 |
|
|
|
172,892 |
|
|
|
149,967 |
|
|
|
222,603 |
|
|
|
249,000 |
|
Total assets
|
|
|
488,985 |
|
|
|
494,705 |
|
|
|
423,606 |
|
|
|
1,041,281 |
|
|
|
1,029,995 |
|
Long-term liabilities
|
|
|
265,274 |
|
|
|
233,732 |
|
|
|
101,531 |
|
|
|
106,869 |
|
|
|
45,354 |
|
Convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Total stockholders equity
|
|
|
144,290 |
|
|
|
202,845 |
|
|
|
274,980 |
|
|
|
879,002 |
|
|
|
941,851 |
|
Net income in fiscal 2003 reflects our adoption of Statements of
Financial Accounting Standards 141 and 142 on May 1, 2002.
As a result of our adoption, reported net loss decreased by
approximately $127.8 million, or $0.65 per share, due
to the cessation of the amortization of goodwill and the
amortization of acquired workforce and customer base.
54
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements
that involve risks and uncertainties. Our actual results could
differ substantially from those anticipated in these
forward-looking statements as a result of many factors,
including those set forth under Risk Factors. The
following discussion should be read together with our
consolidated financial statements and related notes thereto
included elsewhere in this document.
Overview
We were incorporated in 1987 and funded our initial product
development efforts largely through revenues derived under
research and development contracts. After shipping our first
products in 1991, we continued to finance our operations
principally through internal cash flow and periodic bank
borrowings until November 1998. At that time we raised
$5.6 million of net proceeds from the sale of equity
securities and bank borrowings to fund the continued growth and
development of our business. In November 1999, we received net
proceeds of $151.0 million from the initial public offering
of shares of our common stock, and in April 2000 we received
$190.6 million from an additional public offering of shares
of our common stock. In October 2001, we sold $125 million
aggregate principal amount of
51/4% convertible
subordinated notes due October 15, 2008, and in October
2003, we sold $150 million aggregate principal amount of
21/2% convertible
subordinated notes due October 15, 2010.
Since October 2000, we have acquired a number of companies and
certain businesses and assets of other companies in order to
broaden our product offerings and provide new sources of
revenue, production capabilities and access to advanced
technologies that we believe will enable us to reduce our
product costs and develop innovative and more highly integrated
product platforms while accelerating the timeframe required to
develop such products.
In October 2002, we sold our subsidiary, Sensors Unlimited, Inc.
to a new company organized by a management group led by
Dr. Greg Olsen, then an officer and director of Finisar and
a former majority owner of Sensors Unlimited. The intellectual
property developed after the acquisition of Sensors Unlimited
was transferred to other operations within Finisar. In November
2002, we discontinued a product line at our Demeter Technologies
subsidiary that was not making a significant contribution to our
operating results and was no longer considered a key part of our
product strategy. Certain assets of Demeter Technologies were
sold in conjunction with the product line discontinuation. In
April 2003, we acquired Genoa Corporation and announced the
closure of Demeter Technologies and the consolidation of all
active device development and wafer fabrication operations into
the Genoa facility. The consolidation was completed in fiscal
2004. During the second quarter of fiscal 2004, we completed the
closure of our German facility associated with the acquisition
of AIFOtec, GmbH. The intellectual property, technical know-how
and certain assets related to the German operations were
consolidated with our operations in Sunnyvale, California,
during the second quarter of fiscal 2004.
The principal strategic goal of most of our acquisitions to date
related to our optical subsystems and components business has
been to gain access to leading-edge technology for the
manufacture of optical components in order to improve the
performance and reduce the cost of our optical subsystem
products. We have also sold these optical components on a
stand-alone basis to other manufacturers; however, prior to our
acquisition of Honeywell International Inc.s VCSEL Optical
Products business unit in March 2004, the sale of these
components into this so-called merchant market had
not been a strategic priority, and our revenues from the sale of
optical subsystems and components consisted predominantly of
subsystems sales. As a result of the Honeywell acquisition, we
are now selling vertical cavity surface emitting lasers, or
VCSELs, in the merchant market, and we intend to evaluate
opportunities to increase the sale of these and other components
in the merchant market. The principal strategic goal of most of
our acquisitions to date related to our network test and
monitoring business has been to broaden our product portfolio
and to gain access to new distribution channels. The acquisition
of assets and intellectual property of Data Transit, Inc. in
August 2004, I-TECH CORP. in April 2005, and InterSAN, Inc. in
May 2005 were examples of our pursuit of this strategy. As a
55
result of these acquisitions, we have expanded our product
offerings for SAN test, analysis and monitoring tools to include
additional products which test and monitor storage networks
using the SAS and SATA protocols as well as additional tools for
testing and reconfiguring SANs.
To date, our revenues have been principally derived from sales
of our optical subsystems to networking and storage systems
manufacturers and sales of our network performance test systems
to these manufacturers as well as end users. Optical subsystems
consist primarily of transceivers sold to manufacturers of
storage and networking equipment for SANs, LANs, and MAN
applications. A large proportion of our sales are concentrated
with a relatively small number of customers. Although we are
attempting to expand our customer base, we expect that
significant customer concentration will continue for the
foreseeable future.
We recognize revenue when persuasive evidence of an arrangement
exists, title and risk of loss pass to the customer, which is
generally upon shipment, the price is fixed or determinable and
collectability is reasonably assured. For those arrangements
with multiple elements, or in related arrangements with the same
customer, we allocate revenue to the separate elements based
upon each elements fair value as determined by the list
price for such element.
We sell our products through our direct sales force, with the
support of our manufacturers representatives, directly to
domestic customers and indirectly through distribution channels
to international customers. The evaluation and qualification
cycle prior to the initial sale for our optical subsystems may
span a year or more, while the sales cycle for our test and
monitoring systems is usually considerably shorter.
The market for optical subsystems and components is
characterized by declining average selling prices resulting from
factors such as industry over-capacity, increased competition,
the introduction of new products and the growth in unit volumes
as manufacturers continue to deploy network and storage systems.
We anticipate that our average selling prices will continue to
decrease in future periods, although the timing and amount of
these decreases cannot be predicted with any certainty.
Our cost of revenues consists of materials, salaries and related
expenses for manufacturing personnel, manufacturing overhead,
warranty expense, inventory adjustments for obsolete and excess
inventory and the amortization of acquired developed technology
associated with acquisitions that we have made. Historically, we
outsourced the majority of our assembly operations. However, in
fiscal 2002, we commenced manufacturing of our optical subsystem
products at our subsidiary in Ipoh, Malaysia. We conduct
component manufacturing, manufacturing engineering, supply chain
management, quality assurance and documentation control at our
facilities in Sunnyvale, California and Richardson, Texas and at
our subsidiaries facilities in Fremont, California,
Shanghai, China and Ipoh, Malaysia. With the transition of most
of our production to Malaysia and the added manufacturing
infrastructure associated with several acquisitions completed
during the past two years, our cost structure has become more
fixed, making it more difficult to reduce costs during periods
when demand for our products is weak, product mix is unfavorable
or selling prices are generally lower. While we undertook
measures to reduce our operating costs during fiscal 2003, 2004
and 2005, there can be no assurance that we will be able to
reduce our cost of revenues enough to achieve or sustain
profitability during periods of weak demand or when average
selling prices are low.
Our gross profit margins vary among our product families, and
are generally higher on our network test and monitoring systems
than on our optical subsystems and components. Our optical
products sold for longer distance MAN and telecom applications
typically have higher gross margins than our products for
shorter distance LAN and SAN applications. Our overall gross
margins have fluctuated from period to period as a result of
overall revenue levels, shifts in product mix, the introduction
of new products, decreases in average selling prices and our
ability to reduce product costs.
Research and development expenses consist primarily of salaries
and related expenses for design engineers and other technical
personnel, the cost of developing prototypes and fees paid to
consultants. We charge all research and development expenses to
operations as incurred. We believe that continued investment in
research and development is critical to our long-term success.
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Sales and marketing expenses consist primarily of commissions
paid to manufacturers representatives, salaries and
related expenses for personnel engaged in sales, marketing and
field support activities and other costs associated with the
promotion of our products.
General and administrative expenses consist primarily of
salaries and related expenses for administrative, finance and
human resources personnel, professional fees, and other
corporate expenses.
In connection with the grant of stock options to employees
between August 1, 1998 and October 15, 1999, we
recorded deferred stock compensation representing the difference
between the deemed value of our common stock for accounting
purposes and the exercise price of these options at the date of
grant. In connection with the assumption of stock options
previously granted to employees of companies we acquired, we
recorded deferred compensation representing the difference
between the fair market value of our common stock on the date of
closing of each acquisition and the exercise price of the
unvested portion of options granted by those companies which we
assumed. Deferred stock compensation is presented as a reduction
of stockholders equity, with accelerated amortization
recorded over the vesting period, which is typically three to
five years. The amount of deferred stock compensation expense to
be recorded in future periods could decrease if options for
which accrued but unvested compensation has been recorded are
forfeited prior to vesting and could increase if we modify the
terms of an option grant resulting in a new measurement date.
Acquired in-process research and development represents the
amount of the purchase price in a business combination allocated
to research and development projects underway at the acquired
company that had not reached the technologically feasible stage
as of the closing of the acquisition and for which we had no
alternative future use.
A portion of the purchase price in a business combination is
allocated to goodwill and intangibles. Prior to May 1,
2002, goodwill and purchased intangibles were amortized over
their estimated useful lives. Subsequent to May 1, 2002,
goodwill and intangible assets with indefinite lives are no
longer amortized but subject to annual impairment testing.
Impairment charges consist of write downs to the carrying value
of intangible assets and goodwill arising from various business
combinations to their implied fair value.
Restructuring costs generally include termination costs for
employees associated with a formal restructuring plan and the
cost of facilities or other unusable assets abandoned or sold.
Other acquisition costs primarily consist of incentive payments
for employee retention included in certain of the purchase
agreements of companies we acquired and costs incurred in
connection with transactions that were not completed.
Other income and expenses generally consist of bank fees, gains
or losses as a result of the periodic sale of assets and
other-than-temporary decline in the value of investments.
Recent Acquisitions
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Acquisition of Honeywell VCSEL Optical Products
Business |
On March 1, 2004, we completed the acquisition of Honeywell
International Inc.s VCSEL Optical Products business unit
for a purchase price and transaction expenses totaling
approximately $80.9 million in cash and $1.2 million
in our common stock. The acquisition was accounted for under the
purchase method of accounting. The acquisition was undertaken to
lower our cost of goods sold as a result of being more
vertically integrated, to gain access to intellectual property
and know-how associated with making short wavelength VCSELs for
both data communications and other market applications in the
future and the additional revenue and earnings growth associated
with new product opportunities. The amount of goodwill recorded
in this acquisition reflected the value to be realized
associated with these incremental cost savings and future
revenue opportunities. The results of operations of this
business unit, which we now refer to as our Advanced Optical
Components, or AOC, Division are included in our consolidated
financial statements beginning on March 1, 2004.
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Acquisition of Assets of Data Transit Corp. |
On August 6, 2004, we completed the purchase of
substantially all of the assets of Data Transit Corp. in
exchange for a cash payment of $500,000 and the issuance of a
convertible promissory note in the original principal amount of
$16.3 million. Transaction costs totaled $682,000. The
acquisition of Data Transit expanded our product offering for
testing and monitoring systems, particularly those systems based
on the SAS and SATA protocols used in the disk drive industry.
The amount of goodwill recorded with this acquisition reflected
the incremental earnings associated with selling this new test
and monitoring capability, the underlying know-how for making
these products which we plan to incorporate into our XGig
product platform and cost synergies associated with integrating
the operations of Data Transit with our Network Tools Division.
The principal balance of the note issued in this acquisition
bears interest at 8% per annum and is due and payable, if
not sooner converted, on the second anniversary of its issuance.
Generally, the terms of the convertible promissory note provide
for automatic conversion of the outstanding principal and
interest into shares of our common stock on a biweekly basis,
commencing on the later of the effectiveness of a registration
statement covering the resale of the shares or one year after
the closing date. The conversion price is the average closing
bid price of the stock for the three days preceding the date of
conversion. The amount of principal and interest to be converted
on each conversion date is based on the average trading volume
of our common stock over the preceding 14 days. The
acquisition was accounted for as a purchase and, accordingly,
the results of operations of the acquired assets (beginning with
the closing date of the acquisition) and the estimated fair
value of assets acquired were included in our consolidated
financial statements beginning in the second quarter of fiscal
2005.
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Acquisition of Transceiver and Transponder Product Line
From Infineon Technologies AG |
On April 29, 2004, we entered into an agreement with
Infineon Technologies AG to acquire Infineons fiber optics
business unit. On October 11, 2004, we entered into an
amended purchase agreement under which the terms of the
acquisition were modified. On January 25, 2005, we and
Infineon terminated the amended purchase agreement and entered
into a new agreement under which we acquired certain assets of
Infineons fiber optics business unit associated with the
design, development and manufacture of optical transceiver and
transponder products in exchange for 34 million shares of
our common stock. The closing of the acquisition took place on
January 31, 2005, the first day of our fourth quarter of
fiscal 2005. The acquisition expanded our product offering and
customer base for optical transceivers and transponders and
expanded our portfolio of intellectual property used in
designing and manufacturing these products as well as those to
be developed in the future. The amount of goodwill recorded in
this acquisition reflected the value to be realized associated
with cost savings resulting from integrating these products with
our Optical Subsystems and Components Division as well as the
incremental growth in revenue and earnings from the sale of
future products. We did not acquire any employees or assume any
liabilities as part of the acquisition, except for obligations
under customer contracts. The 34 million shares of our
common stock issued to Infineon were valued at approximately
$59.5 million based on the closing price of our common
stock on January 31, 2005. The acquisition was accounted
for as a purchase and, accordingly, the results of operations of
the acquired assets (beginning with the closing date of the
acquisition) and the estimated fair value of assets acquired
were included in our consolidated financial statements beginning
in the fourth quarter of fiscal 2005.
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Acquisition of I-TECH CORP. |
On April 8, 2005, we completed our acquisition of I-TECH
CORP., a privately-held network test and monitoring company
based in Eden Prairie, Minnesota. The acquisition expanded our
product offering for testing and monitoring systems,
particularly for systems relying on the Fibre Channel protocol,
and expanded our portfolio of intellectual property used in
designing and manufacturing these products as well as those to
be developed in the future. The amount of goodwill recorded with
this acquisition reflected the underlying patents and know-how
used in manufacturing future products and cost synergies
associated with integrating the operations of I-TECH with our
Network Tools Division. The acquisition agreement provided for
the merger of I-TECH with a wholly-owned subsidiary of Finisar
and the issuance by Finisar to the sole holder of I-TECHs
common stock of promissory notes in the aggregate principal
amount of approximately $12.1 million. The
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notes are convertible into shares of Finisar common stock over a
period of one year following the closing of the acquisition. The
exact number of shares of Finisar common stock to be issued
pursuant to the promissory notes is dependent on the trading
price of Finisars common stock on the dates of conversion
of the notes. The results of operations of I-TECH (beginning
with the closing date of the acquisition) and the estimated fair
value of assets acquired were included in our consolidated
financial statements beginning in the fourth quarter of fiscal
2005.
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Acquisition of InterSAN, Inc. |
On May 12, 2005, we completed the acquisition of InterSAN,
Inc., a privately-held company located in Scotts Valley,
California. Under the terms of the acquisition agreement,
InterSAN merged with a wholly-owned subsidiary of Finisar and
the holders of InterSANs securities will be entitled to
receive up to 7,132,186 shares of Finisar common stock
having a value of approximately $8.8 million. Approximately
10% of the shares of Finisar common stock that would otherwise
be distributed to the holders of InterSANs securities at
the closing of the acquisition were deposited into an escrow
account for 12 months following the closing for the purpose
of providing a fund against which Finisar may assert claims for
damages, if any, based on breaches of the representations and
warranties made by InterSAN in the agreement. The results of
operations of InterSAN (beginning with the closing date of the
acquisition) and the estimated fair value of assets acquired
will be included in our consolidated financial statements
beginning in the first quarter of fiscal 2006 ending
July 31, 2005.
Critical Accounting Policies
The preparation of our financial statements and related
disclosures require that we make estimates, assumptions and
judgments that can have a significant impact on our net revenue
and operating results, as well as on the value of certain
assets, contingent assets and liabilities on our balance sheet.
We believe that the estimates, assumptions and judgments
involved in the accounting policies described below have the
greatest potential impact on our financial statements and,
therefore, consider these to be our critical accounting
policies. See Note 1 to our consolidated financial
statements included elsewhere in this prospectus for more
information about these critical accounting policies, as well as
a description of other significant accounting policies.
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Revenue Recognition, Warranty and Sales Returns |
Our revenue recognition policy follows SEC Staff Accounting
Bulletin (SAB) No. 104, Revenue
Recognition. Specifically, we recognize revenue when
persuasive evidence of an arrangement exists, title and risk of
loss have passed to the customer, generally upon shipment, the
price is fixed or determinable and collectability is reasonably
assured. For those arrangements with multiple elements, or in
related arrangements with the same customer, we invoice and
charge for each separate element and allocate revenue to the
separate elements based upon each elements fair value as
determined by the list price for each element.
At the time revenue is recognized, we establish an accrual for
estimated warranty expenses associated with our sales, recorded
as a component of cost of revenues. Our warranty period usually
extends 12 months from the date of sale and our warranty
accrual represents our best estimate of the amounts necessary to
settle future and existing claims on products sold as of the
balance sheet date. While we believe that our warranty accrual
is adequate and that the judgment applied is appropriate, such
amounts estimated to be due and payable could differ materially
from what actually transpire in the future. If our actual
warranty costs are greater than the accrual, costs of revenue
will increase in the future. We also provide an allowance for
estimated customer returns, which is netted against revenue.
This provision is based on our historical returns, analysis of
credit memo data and our return policies. If the historical data
used by us to calculate the estimated sales returns does not
properly reflect future returns, revenue could be overstated.
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Allowance for Doubtful Accounts |
We evaluate the collectability of our accounts receivable based
on a combination of factors. In circumstances where, subsequent
to delivery, we become aware of a customers potential
inability to meet its obligations, we record a specific
allowance for the doubtful account to reduce the net recognized
receivable to the amount we reasonably believe will be
collected. For all other customers, we recognize an allowance
for doubtful accounts based on the length of time the
receivables are past due. A material adverse change in a major
customers ability to meet its financial obligations to us
could result in a material reduction in the estimated amount of
accounts receivable that can ultimately be collected and an
increase in our general and administrative expenses for the
shortfall.
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Slow Moving and Obsolete Inventories |
We make inventory commitment and purchase decisions based upon
sales forecasts. To mitigate the component supply constraints
that have existed in the past and to fill orders with
non-standard configurations, we build inventory levels for
certain items with long lead times and enter into certain
longer-term commitments for certain items. We permanently write
off 100% of the cost of inventory that we specifically identify
and consider obsolete or excessive to fulfill future sales
estimates. We define obsolete inventory as inventory that will
no longer be used in the manufacturing process. We periodically
discard obsolete inventory. Excess inventory is generally
defined as inventory in excess of projected usage, and is
determined using our best estimate of future demand at the time,
based upon information then available to us. In making these
assessments, we are required to make judgments as to the future
demand for current or committed inventory levels. We use a
12-month demand forecast, and in addition to the demand
forecast, we also consider:
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parts and subassemblies that can be used in alternative finished
products; |
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parts and subassemblies that are unlikely to be engineered out
of our products; and |
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known design changes which would reduce our ability to use the
inventory as planned. |
Significant differences between our estimates and judgments
regarding future timing of product transitions, volume and mix
of customer demand for our products and actual timing, volume
and demand mix may result in additional write-offs in the
future, or additional usage of previously written-off inventory
in future periods for which we would benefit by a reduced cost
of revenues in those future periods.
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Investment in Equity Securities |
For strategic reasons, we may make minority investments in
private or public companies or extend loans or receive equity or
debt from these companies for services rendered or assets sold.
Our minority investments in private companies are primarily
motivated by our desire to gain early access to new technology.
Our investments in these companies are passive in nature in that
we generally do not obtain representation on the boards of
directors. Our investments have generally been part of a larger
financing in which the terms were negotiated by other investors,
typically venture capital investors. These investments are
generally made in exchange for preferred stock with a
liquidation preference that helps protect the underlying value
of our investment. At the time we made our investments, in most
cases the companies had not completed development of their
products and we did not enter into any significant supply
agreements with the companies in which we invested. In
determining if and when a decline in the market value of these
investments below their carrying value is other-than-temporary,
we evaluate the market conditions, offering prices, trends of
earnings and cash flows, price multiples, prospects for
liquidity and other key measures of performance. Our policy is
to recognize an impairment in the value of its minority equity
investments when clear evidence of an impairment exists, such as
(a) the completion of a new equity financing that may
indicate a new value for the investment, (b) the failure to
complete a new equity financing arrangement after seeking to
raise additional funds or (c) the commencement of
proceedings under which the assets of the business may be placed
in receivership or liquidated to satisfy the claims of debt and
equity stakeholders. As of April 30, 2005, the carrying
value of these investments totaled $21.4 million. Future
adverse changes in market conditions or poor
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operating results at any of the companies in which we hold a
minority position could result in losses or an inability to
recover the carrying value of these investments.
During the fiscal year ended April 30, 2003, we initiated
actions to reduce our cost structure due to sustained negative
economic conditions that had impacted our operations and
resulted in lower than anticipated revenues. In May and October
2002, we reduced its workforce in the United States. The
restructuring actions in fiscal 2003 resulted in a reduction in
the U.S. workforce of approximately 255 employees, or 36%
of our U.S. workforce measured as of the beginning of
fiscal 2003, and affected all areas of our U.S. operations.
During fiscal 2003, we sold certain assets and transferred
certain liabilities of our subsidiary, Sensors Unlimited, Inc,
closed our Hayward facility, and began the process of closing
the facilities occupied by our subsidiary, Demeter Technologies,
Inc. As facilities in the United States were consolidated,
related leasehold improvement and equipment were written off. As
a result of these restructuring activities, we incurred a charge
of $9.4 million in fiscal 2003. The restructuring charge
included approximately $5.4 million for the write-off of
leasehold improvements and equipment in the vacated buildings,
approximately $1.8 million of severance-related charges,
approximately $1.5 million of excess committed facilities
payments and approximately $700,000 of miscellaneous costs
required to effect the closures.
During the first quarter of fiscal 2004, we completed the
closure of our subsidiary, Demeter Technologies, Inc. In
addition, we began closing our German operations and reducing
the German workforce of approximately 10 employees engaged
in research and development in the optical subsystems and
components reporting segment. As a result of these restructuring
activities, a charge of $2.2 million was incurred in the
first quarter. The restructuring charge included $800,000 of
severance-related charges, approximately $600,000 of fees
associated with the early termination of our facilities lease in
Germany, approximately $450,000 for remaining payments for
excess leased equipment and approximately $300,000 of
miscellaneous costs incurred to effect the closures.
During the second quarter of fiscal 2004, we completed the
closure of our German facility. The intellectual property,
technical know-how and certain assets related to our German
operations were consolidated with our operations in Sunnyvale,
California, during the second quarter. We incurred an additional
$317,000 of net restructuring expenses in the second quarter.
This amount included an additional $273,000 of restructuring
expenses related to the closure of German operations, consisting
of $373,000 for legal and exit fees associated with the closure,
additional severance-related payments and the write-off of
abandoned assets, partially offset by lower than anticipated
fees associated with the termination of the German facilities
lease of $100,000. The expenses related to the closure of the
German facility were partially offset by an $85,000 reduction in
restructuring expenses associated with the closure of our
subsidiary, Demeter Technologies, Inc. offset by additional
severance-related expenses.
During the third quarter of fiscal 2004, we realized a benefit
of $1.2 million related to restructuring expenses due to
lower than anticipated fees and the consequent reversal of an
associated accrual from the termination of a purchasing
agreement related to the closure of our subsidiary, Demeter
Technologies, Inc.
During the fourth quarter of fiscal 2004, we realized a benefit
of $791,000 related to restructuring expenses due to lower than
anticipated lease and facility clean-up costs related to the
closure of the Demeter facility.
The facilities consolidation charges were calculated using
estimates and were based upon the remaining future lease
commitments for vacated facilities from the date of facility
consolidation, net of estimated future sublease income. The
estimated costs of vacating these leased facilities were based
on market information and trend analyses, including information
obtained from third party real estate sources. We have engaged
brokers to locate tenants to sublease the Hayward facility. As
of April 30, 2005, $509,000 of committed facilities
payments, net of anticipated sublease income, remains accrued
and is expected to be fully utilized by fiscal 2006.
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Goodwill, Purchased Intangibles and Other Long-Lived
Assets |
Our long-lived assets include significant investments in
goodwill and other intangible assets. Under accounting standards
in effect through April 30, 2002, we were required to make
judgments about the recoverability of these assets whenever
events or changes in circumstances indicated that the carrying
value of these assets may be impaired or not recoverable. In
order to make such judgments, we were required to make
assumptions about the value of these assets in the future
including future prospects for earnings and cash flows of the
businesses underlying these investments. While we determined
that no impairment was recorded or necessary during fiscal 2001
and 2002 under then applicable accounting standards, the
judgments and assumptions we made about the future were complex,
subjective and can be affected by a variety of factors including
industry and economic trends, our market position and the
competitive environment of the businesses in which we operate.
In June 2001, the Financial Accounting Standards Board, or FASB,
issued Statement of Financial Accounting Standards, or
SFAS 141 Business Combinations and
SFAS 142 Goodwill and Other Intangible Assets.
SFAS 141 requires business combinations initiated after
June 30, 2001 to be accounted for using the purchase method
of accounting. SFAS 141 also included guidance on the
initial recognition and measurement of goodwill and other
intangible assets arising from business combinations completed
after June 30, 2001. SFAS 142 prohibits the
amortization of goodwill and intangible assets with indefinite
useful lives. SFAS 142 requires that these assets be
reviewed for impairment at least annually. Intangible assets
with finite lives will continue to be amortized over their
estimated useful lives.
We applied SFAS 142 beginning in the first quarter of
fiscal 2003. Application of the non-amortization provisions of
SFAS 142 significantly reduced amortization expense, which
included $123.7 million and $51.5 million of goodwill
amortization for the fiscal years ended April 30, 2002 and
2001, respectively. We reclassified assembled workforce and
customer base of $6.1 million to goodwill as required by
SFAS 142 at the date of adoption. SFAS 142 also
requires that goodwill be tested for impairment at the reporting
unit level at adoption and at least annually thereafter,
utilizing a two-step methodology. The initial step requires us
to determine the fair value of each reporting unit and compare
it to the carrying value, including goodwill, of such unit. We
believe that we operate two reporting units, optical subsystems
and components and network test and monitoring systems. If the
fair value of the reporting unit exceeds the carrying value, no
impairment loss would be recognized. However, if the carrying
value of the reporting unit exceeds its fair value, the goodwill
of the unit may be impaired. The amount, if any, of the
impairment would then be measured in the second step.
In July 2002, we performed the required impairment testing of
goodwill and indefinite-lived intangible assets. As a result of
that testing, we incurred a transitional impairment charge of
$460.6 million in the first quarter of fiscal 2003,
representing substantially all of our goodwill attributable to
our optical subsystems and components reporting unit as of
April 30, 2002. The resulting impairment charge was
reflected as the cumulative effect of a change in accounting
principles in the first quarter of fiscal 2003. The largest
portion of the transitional impairment charge arose from the
acquisition of a number of companies designed to strengthen our
capabilities within our optical subsystems and components
business. The goodwill resulted from our acquisition of these
companies when valuations were generally much higher than
current levels. However, we made such acquisitions principally
in exchange for shares of our common stock which were also more
highly valued at the time the acquisitions were made. As a
result, none of the transactions associated with the creation of
a significant amount of goodwill resulted from a corresponding
outlay of our cash. Had these transactions taken place when
valuations were lower, and at the same share exchange ratios,
the goodwill amounts would have been considerably smaller.
During the fourth quarters of fiscal 2003, 2004 and 2005, we
performed the required annual impairment testing of goodwill and
indefinite-lived intangible assets and determined that no
impairment charge was required. At April 30, 2005 our
investment in goodwill and intangible assets was $119.7 and
$37.5 million, respectively.
We are required to make judgments about the recoverability of
our long-lived assets, other than goodwill, whenever events or
changes in circumstances indicate that the carrying value of
these assets may be impaired
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or not recoverable. In order to make such judgments, we are
required to make assumptions about the value of these assets in
the future including future prospects for earnings and cash
flows. If impairment is indicated, we write those assets down to
their fair value which is generally determined based on
discounted cash flows. Judgments and assumptions about the
future are complex, subjective and can be affected by a variety
of factors including industry and economic trends, our market
position and the competitive environment of the businesses in
which we operate.
During fiscal 2003, we discontinued a product line at our
Demeter Technologies subsidiary that was not making a
significant contribution to our operating results and was no
longer considered a key part of our product strategy. The
discontinued product line had been included in the optical
subsystems and components segment. Certain assets of Demeter
Technologies were sold to an unaffiliated party in conjunction
with the product line discontinuation. As a result of the
discontinuation of the product line, we determined that we would
no longer utilize certain intangible assets obtained in the
Demeter Technologies acquisition that were associated with that
product line. We wrote off those intangible assets, with a net
book value of $10.1 million and, the resulting charge was
reported as an impairment of goodwill and intangible assets in
fiscal 2003. During the second fiscal quarter of fiscal 2005, we
determined that the remaining intangible assets related to
certain purchased passive optical technology, acquired from New
Focus, Inc., was obsolete, and had a fair value of zero.
Accordingly an impairment charge of $3.7 million was
recorded against the remaining net book value of these assets
during the second quarter of fiscal 2005.
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Results of Operations
The following table sets forth certain statement of operations
data as a percentage of revenues for the periods indicated:
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2003 | |
|
|
| |
|
| |
|
| |
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Optical subsystems and components
|
|
|
86.0 |
% |
|
|
86.2 |
% |
|
|
82.2 |
% |
|
Network test and monitoring systems
|
|
|
14.0 |
|
|
|
13.8 |
|
|
|
17.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Cost of revenues
|
|
|
73.2 |
|
|
|
77.4 |
|
|
|
78.4 |
|
Amortization of acquired developed technology
|
|
|
7.9 |
|
|
|
10.4 |
|
|
|
13.2 |
|
Impairment of acquired developed technology
|
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
17.5 |
|
|
|
12.3 |
|
|
|
8.4 |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
22.4 |
|
|
|
33.5 |
|
|
|
36.2 |
|
|
Sales and marketing
|
|
|
10.6 |
|
|
|
10.8 |
|
|
|
12.2 |
|
|
General and administrative
|
|
|
8.3 |
|
|
|
9.0 |
|
|
|
9.1 |
|
|
Amortization of (benefit from) deferred stock compensation
|
|
|
0.1 |
|
|
|
(0.1 |
) |
|
|
(1.0 |
) |
|
Acquired in-process research and development
|
|
|
0.6 |
|
|
|
3.3 |
|
|
|
|
|
|
Amortization of purchased intangibles
|
|
|
0.4 |
|
|
|
0.3 |
|
|
|
0.5 |
|
|
Impairment of tangible assets
|
|
|
6.7 |
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill and intangible assets
|
|
|
|
|
|
|
|
|
|
|
6.4 |
|
|
Restructuring costs
|
|
|
0.1 |
|
|
|
0.2 |
|
|
|
5.6 |
|
|
Other acquisition costs
|
|
|
|
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
49.1 |
|
|
|
57.2 |
|
|
|
69.0 |
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(31.5 |
) |
|
|
(45.0 |
) |
|
|
(60.6 |
) |
Interest income, net
|
|
|
0.9 |
|
|
|
1.7 |
|
|
|
2.8 |
|
Interest expense, net
|
|
|
(5.2 |
) |
|
|
(15.6 |
) |
|
|
(6.8 |
) |
Other income (expense), net
|
|
|
(4.5 |
) |
|
|
(2.3 |
) |
|
|
(30.8 |
) |
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and cumulative effect of an accounting
change
|
|
|
(40.3 |
) |
|
|
(61.1 |
) |
|
|
(95.5 |
) |
Provision for income taxes
|
|
|
0.3 |
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of an accounting change
|
|
|
(40.6 |
) |
|
|
(61.3 |
) |
|
|
(95.6 |
) |
Cumulative effect of an accounting change
|
|
|
|
|
|
|
|
|
|
|
(276.7 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(40.6 |
)% |
|
|
(61.3 |
)% |
|
|
(372.3 |
)% |
|
|
|
|
|
|
|
|
|
|
Comparison of Fiscal Years Ended April 30, 2005 and
2004
Revenues. Revenues increased $95.2 million, or
51.3%, to $280.8 million in fiscal 2005 compared to
$185.6 million in fiscal 2004. Sales of optical subsystems
and components and network test and monitoring systems
represented 86.0% and 14.0%, respectively, of total revenues in
fiscal 2005, compared to 86.2% and 13.8%, respectively, in
fiscal 2004.
Optical subsystems and components revenues increased
$81.6 million, or 51.0%, to $241.6 million in fiscal
2005 compared to $160.0 million in fiscal 2004. Our
Advanced Optical Components, or AOC, division, acquired on
March 1, 2004 from Honeywell International Inc.,
contributed $30.9 million for the full 2005
64
fiscal year compared to $6.7 million in fiscal 2004. Our
acquisition on January 31, 2005, of certain assets of
Infineons fiber optics business unit contributed
$4.9 million in the fourth quarter of 2005. Excluding the
effect of acquisitions, sales of optical subsystems and
components increased $52.5 million, or 29%, in fiscal 2005.
Of this increase, $36.1 million was related to sales of
products for MAN and telecom applications and $19.3 million
was related to sales of products for short distance LAN/ SAN
applications. Increased sales in these product lines were
partially offset by a $2.9 million decline in sales of
other products. The increase in revenues from the sale of these
products was primarily the result of an increase in the volume
of units sold to new and existing customers, partially offset by
a decrease in average selling prices.
Network test and monitoring systems revenues increased
$13.6 million, or 53.3%, to $39.2 million in fiscal
2005 compared to $25.6 million in fiscal 2004.
Approximately $7.8 million of the increase was related to
product lines acquired from Data Transit in August 2004 with the
remainder due to increased sales of new test and monitoring
products used in the development of Fibre Channel SANs operating
at 2 and 4 Gbps.
Sales to Cisco Systems, our largest customer, represented 27.8%
of total revenues, or $78.1 million, in fiscal 2005
compared to 22.2% of total revenues, or $41.3 million, in
fiscal 2004.
Amortization and Impairment of Acquired Developed
Technology. Amortization of acquired developed technology, a
component of cost of revenues, increased $6.7 million, or
34.7%, in fiscal 2005 to $25.9 million compared to
$19.2 million in fiscal 2004. The increase was due to the
acquisition of Honeywells VCSEL Optical Products business
in March 2004 which contributed an additional $3.0 million
in fiscal 2005 compared to fiscal 2004, and the fiscal 2005
acquisitions of Data Transit, I-TECH and certain product lines
from Infineon which contributed $1.0 million, $25,000 and
$424,000, respectively in fiscal 2005. Additionally, in the
second quarter of fiscal 2005 we recorded an impairment charge
of $3.7 million to write-off the remaining net book value
of certain passive optical technology associated with our
acquisition of assets of New Focus, Inc in May 2002.
Gross Profit. Gross profit increased $26.5 million,
or 116.1%, to $49.3 million in fiscal 2005 compared to
$22.8 million in fiscal 2004. Gross profit as a percentage
of total revenue was 17.5% in fiscal 2005 compared to 12.3% in
fiscal 2004. We recorded charges of $11.3 million for
obsolete and excess inventory in fiscal 2005 and
$22.3 million in fiscal 2004. We sold inventory that was
written-off in previous periods resulting in a benefit of
$9.3 million in fiscal 2005 and $17.9 million in
fiscal 2004. As a result, we recognized a net charge of
$2.0 million in fiscal 2005 compared to $4.4 million
in fiscal 2004. Excluding the amortization of acquired developed
technology and the impairments thereon and the net impact of
excess and obsolete inventory charges, gross profit would have
been $77.2 million, or 27.5% of revenue, in fiscal 2005,
compared to $46.4 million, or 25.0% of revenue in fiscal
2004. The increase in gross profit was primarily due to an
increase in unit sales across most of our product lines, which
spread our fixed overhead costs over a higher production volume,
reduced material costs, and a favorable shift of product mix to
an increased percentage of sales of products for longer distance
MAN and telecom applications that typically have higher margins
than our products for shorter distance LAN/ SAN applications, as
well as increased sales of network test and monitoring systems
that have higher margins than optical subsystems and components.
Research and Development Expenses. Research and
development expenses increased $606,000, or 1.0%, to
$62.8 million in fiscal 2005 compared to $62.2 million
in fiscal 2004. The increase in research and development
expenses was primarily due to a $3.8 million increase in
spending as a result of our acquisition of Honeywells
VCSEL optical products business unit, partially offset by lower
depreciation costs which were the result of accelerated
depreciation recorded in conjunction with the shutdown of our
operations at Demeter in the first quarter of 2004. Research and
development expenses as a percent of revenues decreased to 22.4%
in fiscal 2005 compared to 33.5% in fiscal 2004 as a result of
increased revenues.
Sales and Marketing Expenses. Sales and marketing
expenses increased $9.7 million, or 48.4%, to
$29.8 million in fiscal 2005 compared to $20.1 million
in fiscal 2004. The increase in sales and marketing expenses was
primarily due to a $5.0 million increase in
personnel-related costs, a $1.6 million increase in
commission expense and a $1.3 million increase in
advertising and marketing costs, all associated with our
increase in revenue. Sales and marketing expenses as a percent
of revenues decreased to 10.6% in fiscal 2005 compared to 10.8%
in fiscal 2004.
65
General and Administrative Expenses. General and
administrative expenses increased $6.6 million, or 39.6%,
to $23.4 million in fiscal 2005 compared to
$16.7 million in fiscal 2004. The increase was primarily
due to additional costs associated with the evaluation and
testing of internal control systems required under
Section 404 of the Sarbanes-Oxley Act of 2002, a
$2.2 million increase in audit fees, a $1.8 million
increase in legal expense and a $554,000 increase in
personnel-related costs primarily related to the acquisition of
Honeywells VCSEL Optical Products business unit. General
and administrative expenses as a percent of revenues decreased
to 8.3% in fiscal 2005 compared to 9.0% in fiscal 2004.
Amortization of (Benefit from) Deferred Stock
Compensation. Amortization of deferred stock compensation
costs increased by $267,000 to $162,000 in fiscal 2005, compared
to a credit of $105,000 in fiscal 2004. The benefit from
deferred stock compensation is related to the termination of
employees during a period with deferred compensation associated
with their stock options and the effects of the graded vested
method of amortization which accelerates the amortization of
deferred compensation.
Acquired In-process Research and Development. In-process
research and development, or IPR&D, expenses decreased
$4.6 million, or 74.8%, to $1.6 million in fiscal 2005
compared to $6.2 million recorded in fiscal 2004. In fiscal
2005, $318,000 was related to the acquisition of Data Transit,
$1.1 million was related to the acquisition of
Infineons optical transceiver products, and $114,000 was
related to the acquisition of I-TECH. The amount recorded in
fiscal 2004 was related to the acquisition of Honeywells
VCSEL Optical Products business unit.
Amortization of Purchased Intangibles. Amortization of
purchased intangibles increased $532,000, or 93.0%, to
$1.1 million in fiscal 2005 compared to $572,000 in fiscal
2004. The increase was due to purchased intangibles related to
our acquisition of Data Transit.
Impairment of Tangible Assets. During the quarter ended
January 31, 2005, we recorded an impairment charge if
$18.8 million to write down the carrying value of one of
our corporate office facilities located in Sunnyvale, California
upon entering into a sale-leaseback agreement. The property was
written down to its appraised value, which was based on the work
of an independent appraiser in conjunction with the
sale-leaseback agreement. Due to retention by the Company of an
option to acquire the leased properties at fair value at the end
of the fifth year of the lease, the sale-leaseback transaction
was recorded in the Companys fourth quarter ending
April 30, 2005 as a financing transaction under which the
sale will not be recorded until the option expires or is
otherwise terminated. At April 30, 2005, the carrying value
of the financing liability, included in Other Long-Term
Liabilities, was $12.3 million and the current portion of
the financing liability, included in Current Portion of
Long-term Liabilities, was $200,000.
Restructuring Costs. We recorded a restructuring charge
of $287,000 in fiscal 2005 to adjust the operating lease
liability for our Hayward facility that was closed in fiscal
2003. During 2004, we recorded $382,000 in restructuring charges.
Interest Income. Interest income decreased $775,000, or
24.4%, to $2.4 million in fiscal 2005 compared to
$3.2 million in fiscal 2004. The decrease was primarily the
result of decreasing investment balances during fiscal 2005.
Interest Expense. Interest expense is primarily related
to our convertible subordinated notes due in 2008 and 2010.
Interest expense decreased $14.4 million, or 49.9%, to
$14.5 million in fiscal 2005 compared to $28.9 million
in fiscal 2004. The decrease was primarily due to the conversion
and repurchase in fiscal 2004 of $24.8 million in principal
amount of convertible notes due in 2008. In connection with the
conversion, we recorded non-cash interest expense of
$10.8 million representing the fair value of the
incremental shares issued to induce the exchange and
$5.8 million representing the remaining unamortized
discount for the beneficial conversion feature. Of our total
interest expense, $4.3 million and $10.2 million was
the amortization of the beneficial conversion feature of these
notes in fiscal 2005 and 2004, respectively.
Other Income (Expense), Net. Other income (expense), net,
increased $8.2 million, or 189.4%, to an expense of
$12.6 million in fiscal 2005 compared to an expense of
$4.3 million in fiscal 2004. In the fourth quarter of
fiscal 2005, we recorded an impairment charge of
$10.0 million to write-off a minority equity
66
investment in a company. The remaining expense in fiscal 2005
and 2004 primarily consisted of our proportional share of losses
associated with a minority investment and amortization of
subordinated loan costs.
Provision for Income Taxes. We recorded an income tax
provision of $856,000 for fiscal 2005 compared to $334,000 for
fiscal 2004. A deferred tax liability has been established to
reflect tax amortization of goodwill for which no book
amortization has occurred. Due to the uncertainty regarding the
timing and extent of our future profitability, we have recorded
a valuation allowance to offset potential income tax benefits
associated with our operating losses. As a result, we did not
record any income tax benefit in either fiscal 2005 or 2004.
There can be no assurance that deferred tax assets subject to
the valuation allowance will ever be realized.
Comparison of Fiscal Years Ended April 30, 2004 and
2003
Revenues. Revenues increased $19.1 million, or
11.5%, to $185.6 million in fiscal 2004 compared to
$166.5 million in fiscal 2003. This increase reflected a
$23.2 million, or 16.9%, increase in sales of optical
subsystems and components, to $160.0 million in fiscal 2004
compared to $136.8 million in fiscal 2003, partially offset
by a $4.0 million, or 13.6%, decrease in sales of network
test and monitoring systems, to $25.6 million in fiscal
2004 compared to $29.6 million in fiscal 2003. Sales of
optical subsystems and components and network test and
monitoring systems represented 86.2% and 13.8%, respectively, of
total revenues in fiscal 2004, compared to 82.2% and 17.8%,
respectively, in fiscal 2003. The increase in revenues from the
sale of optical subsystems and components in fiscal 2004 was
primarily the result of an increase in volume of units sold to
new and existing customers, as well as contributions of
$6.7 million from sales by our Advanced Optical Components
division, the former Honeywell VCSEL Optical Products business
unit, that we acquired on March 2, 2004 from Honeywell
International Inc., partially offset by a decrease in average
selling prices. The decrease in revenues from the sale of
network test and monitoring systems was due to decreased demand
for new test equipment used in the development of Fibre Channel
SANs operating at 2 Gbps and a continued reduction in
global IT spending which affected the demand for equipment used
in monitoring Gigabit Ethernet networks.
Sales to Cisco Systems represented 22.2%, or $41.3 million,
and 10.4%, or $17.2 million, of our total revenues during
fiscal 2004 and fiscal 2003, respectively.
Amortization and Impairment of Acquired Developed
Technology. Amortization of acquired developed technology
decreased $2.7 million, or 12.5% in 2004 to
$19.2 million compared to $22.0 million in 2003 as a
result of a $10.1 million impairment charge for acquired
developed technology that was recorded in 2003 related to a
discontinued product line at our Demeter subsidiary.
Gross Profit. Gross profit increased $8.8 million,
or 62.8%, to $22.8 million in fiscal 2004 compared to
$14.0 million in fiscal 2003. Gross profit as a percentage
of total revenue was 12.3% in 2004 compared to 8.4% in 2003. The
increase in gross profit was primarily the result of a decline
in the charge for excess and obsolete inventory, which was
$22.3 million in 2004 compared to $24.3 million in
2003, which was offset by sales of previously written off
inventory, with associated costs of zero, of $17.9 million
in fiscal 2004 and $15.1 million in fiscal 2003. Gross
profit also improved due to reductions in material costs, and an
increase in unit sales which spread our fixed overhead costs
over a higher production volume. Additionally, amortization of
acquired developed technology, a component of cost of revenues,
decreased $2.7 million, or 12.5%, in 2004 to
$19.2 million compared to $22.0 million in 2003 as a
result of a $10.1 million impairment charge for acquired
developed technology that was recorded in 2003 related to a
discontinued product line at our Demeter subsidiary.
Research and Development Expenses. Research and
development expenses increased $1.9 million, or 3.1%, to
$62.2 million in fiscal 2004 compared to $60.3 million
in fiscal 2003. The increase was primarily due to the full-year
effect of the operations of our Genoa Corporation subsidiary,
acquired on April 3, 2003, offset by a 10% decline in
personnel. Research and development expenses as a percent of
revenues decreased to 33.5% in fiscal 2004 compared to 36.2% in
fiscal 2003 as a result of increased revenues.
67
Sales and Marketing Expenses. Sales and marketing
expenses decreased $169,000, or 0.8%, to $20.1 million in
fiscal 2004 compared to $20.2 million in fiscal 2003. Sales
and marketing expenses as a percent of revenues decreased to
10.8% in fiscal 2004 compared to 12.2% in fiscal 2003.
General and Administrative Expenses. General and
administrative expenses increased $1.5 million, or 9.9%, to
$16.7 million in fiscal 2004 compared to $15.2 million
in fiscal 2003. The increase was primarily due to a $996,000
increase in bad debt expense and a $529,000 increase in legal
expenses compared to those in fiscal 2003 as a result of
increased efforts to obtain patents for and license our
technology. The increase in bad debt expense was primarily due
to the application of our existing reserve policy, which we
periodically evaluate based on our actual experience, against a
larger accounts receivable balance at the end of fiscal 2004.
General and administrative expenses as a percent of revenues
decreased to 9.0% in fiscal 2004 compared to 9.1% in fiscal 2003.
Amortization of (Benefit from) Deferred Stock
Compensation. Amortization of deferred stock compensation
costs decreased by $1.6 million, or 93.9%, to a credit of
$105,000 in fiscal 2004 compared to a credit of
$1.7 million in fiscal 2003. This decrease was related to
the termination of employees with deferred compensation
associated with their stock options and the effects of the
graded vested method of amortization which accelerates the
amortization of deferred compensation.
Acquired In-process Research and Development. In-process
research and development, or IPR&D, expenses of
$6.2 million recorded in fiscal 2004 related to the
acquisition of the VCSEL Optical Products business unit from
Honeywell in March 2004. There was no IPR&D expense in
fiscal 2003 related to the acquisition of Genoa.
Amortization of Goodwill and Other Purchased Intangibles.
Amortization of goodwill and other purchased intangibles
decreased $186,000 or 24.5%, to $572,000 in fiscal 2004 compared
to $758,000 in fiscal 2003.
Impairment of Goodwill and Intangible Assets. No
impairment of goodwill or intangible assets was recorded during
fiscal 2004. In fiscal 2003, we discontinued a product line at
our Demeter subsidiary resulting in an impairment of acquired
developed technology totaling $10.1 million and a goodwill
impairment of $485,000 related to our Transwave acquisition.
Restructuring Costs. Restructuring costs decreased
$9.0 million, or 95.9%, to $382,000 in fiscal 2004 compared
to $9.4 million in fiscal 2003. During fiscal 2003, we
recorded charges of $1.2 million for severance costs
associated with a reduction in our U.S.-based workforce,
$3.1 million to consolidate our facilities and operations
located in Hayward, California into our facilities in Sunnyvale,
California, and $5.2 million to close our El Monte,
California, facilities. These restructuring activities were
completed during fiscal 2004.
Other Acquisition Costs. Other acquisition costs
increased $24,000, or 12.1%, to $222,000 in fiscal 2004 compared
to $198,000 in fiscal 2003.
Interest Income. Interest income decreased
$1.5 million, or 31.9%, to $3.2 million in fiscal 2004
compared to $4.7 million in fiscal 2003. The decrease in
interest income was primarily the result of decreasing
investment balances during fiscal 2004.
Interest Expense. Interest expense increased
$17.5 million, or 153.5%, to $28.9 million in fiscal
2004 compared to $11.4 million in fiscal 2003. The increase
in interest expense was primarily due to the conversion and
repurchase of $24.8 million in principal amount of
convertible notes due 2008. In connection with the conversion,
we recorded non-cash interest expense of $10.8 million
representing the fair value of the incremental shares issued to
induce the exchange and $5.8 million representing the
remaining unamortized discount for the beneficial conversion
feature. Additionally, we issued an additional $150 million
of convertible debt in October 2003. Of the total interest
expense, $10.2 million and $4.8 million was related to
the amortization of the beneficial conversion feature of these
notes in fiscal 2004 and 2003, respectively.
Other Income (Expense), Net. Other income (expense), net,
decreased $47.0 million, or 91.6%, to an expense of
$4.3 million in fiscal 2004 compared to an expense of
$51.3 million in fiscal 2003. In fiscal 2003, we incurred
costs of $36.8 million associated with the sale of assets
of our Sensors Unlimited subsidiary, which
68
was primarily due to the write off of certain intangible assets
associated with the original acquisition of Sensors Unlimited,
which we had no plans to utilize and had abandoned, as well as
the payment of contingent consideration related to the original
acquisition of Sensors Unlimited. In fiscal 2003, we also
recorded an impairment charge of $12.0 million on our
minority equity investments in two companies. During fiscal
2003, these two companies raised additional funds in financings
in which we declined to participate. As a result of the
financings, our investments in the two companies was diluted to
an immaterial interest and we determined that an impairment
event had occurred and wrote off these investments in full.
Provision for Income Taxes. We recorded an income tax
provision of $334,000 in fiscal 2004 compared to $229,000 in
fiscal 2003. The tax provision consists of state and foreign
taxes. Due to the uncertainty regarding the timing and extent of
our future profitability, we have recorded a valuation allowance
to offset potential income tax benefits associated with our
operating losses. As a result, we had no income tax benefit in
fiscal 2004 or 2003.
Liquidity and Capital Resources
At April 30, 2005, cash, cash equivalents and short-term
investments were $102.4 million compared to
$143.4 million at April 30, 2004. Restricted
securities, used to secure future interest payments on our
convertible debt were $9.1 million at April 30, 2005
compared to $15.2 million at April 30, 2004. At
April 30, 2005, total short and long term debt was
$267.8 million, compared to $233.7 million at
April 30, 2004. Of the $34.1 million increase in debt,
$32.1 million was related to the issuance of convertible
notes in connection with the acquisitions of Data Transit and
I-TECH and a minority investment in a private company.
Net cash used by operating activities totaled $28.0 million
in fiscal 2005, compared to $32.8 million in fiscal 2004
and $18.9 million in fiscal 2003. The use of cash in
operating activities in fiscal 2005 was primarily a result of
operating losses adjusted for non-cash related items. Working
capital uses of cash in fiscal 2005 included cash inflows of
$10.9 million offset by outflows of $18.6 million.
Cash inflows were primarily due to a $5.3 million increase
in deferred revenue and a $1.9 million increase in accrued
liabilities. The increase in deferred revenue was the result of
increased sales through distributor channels. The increase in
accrued liabilities was primarily due to an increase in our
warranty reserve as a result of increased revenues. Cash
outflows were primarily due to a $13.3 million increase in
accounts receivable as a result of increased revenue and an
increase in other assets of $5.3 million, which consisted
primarily of investments in our patent portfolio.
Net cash used in investing activities totaled $27.9 million
in fiscal 2005 compared to $88.3 million in fiscal 2004,
and $17.6 million in fiscal 2003. The use of cash for
investing activities in fiscal 2005 was primarily related to
facility improvements and purchases of equipment at our new AOC
Division manufacturing facility in Texas as well as purchases of
equipment for our facility in Malaysia to support increased
production volume. The use of cash for investing activities in
fiscal 2004 consisted primarily of our purchase of the assets of
Honeywells VCSEL Optical Products business unit and
purchases of equipment to support increased production volume in
our Malaysian manufacturing facility. The use of cash for
investing activities in fiscal 2003 primarily consisted of
purchases of plant, property and equipment totaling
$18.8 million, offset in part by $5.6 million of
proceeds from the sale of product lines.
Net cash provided by financing activities was $15.5 million
in fiscal 2005 compared to $150.0 million in fiscal 2004
and $1.5 million in fiscal 2003. Cash provided by financing
activities in fiscal 2005 included $12.9 million in
proceeds from the sale-leaseback of one of our corporate offices
and proceeds of $2.5 million from the exercise of stock
options. Cash provided by financing activities in fiscal 2004
primarily represented the net proceeds of $145.1 million
from issuance of convertible debt, and proceeds of
$6.1 million from the exercise of employee stock options,
offset by repayments of $1.9 million on our convertible
notes. Cash provided by financing activities in fiscal 2003 was
primarily due to proceeds from the exercise of employee stock
options.
On April 29, 2005, we entered into a letter of credit
reimbursement agreement with Silicon Valley Bank for a period of
one year. Under the terms of the agreement, Silicon Valley Bank
is providing a $7 million letter of credit facility to
house existing letters of credit issued by Silicon Valley Bank
and any other letters of credit that may be required by the
Company. Cost related to the credit facility consisted of a loan
fee of 0.50% of the
69
credit facility amount, or $35,000, plus the banks out of
pocket expenses associated with the credit facility. The credit
facility is unsecured with a negative pledge on all assets,
including intellectual property. The agreement requires us to
maintain our primary banking and cash management relationships
with Silicon Valley Bank or SVB Securities and to maintain a
minimum unrestricted cash and cash equivalents balance, net of
any outstanding debt and letters of credit exposure, of
$40 million at all times. At April 30, 2005
outstanding letters of credit secured by this facility totaled
$2,950,510.
We believe that our existing balances of cash, cash equivalents
and short-term investments, together with the cash expected to
be generated from our future operations, will be sufficient to
meet our cash needs for working capital and capital expenditures
for at least the next 12 months. We may however require
additional financing to fund our operations in the future. The
significant contraction in the capital markets, particularly in
the technology sector, may make it difficult for us to raise
additional capital if and when it is required, especially if we
experience disappointing operating results. If adequate capital
is not available to us as required, or is not available on
favorable terms, our business, financial condition and results
of operations will be adversely affected.
At April 30, 2005, we had contractual obligations of
$350.1 million as shown in the following table (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period | |
|
|
| |
|
|
|
|
Less Than | |
|
|
|
After | |
Contractual Obligations |
|
Total | |
|
1 Year | |
|
1-3 Years | |
|
4-5 Years | |
|
5 Years | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Short-term debt
|
|
$ |
15,811 |
|
|
$ |
15,811 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Long-term debt
|
|
|
266,520 |
|
|
|
|
|
|
|
16,270 |
|
|
|
100,250 |
|
|
|
150,000 |
|
Lease commitment under sale-leaseback agreement
|
|
|
51,464 |
|
|
|
2,962 |
|
|
|
6,124 |
|
|
|
6,403 |
|
|
|
35,975 |
|
Operating leases
|
|
|
7,865 |
|
|
|
4,814 |
|
|
|
2,420 |
|
|
|
631 |
|
|
|
|
|
Purchase obligations
|
|
|
6,449 |
|
|
|
6,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum royalty obligation
|
|
|
2,000 |
|
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$ |
350,109 |
|
|
$ |
32,036 |
|
|
$ |
24,814 |
|
|
$ |
107,284 |
|
|
$ |
185,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt consists of a convertible promissory note for
$12.1 million due in fiscal 2006, related to our fiscal
2005 acquisition of I-TECH, and a convertible promissory note
for $3.75 million to CyOptics, issued in conjunction with
our purchase of CyOptics preferred stock in the fourth quarter
of fiscal 2005. (See note 13 to the consolidated financial
statements included elsewhere in this prospectus.)
Long-term debt consists of a convertible promissory note in the
principal amount of $16.3 million due on August 6,
2006, if not sooner converted, and two series of convertible
subordinated notes in the aggregate principal amount of
$100.3 million due October 15, 2008, and
$150.0 million due October 15, 2010. The two series of
notes are convertible by the holders of the notes at any time
prior to maturity into shares of Finisar common stock at
specified conversion prices. The two series of notes are
redeemable by us, in whole or in part, after October 15,
2004 and October 15, 2007, respectively. Holders of the
notes due in 2010 have the right to require us to repurchase
some or all of their notes on October 15, 2007. We may
choose to pay the repurchase price in cash, shares of Finisar
common stock, or a combination thereof.
Lease commitment under the sale-leaseback agreement for our
corporate office building, which we entered into in the fourth
quarter of 2005 and includes $12.6 million recorded on our
balance sheet as of April 30, 2005 as other long-term
liabilities and current portion of long-term liabilities. (See
Note 9 to the consolidated financial statements included
elsewhere in this prospectus.)
Operating lease obligations consist primarily of base rents for
facilities we occupy at various locations.
Purchase obligations consist of standby repurchase obligations
and are related to materials purchased and held by
subcontractors on our behalf to fulfill the subcontractors
purchase order obligations at their facilities.
70
Our repurchase obligations of $6.5 million has been
expensed and recorded on the balance sheet as non-cancelable
purchase obligations as of April 30, 2005.
The minimum commitment for royalty payments is related to the
purchase of certain assets of New Focus and has been recorded on
our balance sheet as of April 30, 2005 as current portion
of long-term liabilities.
Off-Balance-Sheet Arrangements
At April 30, 2005 and April 30, 2004, we did not have
any off-balance sheet arrangements or relationships with
unconsolidated entities or financial partnerships, such as
entities often referred to as structured finance or special
purpose entities, which are typically established for the
purpose of facilitating off-balance sheet arrangements or other
contractually narrow or limited purposes.
Effect of New Accounting Standards
In December 2004, the Financial Accounting Standards Board
(FASB) issued Statement of Accounting Standards
(SFAS) 123R, which replaces SFAS 123 and supersedes
Accounting Principles Board (APB) 25. As permitted by
SFAS 123, the Company currently accounts for share-based
payments to employees using APB 25s intrinsic value
method. Under APB 25 the Company generally recognizes no
compensation expense for employee stock options, as the exercise
prices of the options granted are usually equal to the quoted
market price of our common stock on the day of the grant.
SFAS 123R requires all share-based payments to employees,
including grants of employee stock options, to be recognized in
the financial statements based on their fair values. The pro
forma disclosures previously permitted under SFAS 123 will
no longer be an alternative to financial statement recognition.
In April 2005, the Securities and Exchange Commission (SEC)
issued a rule delaying the required adoption date for
SFAS 123R to the first interim period of the first fiscal
year beginning on or after June 15, 2005. The Company will
adopt SFAS 123R as of May 1, 2006.
Under SFAS 123R, we must determine the appropriate fair
value model to be used for valuing share-based payments, the
amortization method of compensation cost and the transition
method to be used at date of adoption. The transition methods
include retroactive and prospective adoption options. The
prospective method requires that compensation expense be
recorded for all unvested stock options and restricted stock at
the beginning of the first quarter of adoption. The retroactive
method requires that compensation expense for all unvested stock
options and restricted stock begins with the first period
restated. Under the retroactive option, prior periods may be
restated either as of the beginning of the year of adoption or
for all periods presented. We expect to adopt SFAS 123R
under the prospective method. We are evaluating the requirements
of SFAS 123R and have not yet determined the effect of
adopting SFAS 123R or whether the adoption will result in
amounts that are similar to the current pro forma disclosures
under SFAS 123, although we expect that the adoption of
SFAS 123R will result in significant stock-based
compensation expense.
In December 2004, the FASB issued SFAS 153, Exchanges of
Nonmonetary Assets, as an amendment of APB 29, Accounting
for Nonmonetary Transactions. SFAS 153 addresses the
measurement of exchanges of nonmonetary assets and eliminates
the exception from fair value measurement for nonmonetary
exchanges of similar productive assets in APB 29 and
replaces it with an exception for exchanges that do not have
commercial substance. This Statement specifies that a
nonmonetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a
result of the exchange. The provisions of this Statement are
effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005 and must be applied
prospectively. The Company do not expect that the adoption of
SFAS 153 will have a material effect on our results of
operations.
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs an Amendment of APB No. 43,
Chapter 4, or SFAS 151, which is the result of the
FASBs efforts to converge U.S. accounting standards
for inventory with International Accounting Standards.
SFAS 151 requires abnormal amounts of idle facility
expense, freight, handling costs, and wasted material to be
recognized as current-period charges. It also requires that
allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production
facilities. SFAS 151 is effective for inventory costs
incurred during fiscal years
71
beginning after June 15, 2005. The Company does not expect
the adoption of SFAS 151 to have a material impact on our
results of operations.
Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk for changes in interest rates
relates primarily to our investment portfolio. The primary
objective of our investment activities is to preserve principal
while maximizing yields without significantly increasing risk.
We place our investments with high credit issuers in short-term
securities with maturities ranging from overnight up to
36 months or have characteristics of such short-term
investments. The average maturity of the portfolio will not
exceed 18 months. The portfolio includes only marketable
securities with active secondary or resale markets to ensure
portfolio liquidity. We have no investments denominated in
foreign country currencies and therefore our investments are not
subject to foreign exchange risk.
We invest in equity instruments of privately-held companies for
business and strategic purposes. These investments are included
in other long-term assets and are accounted for under the cost
method when our ownership interest is less than 20% and we do
not have the ability to exercise significant influence. For
entities in which we hold greater than a 20% ownership interest,
or where we have the ability to exercise significant influence,
we use the equity method. We recorded losses of
$1.8 million in fiscal 2005, $1.3 million in fiscal
2004 and $764,000 in fiscal 2003 for investments accounted for
under the equity method. For these non-quoted investments, our
policy is to regularly review the assumptions underlying the
operating performance and cash flow forecasts in assessing the
carrying values. We identify and record impairment losses when
events and circumstances indicate that such assets are impaired.
We recognized impairment on these assets of $10.0 million
in fiscal 2005, $1.6 million in fiscal 2004 and
$12.0 million in fiscal 2003. If our investment in a
privately-held company becomes marketable equity securities upon
the companys completion of an initial public offering or
its acquisition by another company, our investment would be
subject to significant fluctuations in fair market value due to
the volatility of the stock market.
72
The following table summarizes the expected maturity, average
interest rate and fair market value of the short-term debt
securities held by us (and related receivables) and debt
securities issued by us as of April 30, 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30, | |
|
|
|
|
|
|
| |
|
|
|
Fair | |
|
|
|
|
2008 and | |
|
|
|
Market | |
|
|
2006 | |
|
2007 | |
|
Thereafter | |
|
Total Cost | |
|
Value | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
ASSETS |
Available for sale debt securities
|
|
$ |
51,364 |
|
|
$ |
18,312 |
|
|
$ |
10,517 |
|
|
$ |
80,193 |
|
|
$ |
79,697 |
|
Average interest rate
|
|
|
2.90 |
% |
|
|
4.01 |
% |
|
|
4.24 |
% |
|
|
|
|
|
|
|
|
Restricted securities
|
|
$ |
3,717 |
|
|
$ |
5,393 |
|
|
$ |
|
|
|
$ |
9,110 |
|
|
$ |
8,967 |
|
Average interest rate
|
|
|
1.59 |
% |
|
|
2.36 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Loan receivable from I-TECH
|
|
$ |
2,004 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,004 |
|
|
$ |
2,004 |
|
Average interest rate
|
|
|
3.35 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan receivable from Data Transit
|
|
$ |
1,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,000 |
|
|
$ |
1,000 |
|
Average interest rate
|
|
|
8.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
$ |
|
|
|
$ |
|
|
|
$ |
100,250 |
|
|
$ |
100,250 |
|
|
$ |
89,974 |
|
Average interest rate
|
|
|
|
|
|
|
|
|
|
|
5.25 |
% |
|
|
|
|
|
|
|
|
Fixed rate
|
|
$ |
|
|
|
$ |
|
|
|
$ |
150,000 |
|
|
$ |
150,000 |
|
|
$ |
116,625 |
|
Average interest rate
|
|
|
|
|
|
|
|
|
|
|
2.50 |
% |
|
|
|
|
|
|
|
|
Convertible note from Data Transit
|
|
$ |
|
|
|
$ |
16,270 |
|
|
$ |
|
|
|
$ |
16,270 |
|
|
$ |
16,270 |
|
Average interest rate
|
|
|
|
|
|
|
8.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Convertible note from I-TECH
|
|
$ |
12,061 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
12,061 |
|
|
$ |
12,061 |
|
Average interest rate
|
|
|
3.35 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible note from CyOptics
|
|
$ |
3,750 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,750 |
|
|
$ |
3,750 |
|
Average interest rate
|
|
|
3.35 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the expected maturity, average
interest rate and fair market value of the short-term debt
securities held by us and debt securities issued by us as of
April 30, 2004 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30, | |
|
|
|
|
|
|
| |
|
|
|
Fair | |
|
|
|
|
2007 and | |
|
|
|
Market | |
|
|
2005 | |
|
2006 | |
|
Thereafter | |
|
Total Cost | |
|
Value | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
ASSETS |
Available for sale debt securities
|
|
$ |
47,833 |
|
|
$ |
15,780 |
|
|
$ |
9,944 |
|
|
$ |
73,557 |
|
|
$ |
73,526 |
|
Average interest rate
|
|
|
4.19 |
% |
|
|
4.21 |
% |
|
|
3.98 |
% |
|
|
|
|
|
|
|
|
Restricted securities
|
|
$ |
6,329 |
|
|
$ |
3,658 |
|
|
$ |
5,263 |
|
|
$ |
15,250 |
|
|
$ |
15,187 |
|
Average interest rate
|
|
|
2.03 |
% |
|
|
1.60 |
% |
|
|
2.34 |
% |
|
|
|
|
|
|
|
|
|
LIABILITIES |
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
$ |
|
|
|
$ |
|
|
|
$ |
100,250 |
|
|
$ |
100,250 |
|
|
$ |
98,746 |
|
Average interest rate
|
|
|
|
|
|
|
|
|
|
|
5.25 |
% |
|
|
|
|
|
|
|
|
Fixed rate
|
|
$ |
|
|
|
$ |
|
|
|
$ |
150,000 |
|
|
$ |
150,000 |
|
|
$ |
131,437 |
|
Average interest rate
|
|
|
|
|
|
|
|
|
|
|
2.50 |
% |
|
|
|
|
|
|
|
|
We also have subsidiaries in China, Malaysia, Europe and
Singapore. Due to the relative volume of transactions through
these subsidiaries, we do not believe that we have significant
exposure to foreign currency
73
exchange risks. We currently do not use derivative financial
instruments to mitigate this exposure. In July 2005, China and
Malaysia changed the system by which the value of their
currencies are determined. Both currencies moved from a fixed
rate pegged to the U.S. dollar to a managed float pegged to
a basket of currencies. We expect that this will have a minor
negative impact on our future costs. We continue to review this
issue and may consider hedging certain foreign exchange risks
through the use of currency forwards or options in future years.
Managements Report on Internal Control Over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Rule 13a-15(f) under the Exchange Act. Under
the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial
Officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting as of April 30,
2005 based on the guidelines established in Internal
Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission
(COSO). Our assessment of and conclusion on the
effectiveness of internal control over financial reporting did
not include the internal controls of the operations acquired
from Infineon Technologies AG on January 31, 2005 (the
Acquired Infineon Operations) or of I-TECH CORP.
(I-TECH), acquired on April 8, 2005, which are
included in our fiscal 2005 consolidated financial statements
and which, in the aggregate, consisted of $72.0 million and
$71.7 million of total assets and net assets, respectively,
as of April 30, 2005 and which, in the aggregate,
represented $5.2 million and $0.8 million of revenues
and loss from operations, respectively, for the year then ended.
Based on managements assessment of internal control over
financial reporting and as more fully explained below, we have
identified certain control deficiencies that we have determined
represented material weaknesses in our internal control over
financial reporting as of April 30, 2005.
A material weakness is a control deficiency, or a combination of
control deficiencies, that results in there being more than a
remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or detected.
In connection with the evaluation and testing of our internal
control over financial reporting, as required by
Section 404 of the Sarbanes-Oxley Act of 2002, we
identified the following material weaknesses that existed at
April 30, 2005:
|
|
|
|
|
A material weakness in our financial reporting processes arising
from a shortage of, and turnover in, qualified financial
reporting personnel with sufficient skills and experience to
apply generally accepted accounting principles to our
transactions, to provide for timely review of account
reconciliations, and to prepare financial statements that comply
with U.S. generally accepted accounting principles. This
material weakness relates to all of our significant financial
statement accounts. Significant accounts adjusted for this
material weakness include prepaid assets, intangible assets,
other long-term assets, most current liabilities and
amortization of intangibles expense. |
|
|
|
A material weakness related to our accounting for income, and
sales/use taxes, including (a) ineffective controls over
the application of U.S. generally accepted accounting
principles pertaining to income taxes; (b) ineffective
controls over the monitoring and accounting for income tax
matters arising from business combinations and other complex and
non-routine business transactions; (c) insufficient
personnel with adequate technical skills relative to accounting
for and disclosure of income taxes; and (d) inadequate
accounting policies and procedures that do not provide for
effective supervisory review of income and sales/use tax
accounting amounts and analyses and related recordkeeping and
disclosure activities. Significant accounts affected by, and
adjusted for, this material weakness include income tax expense
and deferred income taxes, as well as related disclosures for
income taxes and accrued liabilities, cost of revenues, research
and development expense, sales and marketing expense, and
general and administrative expense for sales/use taxes. |
|
|
|
A material weakness related to the effectiveness of our
controls, including ineffective controls to physically verify
the existence of inventory on consignment at customer locations
and inventory acquired in recent business acquisitions.
Significant accounts affected by, and adjusted for, this
material weakness include inventory and cost of revenues. |
74
|
|
|
|
|
A material weakness in our controls to monitor our Network Test
and Monitoring segment sales agreements which have multiple
elements such that revenue received under these agreements is
properly allocated to each element and recognized in the proper
period. Significant accounts affected by, and adjusted for, this
material weakness include revenues and deferred revenue. |
As a result of the identified material weaknesses, our
management has concluded that, as of April 30, 2005, our
internal control over financial reporting was not effective. The
material weaknesses set out above could result in a material
misstatement to the Companys annual or interim financial
statements that would not be prevented or detected.
Notwithstanding the above-mentioned material weaknesses, we
believe that the consolidated financial statements included in
this report fairly present our consolidated financial position
as of, and the consolidated results of operations for the year
ended, April 30, 2005.
Changes in Internal Control Over Financial Reporting
Regulations under the Exchange Act require public companies to
evaluate any change in internal control over financial
reporting. Other than as discussed herein, there were no changes
in our internal control over financial reporting that occurred
during our fiscal quarter ended April 30, 2005 that
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting. As
described above, we have determined that the identified
deficiencies in our internal control over financial reporting as
of April 30, 2005 constitute material weaknesses.
Remediation Efforts
We have been, and intend to continue, planning and implementing
changes to our processes to improve and our internal control
over financial reporting. We anticipate that these remediation
efforts will continue throughout fiscal 2006, and include the
following:
|
|
|
1. Financial Reporting Processes: Management lost
critical financial and accounting resources during the fourth
quarter of fiscal 2005 at a time when we were in the process of
acquiring two companies and the transceiver and transponder
product lines of Infineon while financial and accounting
resources were also supporting managements business
planning process and assessing cost reduction opportunities.
This situation contributed to the weakness in the financial
statement close process for preparing and compiling financial
statements for external reporting purposes. In response,
management has hired an assistant controller and is seeking to
hire a division controller for its Network Tools Division as
well as additional resources within our corporate accounting
organization. |
|
|
2. Income and Sales/ Use Taxes: The total income tax
provision for the year ended April 30, 2005 was $856,000
which consisted of a current tax benefit of $776,000 net of
a deferred tax provision of $1.6 million. Sales/use tax
expense for the same period was $2.1 million. Management
plans to secure additional external resources by hiring a
consulting firm specializing in accounting for income and
sales/use taxes to provide the following services: |
|
|
|
|
|
Assistance in the preparation of the accounting entry and
disclosure footnote with the proper application of
U.S. generally accepted accounting principles, plus all
supporting schedules and account analyses; and |
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Monitor and assist with income tax matters arising from business
combinations and other complex and non-routine business
transactions. |
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3. Customer Managed Inventory: Customer managed
inventory was $3.3 million as of April 30, 2005.
Management will be undertaking a more frequent physical count of
inventory located at customer locations in fiscal 2006 beginning
in the quarter ending July 31, 2005. Inventory acquired in
conjunction with the acquisition of I-TECH totaled approximately
$1.3 million as of April 30, 2005. This inventory will
be included as part of our normal cycle counting process going
forward. |
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4. Sales agreements at Network Tools: Management has
undertaken the following measures to ensure that sales
agreements with multiple elements are recorded properly in our
financial reports: |
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Adopt a more thorough review process with the management of this
division in evaluating transactions with multiple elements in
any given period; and |
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Hire a business unit controller to provide additional oversight
for this division. |
In addition to the actions described above, management intends
to strengthen the Companys internal audit function by
adding additional staff and implementing formal training
programs on governance and controls for management and key
process owners.
Although we have already taken some actions to remediate these
material weaknesses, further action is required to complete our
remediation including the addition of finance staff and the
development and implementation of enhanced processes. Our
management and Audit Committee will monitor closely the
implementation of our remediation plan. The effectiveness of the
steps we have taken to date and the steps we are still in the
process of completing is subject to continued management review,
as well as Audit Committee oversight, and we may make additional
changes to our internal control over financial reporting.
Currently, we are not aware of any material weaknesses in our
internal control over financial reporting other than as
described above. However, we are continuing to evaluate and test
our internal control over financial reporting, and there can be
no assurance that, as a result of our ongoing evaluation of our
internal control over financial reporting, we will not identify
additional material weaknesses.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and our
Chief Financial Officer, does not expect that our disclosure
controls and procedures or our internal control over financial
reporting are or will be capable of preventing or detecting all
errors and all fraud. Any control system, no matter how well
designed and operated, can provide only reasonable, not
absolute, assurance that the control systems objectives
will be met. The design of a control system must reflect the
fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Further,
because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all
control issues and instances of fraud, if any, within the
company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty
and that breakdowns can occur because of simple error or
mistake. Controls can also be circumvented by the individual
acts of some persons, by collusion of two or more people, or by
management override of the controls. The design of any system of
controls is based in part on certain assumptions about the
likelihood of future events, and there can be no assurance that
any design will succeed in achieving its stated goals under all
potential future conditions. Projections of any evaluation of
controls effectiveness to future periods are subject to risks.
Over time, controls may become inadequate because of changes in
conditions or deterioration in the degree of compliance with
policies or procedures.
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BUSINESS
Overview
We are a leading provider of optical subsystems and components
and network performance test and monitoring systems. These
products enable high-speed data communications over local area
networks, or LANs, storage area networks, or SANs, and
metropolitan area networks, or MANs. Optical subsystems consist
primarily of transceivers sold to manufacturers of storage and
networking equipment for SAN, LAN and MAN applications. Optical
subsystems also include multiplexers, demultiplexers and optical
add/drop modules used in MAN applications. We are focused on the
application of digital fiber optics to provide a broad line of
high-performance, reliable, value-added optical subsystems for
data networking and storage equipment manufacturers. Our line of
optical subsystems supports a wide range of network protocols,
transmission speeds, distances, physical mediums and
configurations. Our line of optical components consists
primarily of packaged lasers and photodetectors used in
transceivers, primarily for LAN and SAN applications. We also
provide network performance test and monitoring systems to
original equipment manufacturers for testing and validating
equipment designs and to operators of networking and storage
data centers for testing, monitoring and troubleshooting the
performance of their installed systems. We sell our products
primarily to leading storage and networking equipment
manufacturers such as Brocade, Cisco Systems, EMC, Emulex,
Hewlett-Packard Company and Qlogic.
Industry Background
The proliferation of electronic commerce, communications and
broadband entertainment has resulted in the digitization and
accumulation of enormous amounts of data. Much of this data has
become increasingly mission-critical to business enterprises and
other organizations that must ensure that it is accessible on a
continuous and reliable basis by employees, suppliers and
customers over a diverse geographic area. The need to quickly
transmit, store and retrieve large blocks of data across
networks in a cost-effective manner has resulted in large-scale
equipment expenditures by enterprises and service providers to
expand the capacity, or bandwidth, of their network and storage
infrastructures using fiber optic transmission technology.
Computer networks are frequently described in terms of the
distance they span and by the hardware and software protocols
used to transport and store data. These networks are generally
classified as LANs, SANs, MANs, and WANs. The portion of a
network nearest residential and business customers that connects
a LAN or SAN to the public network is frequently referred to as
the First Mile. The technologies used to build these networks
are continuously changing but retain a common thread
the growing use of digital fiber optics and internet-based
protocols to move data faster over greater distances.
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Demand for Optical Subsystems in Gigabit Ethernet
LANs |
Early LANs were implemented to connect a limited number of users
within relatively close proximity. Most of these LANs used the
Ethernet transmission protocol that was developed to allow users
to share basic common services such as file servers and
printers. Because these early LANs had relatively limited
performance requirements, short connection distances and low
transmission speeds, the equipment used in these LANs were
generally connected by copper cabling.
In response to continually increasing bandwidth and performance
requirements, the Gigabit Ethernet standard, which allows LANs
to operate at 1 gigabit per second, or Gbps, was introduced in
1998. The use of low-cost optical transceivers has enabled the
widespread deployment of Gigabit Ethernet LANs. Ethernet has
become the de facto standard user interface for connecting to
the public network with nearly 3 billion Ethernet ports
deployed worldwide since Ethernet was introduced and
200 million ports shipped in 2004 alone. As a result, most
residential and business subscriber traffic begins and ends over
Ethernet. And while Ethernet was originally developed as a
data-oriented protocol, it has evolved to support a wide range
of services including digital voice and video as well as data.
The growth in Gigabit Ethernet connectivity within the
enterprise is fueling increased demand for equipment based on
the next generation of Ethernet solutions, 10 Gigabit Ethernet,
or 10GigE. Since the
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10GigE standard was ratified in June 2002, a number of optical
products have been introduced for this protocol. These devices
include transceivers packaged in various physical form factors,
such as Xenpak, XPAK and X2, all of which use a parallel data
transmission method known as XAUI. Another solution, known as
XFP, supports 10GigE directly through a high-speed serial
interface in a smaller physical form factor. The XFP standard
combines the advantages of smaller size and lower power
requirements with the flexibility to handle data traffic
transmitted on 10GigE LANs and Fibre Channel-based SANs as well
as MANs and WANs using equipment supporting the Synchronous
Optical Network (SONET) and Synchronous Digital Hierarchy
(SDH) protocols.
According to industry analyst Communications Industry
Researchers, Inc. (CIR), sales of network equipment for 10GigE
solutions are expected to grow at a compound annual growth rate
of 55% between 2005 and 2009. Some of this growth is expected to
come at the expense of growth for Gigabit Ethernet links as
10GigE will, in certain instances, replace multiple 1Gbps links.
As a result, growth for Gigabit Ethernet connectivity is
expected to moderate over this same period. One of the factors
driving this growth in demand is the fact that the 10GigE
protocol was designed to be compatible with SONET. CIR noted
that OC-192 router ports used in SONET networks are 50 times
more expensive that the average 10GigE port. We believe
that demand for optical subsystems based on 10GigE will
initially be focused on upgrading data centers and corporate
backbones where businesses and other organizations can
consolidate their file servers into a smaller number of
high-capacity servers, yielding significant cost savings in the
process.
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Demand for Optical Subsystems and Components Used in
SANs |
Like LAN technology, data storage technology has evolved rapidly
over the past decade. Storage devices were initially connected
directly to servers using a standard interface protocol known as
the Small Computer Systems Interface, or SCSI. The SCSI protocol
allows storage devices and servers to communicate at speeds of
up to 160 megabytes per second, or Mbps, over a maximum
transmission distance of 12 meters and supports a maximum of 16
devices on a shared single bus. Although these distances and
speeds were sufficient for early storage applications, SCSI
became a limiting technology for todays storage
applications, which require networking at high speeds over long
distances in order to connect large numbers of simultaneous
users.
With the evolution of the Internet, the amount of data to be
stored has increased to the point where the cost of managing and
protecting this data has become the dominant cost of a typical
information technology department. According to industry analyst
IDC, the total capacity of data storage equipment shipped in
2004 increased by 55% over the preceding year and is expected to
grow at a compound annual growth rate of 50% through 2008. In
addition, IDC predicts that spending on data storage will
outpace spending on servers, telephony and even security
software in 2005. This increase in data storage in turn has
created a demand for faster, more efficient interconnection of
data storage systems with servers and LANs. Contributing to this
demand are:
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the need to connect increasing numbers of storage devices and
servers to a growing number of users; |
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the need to interconnect servers and storage systems supplied by
multiple vendors; |
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the need to provide switched access to multiple storage systems
simultaneously; |
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the increasingly mission-critical nature of stored data and the
need for rapid access to this data; |
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the expense and complexity associated with managing increasingly
large amounts of data storage; |
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the increasing cost of downtime and the growing importance of
disaster recovery capabilities; |
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the limitations of copper wiring in terms of speed versus
distance; |
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the migration of smaller discrete SAN islands to single
integrated SANs; |
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an increase in demand for higher bandwidth solutions as larger
SANs serve a greater number of users across longer
distances; and |
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an increase in the number of SANs deployed by small and medium
sized businesses. |
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In response to these needs, the Fibre Channel interconnect
protocol, operating at 1 Gbps, was introduced in 1995 to
address the speed, distance and connectivity limitations of SCSI
while maintaining backward compatibility with the installed base
of SCSI-based storage systems. A Fibre Channel SAN consists of a
dedicated network that interconnects file servers and their
applications to storage resources through a switch or hub. The
switch or hub routes the data between servers and storage
devices and, to ensure continuous data availability, often is
used to route data over multiple paths. Key to enabling the
interconnection of equipment in a SAN is the use of fiber optic
cable and cost-effective optical transceivers which combine a
transmitter for converting an electrical signal into an optical
signal and a receiver for performing the reverse function. SANs
generally include multiple transceivers, or ports, along the
path connecting a server to storage devices so that several
signals may be processed at the same time.
SANs allow sharing of resources thereby reducing the required
investment in storage infrastructure and driving a
recentralization of the storage function and the creation of
larger enterprise SANs. The centralization of storage, in turn,
is increasing the demand for higher-bandwidth solutions to
provide real time replication of data between different sites
for disaster recovery applications. In order to send data over
long distances for these applications, SANs can encapsulate the
Fibre Channel protocol using Fibre Channel over IP, or FCIP, via
the Internet Fibre Channel Protocol, or iFCP, or may use the
Internet Small Computer Systems Interface, or iSCSI. We believe
that IP-based SANs using the iSCSI interface operating at 10Gbps
in conjunction with higher speed disk drives and using the SATA
protocol will simplify the implementation and administration of
a SAN while lowering costs compared to Fibre Channel-based SANs.
We believe this trend will accelerate the deployment of SANs
within the small to medium business market. According to the
DellOro Group report, the market for market for SAN
equipment will grow at a compound annual growth rate of
20% per year between 2005 and 2009.
The original Fibre Channel specifications for transmitting data
at 1 Gbps also included the capability for data
transmission at 2, 4, 8 and 10 Gbps. Manufacturers of
switches, HBAs (used in file servers), and storage systems for
Fibre Channel SANs are currently deploying hardware and software
solutions that transmit data at 2 Gbps and have recently begun
to deploy devices operating at 4 Gbps. We believe that the
widespread deployment of optical transceivers operating 8 and 10
Gbps will not begin until 2007 or thereafter.
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Demand for Optical Subsystems in Metropolitan Area
Networks and the First Mile |
The need of residential and business users, who now have
extensive gigabyte per second transmissions capacity in their
buildings and local networks, to connect to the public network
has resulted in new choke points in todays
network infrastructure: in the First Mile or
local loop for network access and in MANs
themselves, where islands of data are connected by a
copper straw reducing transmission rates to megabits
per second or slower over a combination of twisted pair wire,
T-1 lines, frame relay and wireless links.
Technologies used to supply multi-gigabit bandwidth in WANs,
such as dense wavelength division multiplexing, or DWDM,
solutions using up to 32 wavelengths, are proving to be too
costly in most cases to deploy in MANs on any large scale.
Coarse wavelength division multiplexing, or CWDM, which combines
fewer wavelengths, can provide additional bandwidth on more
economical terms. CWDM systems typically use only eight
wavelengths, spaced 20 nanometers, or nm, apart. While offering
less capacity than DWDM systems, CWDM systems are also far less
complex than DWDM systems that must be cooled and highly
controlled, further adding to their cost. We believe that new
technologies such as 10GigE used in conjunction with CWDM are
likely to be the preferred solution in many MAN applications
with DWDM solutions deployed on a limited basis where network
congestion is particularly severe.
In addition to lower transmission rates, the copper
straw through which data must travel in a MAN often
requires that the data be converted to formats based on an array
of protocols including point-to-point (PPP), asynchronous
transfer mode (ATM) or SONET/ SDH or a combination thereof
before it arrives at its intended destination, and then
reconverted once again to Ethernet format. The complexity of
translating protocols adds to the cost of the networking
infrastructure required to perform this translation as well as
carrier operating expenses.
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The benefits of moving data in native Ethernet format are
considerable. End-to-end Ethernet solutions enable users to
reduce carrier operating expenses and the investment in network
infrastructure compared to legacy private line, frame relay and
ATM services. These savings emanate from three sources:
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engineering and operational support related to the configuration
and maintenance of multiple protocols as well as fault isolation
and diagnosis of network problems; |
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network inefficiencies resulting from the need to convert data
into multiple formats which often results in usage of less than
20% of the available bandwidth; and |
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the ability to benefit from economies of scale as a result of
using standard Ethernet interfaces. |
The provisioning of incremental Ethernet-based bandwidth can be
remotely adjusted using software whereas SONET/ SDH-based
solutions typically require additional equipment at the network
operating center and additional operations to change the
connection at the customer demarcation point. The ubiquity of
the Ethernet interface results in substantially lower costs per
port compared to other lower-speed solutions, allowing users to
significantly reduce their capital expenditures. The commonality
of an end-to-end solution also means suppliers can combine
multiple network devices into a single network element.
As a result of these developments, industry analyst Infometrics
estimates that the carrier market for metro Ethernet ports is
expected to increase at a compound annual rate of 75% between
2004 and 2008. As with all emerging technologies, these
estimates are subject to a wide range of possible outcomes.
Nevertheless, we believe that the adoption of next generation
Ethernet-based solutions for MANs will stimulate the use of
modular optical transceivers as the technology of choice as
equipment designers develop next generation systems.
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Demand for Optical Subsystems in Wide Area Networks |
WANs were originally designed to handle voice signals that
required bandwidth to be reserved for each call for as long as
it lasted despite periods of limited use. These networks were
the first to utilize digital fiber optics due to the limitations
of copper wire over long distances. The SONET and SDH
communications protocols were created to transmit and receive
data transported over these networks.
Early equipment designs relied on the use of expensive discrete
components which, in many cases, were integrated onto board
assemblies by systems designers themselves. These discrete
components included the use of a semiconductor source laser
combined with a semiconductor modulator (for encoding data onto
light signals) and, in some instances, optical amplifiers so
that the light signals could be amplified without having to be
converted to an electrical signal first before being
retransmitted to their ultimate destination.
Until the mid-1990s, most WAN networks relied on a single
wavelength of light to carry the digital information to be
transmitted between various points on the network. With the
introduction of DWDM, multiple wavelengths of light spaced 1.6
nm apart could be combined or multiplexed onto a single fiber,
thus enhancing the capacity of these networks by up to 12,000%
without the added cost associated with laying new fiber in the
ground. Today wavelength spacing is even finer with spacing of
0.8 nm or even 0.4 nm resulting in systems with literally
hundreds of wavelengths transmitted on a single optical fiber.
The introduction of DWDM-based systems in 1997 resulted in
enormous amounts of additional bandwidth. As a result, CIBC
World Markets estimates that spending for all networking
equipment fell on the order of 55% between 2000 and 2003
reflecting this excess capacity as well as a slowing economy. In
response, many systems manufacturers sold their captive internal
optical technologies to independent suppliers during the past
several years in order to focus on their core competency of
system design. It has also freed systems designers to pursue the
adoption of more cost effective technologies in their new
equipment designs including the use of modular optics originally
designed for use in LANs and SANs but modified for the longer
distance transmission requirements of MANs and WANs. We believe
that, as these new systems are adopted and deployed, there will
be an increased demand for modular optical subsystems and
components for use in MAN and WAN applications.
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Demand for High-Speed Data Communication Test and
Monitoring Systems |
The demand for equipment to test and monitor the performance of
high-speed data communications networks can generally be
categorized into two major segments: equipment for testing and
monitoring Gigabit Ethernet LANs; and equipment for testing and
monitoring SANs. In each of these segments, equipment is sold
both to original equipment manufacturers, or OEMs, who require
extensive testing in the development of their products to ensure
system performance and reliability and to operators of data
centers who require their networks to be tested or monitored on
an ongoing basis to ensure maximum uptime and to optimize
performance in order to minimize the investment in expensive
upgrades. Systems manufacturers for both LANs and SANs typically
focus on the design and development of their own products and
turn to specialized independent suppliers for state-of-the-art
test equipment in order to accelerate the time required to
develop new products.
The market for testing and monitoring Gigabit Ethernet LANs is
well established. As higher speed transmission protocols such as
10GigE are introduced, system testing becomes more difficult,
requiring increasingly sophisticated and specialized test
systems capable of capturing data at high speeds, filtering the
data and identifying various types of intermittent errors and
other network problems. We believe the emergence of 10GigE will
drive new product designs by OEMs as well as the need to test
and monitor that equipment in data centers and will be an
important driver of demand for high performance, easy-to-use
test systems for LANs.
The market for testing and monitoring SANs is more challenging
in many respects than the more pervasive Ethernet-based LAN
networks due in part to the fact that multiple protocols have
emerged including iSCSI, Fibre Channel, FCIP, and, more
recently, the SAS and SATA protocols used in the disk drive
industry. In addition, higher speed versions of these protocols
are being introduced such as 4Gbps Fibre Channel which are also
creating demand for new test equipment by systems manufacturers.
The market for test equipment for systems manufacturers is well
established. The market for testing and monitoring SANs within
data centers is fragmented with each system manufacturer
supplying testing and monitoring systems for the equipment which
they supply. Due to the fact that multiple protocols are
encountered in a typical SAN, including Ethernet, and the fact
that variety of equipment is used to build a SAN, including
storage arrays, file servers, switches and disk drives, the
typical data center operator has had to rely on a disparate
array of testing and monitoring tools, none of which provide a
single unbiased view of the performance of the network. The need
for such a capability has become more critical with the ongoing
accumulation of data which must be stored and managed and the
growing number of users who are connected to and dependent on
the information residing at these data centers. We believe the
market for testing and monitoring solutions for data center
operators that offer a single correlated view of network traffic
and that alert data center operators even before network
performance becomes an issue is just emerging.
Business Strategy
In order to maintain our position as a leading supplier of fiber
optic subsystems and components and network performance test and
monitoring systems, we are pursuing the following business
strategies:
Continue to Invest in Critical Technologies. Our years of
engineering experience, our multi-disciplinary technical
expertise and our participation in the development of industry
standards have enabled us to become a leader in the design and
development of fiber optic subsystems and network performance
test systems. We have been at the forefront of a number of
important breakthroughs in the development of innovative
products for fiber optic applications including the first
transceiver incorporating digital diagnostics (1995), the first
CWDM GBIC transceiver (2001), the first DWDM GBIC transceiver
(2002) and the first 4Gbps transceiver to ship in volume
(2004). We have also been a pioneer in the use of the XFP small
form factor for 10GigE applications, having shipped the first
product under this protocol in 2002 and the first 40 km and 80
km versions in 2004. In network performance testing and
monitoring, we introduced the first Fibre Channel analyzer
(1997), the first IP storage (iSCSI) protocol analyzer (2001),
the first blade-based analysis system for multi-protocol SANs
(2003) and the first 4Gbps and 10Gbps Fibre Channel
analyzers (2004). We intend to maintain our technological
leadership through continual enhancement of our existing
products and the
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development of new products as evolving technology permits
higher speed transmission of data, with greater capacity, over
longer distances. We are also focused on increased product
integration to enhance the price/performance capabilities of our
products.
Expand Our Broad Product Line of Optical Subsystems. We
offer a broad line of optical subsystems which operate at
varying protocols, speeds, fiber types, voltages, wavelengths
and distances and are available in a variety of industry
standard packaging configurations, or form factors. Our optical
subsystems are designed to comply with key networking protocols
such as Fibre Channel, Gigabit Ethernet, 10GigE and SONET and to
plug directly into standard port configurations used in our
customers products. The breadth of our optical subsystems
product line is important to many of our customers who are
seeking to consolidate their supply sources for a wide range of
networking products for diverse applications, and we are focused
on the expansion of our product line to add key products to meet
our customers needs.
Expand Our Broad Product Line of Network Performance Test and
Monitoring Systems. We offer a broad line of test and
monitoring systems to assist our customers in efficiently
designing reliable, high-speed networking systems and testing
and monitoring the performance of storage-based and
Ethernet-based networks, and we are currently focusing our
efforts on the development of products that address the emerging
storage-based network market. We believe our test systems enable
original equipment manufacturers to focus their attention on the
development of new products, reduce overall development costs
and accelerate time to market. Our monitoring solutions for
these networks provide real time feedback to data center
operators enabling them to detect network bottlenecks and other
performance related hardware issues. We have recently completed
several acquisitions that have enabled us to improve and expand
our line of test and monitoring systems.
Leverage Core Competencies Across Multiple, High-Growth
Markets. We believe that fiber optic technology will remain
the transmission technology of choice for multiple data
communication markets, including Gigabit and 10-Gigabit
Ethernet-based LANs and MANs, Fibre Channel-based SANs and
SONET-based MANs and WANs. These markets are characterized by
differentiated applications with unique design criteria such as
product function, performance, cost, in-system monitoring, size
limitations, physical medium and software. We intend to target
opportunities where our core competencies in high-speed data
transmission protocols can be leveraged into leadership
positions as these technologies are extended across multiple
data communications applications and into other markets and
industries such as automotive and consumer electronics products.
Strengthen and Expand Customer Relationships. Over the
past 18 years, we have established valuable relationships
and a loyal base of customers by providing high-quality products
and superior service. Our service-oriented approach has allowed
us to work closely with leading data and storage network system
manufacturers, understand and address their current needs and
anticipate their future requirements. We intend to leverage our
relationships with our existing customers as they enter new,
high-speed data communications markets.
Acquire Critical Technologies. Since 2000, we have
acquired a number of companies and certain businesses and assets
of other companies in order to broaden our product offerings and
provide new sources of revenue, production capabilities, and
access to advanced technologies that we believe will enable us
to reduce our product costs and develop innovative and more
highly integrated product platforms while accelerating the
timeframe required to develop such products. These acquisitions
have enabled us to:
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create an internal capability for manufacturing certain active
optical components such as vertical cavity surface emitting
lasers, or VCSELs, Fabry-Perot, or FP, lasers and distributed
feedback, or DFP, lasers; |
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create an internal capability for manufacturing certain passive
optical products such as isolators, filters, splitters, quarter
wave plates, interleavers and polarization beam
combiners; and |
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expand our product lines and know-how to address new markets
such as the testing and monitoring of Gigabit Ethernet and SAN
networks and optical subsystems and components for automotive
and consumer electronics applications. |
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We will continue to review opportunities to acquire businesses,
product lines and technologies that may enable us to expand our
product offerings, introduce new innovative products or reduce
our product costs.
Develop Low Cost Manufacturing Capabilities. We believe
that new markets can be created by the introduction of new,
low-cost, high value-added products. Lower product costs can be
achieved through the introduction of new technologies, product
design or market presence. Access to low-cost manufacturing
resources are a key factor in the ability to offer a low-cost
product solution. We acquired a manufacturing facility in Ipoh,
Malaysia in order to take advantage of low-cost off-shore labor
while protecting access to our intellectual property and
know-how. We continue to seek ways to lower our production costs
through improved product design and improved manufacturing and
testing processes.
Products
In accordance with the guidelines established by the Statement
of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related
Information (SFAS 131), we have
determined that we operate in two segments: optical subsystems
and components; and network test and monitoring systems. We
provide a broad line of complementary products within each of
these segments.
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Optical Subsystems and Components |
Optical data networks require optical subsystems that convert
electrical signals into optical signals and back into electrical
signals at high speeds. Our optical subsystems are integrated
into our customers systems and used for both short- and
intermediate-distance fiber optic communications applications.
Our family of optical subsystem products consists of
transmitters, receivers and transceivers principally based on
the Gigabit Ethernet, Fibre Channel and SONET protocols. A
transmitter converts electrical signals into optical signals for
transmission over fiber optics. Receivers incorporating photo
detectors convert incoming optical signals into electric
signals. A transceiver combines both transmitter and receiver
functions in a single device. Our optical subsystem products
perform these functions with high reliability and data integrity
and support a wide range of protocols, transmission speeds,
fiber types, wavelengths, transmission distances, physical
configurations and software enhancements.
Our high-speed fiber optic subsystems are engineered to deliver
value-added functionality and intelligence. Most of our optical
subsystem products include a microprocessor with proprietary
embedded software that allows customers to monitor transmitted
and received optical power, temperature, drive current and other
link parameters of each port on their systems in real time. In
addition, our intelligent optical subsystems are used by many
enterprise networking and storage system manufacturers to
enhance the ability of their systems to diagnose and correct
abnormalities in fiber optic networks.
For SAN applications which rely on the Fibre Channel standard,
we currently provide optical subsystems for transmission
applications at 1, 2 and 4 Gbps and have demonstrated
products operating at 8 Gbps. We currently provide optical
subsystems for data networking applications based on the Gigabit
Ethernet standard which transmit signals at 1 Gbps. As a result
of the acquisition of Infineons transceiver product lines,
we now offer such products based on the XAUI interface as well
as the XFP form factor. For SONET-based MANs, we supply optical
subsystems which are capable of transmitting at 2.5 Gbps, and we
have recently expanded that product line to include products
that operate at less than 1 Gbps.
We have introduced a full line of optical subsystems for MANs
using CWDM technologies designed to deliver dramatic cost
savings to optical networking manufacturers, compared to
solutions based on the use of DWDM technologies. Our CWDM
subsystems include every major optical transport component
needed to support a MAN, including transceivers, optical
add/drop multiplexers, or OADMs, for adding and dropping
wavelengths in a network without the need to convert to an
electrical signal and multiplexers/demultiplexers for SONET,
Gigabit Ethernet and Fibre Channel protocols. Where the need for
additional bandwidth exists, we have introduced optical
subsystems which incorporate DWDM technologies that allow these
CWDM subsystem products to scale incrementally in terms of the
amount of bandwidth handled, thus providing
83
additional cost savings to network operators, whose customers
are in the early stages of deploying new IP-based systems.
As a result of several acquisitions, we have gained access to
leading-edge technology for the manufacture of a number of
active and passive optical components including VCSELs, FP
lasers, DFB lasers, PIN detectors, fused fiber couplers,
isolators, filters, polarization beam combiners, interleavers
and linear semiconductor optical amplifiers. Most of these
optical components are used internally in the manufacture of our
optical subsystems. We currently sell VCSELs and limited
quantities of other components in the so-called merchant
market to other subsystems manufacturers.
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Network Performance Test and Monitoring Systems |
Our testing and monitoring solutions allow engineers, service
technicians and network managers to generate and capture data at
high speeds, filter the data and identify various types of
intermittent errors and other network problems for SANs, LANs,
wireless networks, voice-over-internet protocol applications and
newly emerging technologies including 10GigE, iSCSI, FCIP, SAS
and SATA. Our test and monitoring solutions have historically
been sold primarily to system manufacturers who use such
equipment in the development of new products for SANs. We
believe we have a significant share of this market and a much
smaller share of the market for testing and monitoring solutions
for LANs.
Our products for testing and monitoring solutions include our
new Xgig product platform for Fibre Channel and Gigabit Ethernet
SANs (iSCSI and FCIP), probes which tap and analyze network
traffic, and other specialized equipment for testing SANs and
LANs at high speeds or for network functionality and reliability.
The Xgig is the industrys first blade based
approach to testing and monitoring data networks and allows
multiple protocols to be tested within the same hardware
platform. Separate blades exist for the following capabilities:
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traffic analysis (analyzers) at 1, 2, 4 and 10 Gbps
that capture data traffic into a large memory buffer so that the
data can be analyzed by developers to detect problems on a Fibre
Channel network; |
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jammers that inject errors into data networks to simulate how
the network responds and recovers from such problems; and |
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bit-error rate testers, or BERTs, that debug and test switches
and disk array products. |
Our line of probes are typically sold to operators of data
centers for monitoring their installed networks on a 24 X 7
basis. They include the following:
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our THG product line and Surveyor software for monitoring
Gigabit Ethernet networks; |
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Netwisdom which provides a comprehensive view of SAN performance
including routers, switches and file servers which are typically
used in a SAN network; and |
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PATHLINE SAN management software, which we acquired in May 2005
with our acquisition of InterSAN, features of which we plan to
incorporate into our Xgig product platform. |
We also offer other specialized test equipment including
generators for generating Fibre Channel traffic to stress SAN
networks which are typically used in conjunction with an
analyzer.
Customers
To date, our revenues have been principally derived from sales
of optical subsystems and components to original equipment
manufacturers. Sales to these customers accounted for 86% of our
total revenues in both fiscal 2005 and 2004 and 82% in 2003,
with the remainder of revenues in each year representing sales
of network performance test and monitoring systems. Sales of
products for LAN and SAN applications represented 59%, 60% and
55% of our total optical subsystems revenues in fiscal 2005,
2004 and 2003, respectively. Our test and monitoring systems are
sold to original equipment manufacturers for testing and
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validating equipment designs and to operators of data centers
for testing, monitoring and troubleshooting the performance of
their Ethernet and storage-based networks. Approximately 23% of
our test and monitoring revenues in 2005 were derived from sales
for monitoring applications, and most of the remainder consisted
of sales to equipment manufacturers. Sales to our top three
customers represented approximately 39% of our total revenues in
both fiscal 2005 and 2004 and 29% in fiscal 2003. Sales to Cisco
Systems accounted for 28%, 22% and 10% of our total revenues in
fiscal 2005, 2004 and 2003, respectively. No other customer
accounted for 10% of revenues in any of these years.
Technology
The development of high quality fiber optic subsystems and
components and network performance test and monitoring systems
for high-speed data communications requires multidisciplinary
expertise in the following technology areas:
High Frequency Semiconductor Design. Our fiber optic
subsystems development efforts are supported by an engineering
team that specializes in analog/digital integrated circuit
design. This group works in both silicon, or Si CMOS, and
Silicon Germanium, or SiGe BiCMOS, semiconductor technologies
where circuit element frequencies are very fast and can be as
high as 60 gigahertz, or GHz. We have designed proprietary
circuits including laser drivers, receiver pre-and
post-amplifiers and controller circuits for handling digital
diagnostics at 1, 2, 4 and 10 Gbps. These advanced
semiconductor devices provide significant cost advantages and
will be critical in the development of future products capable
of even faster data rates.
Optical Subassembly Design. We established ourselves as a
low-cost design leader beginning with our initial Gbps optical
subsystems in 1992. From that base we have developed single-mode
laser alignment approaches and low-cost, all-metal packaging
techniques for improved EMI performance and environmental
tolerance. We develop our own component and packaging designs
and integrate these designs with proprietary manufacturing
processes that allow our products to be manufactured in high
volume.
Complex Logic Design. Our network test and monitoring
equipment designs are based on field programmable gate arrays,
or FPGAs. Our network products are being used to operate with
clock frequencies of up to 212.5 megahertz, or MHz, and logic
densities up to 6 million gates per chip. Our test systems
use FPGAs that are programmed by the host PC and therefore can
be configured differently for different tests. All of our logic
design is done in the very high density logic, or VHDL, hardware
description language which will enable migration to application
specific integrated circuits, or ASICs, as volumes warrant. We
develop VHDL code in a modular fashion for reuse in logic design
which comprises a critical portion of our intellectual property.
This re-usable technology base of logic design is available for
use in both our test system and optical subsystem product lines
and allows us to reduce the time to market for our new and
enhanced products.
Software Technology. We devote substantial engineering
resources to the development of software technology for use in
all of our product lines. We have developed software to control
our test systems, analyze data collected by our test systems,
and monitor, maintain, test and calibrate our optical
subsystems. A majority of our software technology and expertise
is focused on the use of object-oriented development techniques
to develop software subsystems that can be reused across
multiple product lines. We have created substantial intellectual
property in the area of data analysis software for our Fibre
Channel test equipment. This technology allows us to rapidly
sort, filter and analyze large amounts of data using a
proprietary database format. This database format is both,
hardware platform-independent and protocol-independent. This
independence allows all of the software tools developed for our
existing test products to be utilized in all of our new test
products that collect data traces. Because the database format
is also protocol-independent, new protocols can be added quickly
and easily. Another important component of our intellectual
property is our graphical user interface, or GUI, design. Many
years of customer experience with our test products have enabled
us to define a simple yet effective method to display complex
protocols in clear and concise GUIs for intuitive use by
engineers.
System Design. The design of all of our products requires
a combination of sophisticated technical
competencies optical engineering, high-speed digital
and analog design, ASIC design and software engineering. We have
built an organization of people with skills in all of these
areas. It is the integration of
85
these technical competencies that enables us to produce products
that meet the needs of our customers. Our combination of these
technical competencies has enabled us to design and manufacture
optical subsystems with built-in optical test multiplexing and
network monitoring, as well as test systems that integrate
optical and protocol testing with user interface software.
Manufacturing System Design. The design skills gained in
our test systems group are also used in the manufacture of our
optical subsystems. We utilize our high-speed FPGA design blocks
and concepts and GUI software elements to provide specialized
manufacturing test systems for our internal use. These test
systems are optimized for test capacity and broad test coverage.
We use automated, software-controlled testing to enhance the
field reliability of all Finisar products. All of our products
are subjected to temperature testing of powered systems as well
as full functional tests.
Wafer Fabrication. The ability to manufacture our own
optical components can provide significant cost savings while
the ability to create unique component designs, enhances our
competitive position in terms of performance, time-to-market and
intellectual property. We design and manufacture a number of
active components that are used in our optical subsystems. The
acquisition of Genoa Corporation in April 2003 provided us with
a state-of-the-art foundry for making PIN receivers and 1310nm
FP and DFB lasers used in our longer distance transceivers.
While these longer distance products comprised approximately 40%
of our optical subsystem revenues in fiscal 2005, this foundry
currently supplies only our internal demand for PIN receivers
and FP lasers. We expect to qualify our internally fabricated
DFB lasers during fiscal 2006. Our acquisition of
Honeywells VCSEL Optical Products business unit in March
2004 provided us with wafer fabrication capability for designing
and making 850nm VCSEL components used in all of our short
distance transceivers for LAN and SAN applications. These
applications represented 59% of our optical subsystem revenues
in fiscal 2005.
Competition
Several of our competitors in the optical subsystems and
components market have recently been acquired or announced plans
to be acquired. These announcements reflect an ongoing
realignment of industry capacity with market demand in order to
restore the financial health of the optics industry. Despite
this trend, the market for optical subsystems and components for
use in LANs, SANs and MANs as well as the market for testing and
monitoring systems remains highly competitive. We believe the
principal competitive factors in these markets are:
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product performance, features, functionality and reliability; |
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price/performance characteristics; |
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timeliness of new product introductions; |
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breadth of product line; |
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adoption of emerging industry standards; |
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service and support; |
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size and scope of distribution network; |
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brand name; |
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access to customers; and |
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size of installed customer base. |
We believe we compete favorably with our competitors with
respect to most of the foregoing factors based, in part, upon
having one of the broadest product lines in the industry, a
sizeable installed base and a low-cost manufacturing facility in
Ipoh, Malaysia. We believe that the addition of our new Xgig
product line for testing and monitoring multiple network
protocols within the same hardware platform combined with unique
software solutions for monitoring and troubleshooting SANs, has
strengthened our competitive position within the network test
and monitoring market.
86
Sales, Marketing and Technical Support
We sell our products in North America through our direct sales
force and a network of independent manufacturers
representatives. For sales of our optical subsystems and
components, we utilize a direct sales force augmented by two
domestic distributors, 16 domestic manufacturers
representatives, two international manufacturers
representatives and 30 international resellers. For sales of our
performance network test and monitoring systems, we utilize a
direct sales force augmented by 10 domestic manufacturers
representatives and 31 international resellers. Our direct sales
force maintains close contact with our customers and provides
technical support to our manufacturers representatives. In
our international markets, our direct sales force works with
local resellers who assist us in providing support and
maintenance to the territories they cover.
Our marketing efforts are focused on increasing awareness of our
product offerings for optical subsystems and network test and
monitoring systems and our brand name. Key components of our
marketing efforts include:
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continuing our active participation in industry associations and
standards committees to promote and further enhance Gigabit
Ethernet and Fibre Channel technologies, promote standardization
in the LAN, SAN and MAN markets, and increase our visibility as
industry experts; |
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leveraging major trade show events and LAN, SAN, and MAN
conferences to promote our broad product lines; and |
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advertising our products for network test and monitoring
solutions for storage and networking data centers in industry
publications and other electronic media. |
In addition, our marketing group provides marketing support
services for our executive staff, our direct sales force and our
manufacturers representatives and resellers. Through our
marketing activities, we provide technical and strategic sales
support to our direct sales personnel and resellers, including
in-depth product presentations, technical manuals, sales tools,
pricing, marketing communications, marketing research, trademark
administration and other support functions.
A high level of continuing service and support is critical to
our objective of developing long-term customer relationships. We
emphasize customer service and technical support in order to
provide our customers and their end users with the knowledge and
resources necessary to successfully utilize our product line.
Our customer service organization utilizes a technical team of
field and factory applications engineers, technical marketing
personnel and, when required, product design engineers. We
provide extensive customer support throughout the qualification
and sale process. In addition, we also provide many resources
through our World Wide Web site, including product documentation
and technical information. We intend to continue to provide our
customers with comprehensive product support and believe it is
critical to remaining competitive.
Backlog
A substantial portion of our revenues are derived from sales to
OEMs pursuant to individual purchase orders with short lead
times. Commitments under these purchase orders remain subject to
negotiation with respect to quantities and delivery schedules
and are generally cancelable without significant penalties. In
addition, manufacturing capacity and availability of key
components may impact the timing and amount of revenue
ultimately recognized under such sale arrangements. Accordingly,
we do not believe that the backlog of undelivered product under
these purchase orders are a meaningful indicator of our future
financial performance.
Manufacturing
We manufacture most of our optical subsystems at our production
facility in Ipoh, Malaysia. This facility consists of
640,000 square feet, of which 240,000 square feet is
suitable for cleanroom operations. The acquisition of this
facility in May 2001 has allowed us to transfer most of our
manufacturing processes from contract manufacturers to a
lower-cost manufacturing facility and to maintain greater
control over our intellectual property. We expect to continue to
use contract manufacturers for a portion of our manufacturing
87
needs. During fiscal 2005, we transferred a portion of our new
product introduction operations from our facility in Sunnyvale,
California to our Ipoh, Malaysia facility. We continue to
conduct a portion of our new product introduction activities at
our Sunnyvale facility where we also conduct supply chain
management for certain components, quality assurance and
documentation control operations. We conduct wafer fabrication
operations at our facilities in Fremont, California. The
operations of our Advanced Optical Components, or AOC, Division,
which we acquired from Honeywell International Inc. in March
2004, including wafer fabrication, are currently conducted at a
facility in Richardson, Texas that we lease from Honeywell. In
the fourth quarter of fiscal 2005, we leased a facility in
Allen, Texas, and we are preparing to transfer the operations of
the AOC Division to this facility in the second half of fiscal
2006.
We design and develop a number of the key components of our
products, including photodetectors, lasers, ASICs, printed
circuit boards and software. In addition, our manufacturing team
works closely with our engineers to manage the supply chain. To
assure the quality and reliability of our products, we conduct
product testing and burn-in at our facilities in conjunction
with inspection and the use of testing and statistical process
controls. In addition, most of our optical subsystems have an
intelligent interface that allows us to monitor product quality
during the manufacturing process. Our facilities in Sunnyvale,
Fremont, Richardson and Malaysia are qualified under
ISO 9001-9002.
Although we use standard parts and components for our products
where possible, we currently purchase several key components
from single or limited sources. Our principal single source
components purchased from external suppliers include ASICs and
DFB lasers. In addition, all of the short wavelength VCSEL
lasers used in our LAN and SAN products are currently produced
by our AOC Division at our facility in Richardson, Texas.
Generally, purchase commitments with our single or limited
source suppliers are on a purchase order basis. We generally try
to maintain a buffer inventory of key components. However, any
interruption or delay in the supply of any of these components,
or the inability to procure these components from alternate
sources at acceptable prices and within a reasonable time, would
substantially harm our business. In addition, qualifying
additional suppliers can be time-consuming and expensive and may
increase the likelihood of errors.
We use a rolling 12-month forecast of anticipated product orders
to determine our material requirements. Lead times for materials
and components we order vary significantly, and depend on
factors such as the demand for such components in relation to
each suppliers manufacturing capacity, internal
manufacturing capacity, contract terms and demand for a
component at a given time.
Research and Development
In fiscal 2005, fiscal 2004 and fiscal 2003, our research and
development expenses were $62.8 million, $62.2 million
and $60.3 million, respectively. We believe that our future
success depends on our ability to continue to enhance our
existing products and to develop new products that maintain
technological competitiveness. We focus our product development
activities on addressing the evolving needs of our customers
within the LAN, SAN and MAN markets, although we also are
seeking to leverage our core competencies by developing products
for other markets, including the automotive and consumer
electronics industries. We work closely with our original
equipment manufacturers and system integrators to monitor
changes in the marketplace. We design our products around
current industry standards and will continue to support emerging
standards that are consistent with our product strategy. Our
research and development groups are aligned with our various
product lines, and we also have specific groups devoted to ASIC
design and test, subsystem design and test equipment hardware
and software design. Our product development operations include
the active involvement of our manufacturing engineers who
examine each product for its manufacturability, predicted
reliability, expected lifetime and manufacturing costs.
We believe that our research and development efforts are key to
our ability to maintain technical competitiveness and to deliver
innovative products that address the needs of the market.
However, there can be no assurance that our product development
efforts will result in commercially successful products, or that
our products will not be rendered obsolete by changing
technology or new product announcements by other companies.
88
Intellectual Property
Our success and ability to compete is dependent in part on our
proprietary technology. We rely on a combination of patent,
copyright, trademark and trade secret laws, as well as
confidentiality agreements and licensing arrangements, to
establish and protect our proprietary rights. We currently own
333 issued U.S. patents and 790 patent applications with
additional foreign counterparts. We cannot assure you that any
patents will issue as a result of pending patent applications or
that our issued patents will be upheld. Any infringement of our
proprietary rights could result in significant litigation costs,
and any failure to adequately protect our proprietary rights
could result in our competitors offering similar products,
potentially resulting in loss of a competitive advantage and
decreased revenues. Despite our efforts to protect our
proprietary rights, existing patent, copyright, trademark and
trade secret laws afford only limited protection. In addition,
the laws of some foreign countries do not protect our
proprietary rights to the same extent as do the laws of the
United States. Attempts may be made to copy or reverse engineer
aspects of our products or to obtain and use information that we
regard as proprietary. Accordingly, we may not be able to
prevent misappropriation of our technology or deter others from
developing similar technology. Furthermore, policing the
unauthorized use of our products is difficult. We are currently
engaged in pending litigation to enforce certain of our patents
(see Pending Litigation), and additional litigation
may be necessary in the future to enforce our intellectual
property rights or to determine the validity and scope of the
proprietary rights of others. This litigation could result in
substantial costs and diversion of resources and could
significantly harm our business.
The networking industry is characterized by the existence of a
large number of patents and frequent litigation based on
allegations of patent infringement. We have previously been
involved in a series of patent infringement lawsuits. From time
to time, other parties may assert patent, copyright, trademark
and other intellectual property rights to technologies and in
various jurisdictions that are important to our business. Any
claims asserting that our products infringe or may infringe
proprietary rights of third parties, if determined adversely to
us, could significantly harm our business. Any such claims, with
or without merit, could be time-consuming, result in costly
litigation, divert the efforts of our technical and management
personnel, cause product shipment delays or require us to enter
into royalty or licensing agreements, any of which could
significantly harm our business. Royalty or licensing
agreements, if required, may not be available on terms
acceptable to us, if at all. In addition, our agreements with
our customers typically require us to indemnify our customers
from any expense or liability resulting from claimed
infringement of third party intellectual property rights. In the
event a claim against us was successful and we could not obtain
a license to the relevant technology on acceptable terms or
license a substitute technology or redesign our products to
avoid infringement, our business would be significantly harmed.
Pending Litigation
A securities class action lawsuit was filed on November 30,
2001 in the United States District Court for the Southern
District of New York, purportedly on behalf of all persons who
purchased our common stock from November 17, 1999 through
December 6, 2000. The complaint named as defendants
Finisar, Jerry S. Rawls, our President and Chief Executive
Officer, Frank H. Levinson, our Chairman of the Board and Chief
Technical Officer, Stephen K. Workman, our Senior Vice President
and Chief Financial Officer, and an investment banking firm that
served as an underwriter for our initial public offering in
November 1999 and a secondary offering in April 2000. The
complaint, as subsequently amended, alleges violations of
Sections 11 and 15 of the Securities Act of 1933 and
Sections 10(b) and 20(b) of the Securities Exchange Act of
1934, on the grounds that the prospectuses incorporated in the
registration statements for the offerings failed to disclose,
among other things, that (i) the underwriter had solicited
and received excessive and undisclosed commissions from certain
investors in exchange for which the underwriter allocated to
those investors material portions of the shares of our stock
sold in the offerings and (ii) the underwriter had entered
into agreements with customers whereby the underwriter agreed to
allocate shares of our stock sold in the offerings to those
customers in exchange for which the customers agreed to purchase
additional shares of our stock in the aftermarket at
pre-determined prices. No specific damages are claimed. Similar
allegations have been made in lawsuits relating to more than 300
other initial public offerings conducted in 1999 and 2000, which
were consolidated for pretrial purposes. In October 2002, all
claims against the individual defendants were
89
dismissed without prejudice. On February 19, 2003, the
Court denied our motion to dismiss the complaint. In July 2004,
we and the individual defendants accepted a settlement proposal
made to all of the issuer defendants. Under the terms of the
settlement, the plaintiffs will dismiss and release all claims
against participating defendants in exchange for a contingent
payment guaranty by the insurance companies collectively
responsible for insuring the issuers in all related cases, and
the assignment or surrender to the plaintiffs of certain claims
the issuer defendants may have against the underwriters. Under
the guaranty, the insurers will be required to pay the amount,
if any, by which $1 billion exceeds the aggregate amount
ultimately collected by the plaintiffs from the underwriter
defendants in all the cases. If the plaintiffs fail to recover
$1 billion and payment is required under the guaranty, we
would be responsible to pay our pro rata portion of the
shortfall, up to the amount of the self-insured retention under
our insurance policy, which may be up to $2 million. The
timing and amount of payments that we could be required to make
under the proposed settlement will depend on several factors,
principally the timing and amount of any payment that the
insurers may be required to make pursuant to the $1 billion
guaranty. The settlement is subject to approval of the Court,
which cannot be assured. If the settlement is not approved by
the Court, we intend to defend the lawsuit vigorously. However,
the litigation is in the preliminary stage, and we cannot
predict its outcome. The litigation process is inherently
uncertain. If litigation proceeds and its outcome is adverse to
us and if we are required to pay significant monetary damages,
our business would be significantly harmed.
On April 4, 2005, we filed an action in the United States
District Court, against the DirecTV Group, Inc.; DirecTV
Holdings, LLC; DirecTV Enterprises, LLC; DirecTV Operations,
LLC; DirecTV, Inc.; and Hughes Network Systems, Inc.
(collectively DirecTV). The lawsuit alleges that
DirecTV willfully infringes our U.S. Patent
No. 5,404,505 by making, using, selling, offering to sell
and/or importing systems and/or methods that embody one or more
of the claims of our patent. On May 13, 2005, DirecTV
answered the Complaint. DirecTVs counterclaim seeks a
declaration of non-infringement, patent invalidity and patent
unenforceability. The presiding judge held an initial case
management conference on July 13, 2005 setting discovery
schedules and dates for motion practice. The trial is scheduled
for June 6, 2006.
Facilities
Our principal facilities are located in California, Texas,
Malaysia and China.
We lease a 75,000 square foot building in Sunnyvale,
California for our corporate headquarters under a lease that
expires in July 2006. We also lease a 92,000 square foot
facility in Sunnyvale consisting of three buildings under a
lease that expires in February 2020. We conduct research and
development, sales and marketing, general and administrative,
and limited manufacturing operations at our Sunnyvale
facilities. We plan to move some of these operations to our
Fremont facility (described below) and consolidate the remaining
Sunnyvale operations into the 92,000 square foot facility
in the second half of fiscal 2006.
We own a 640,000 square foot manufacturing facility in
Ipoh, Malaysia, where we conduct our principal manufacturing
operations. The land upon which the facility is located is
subject to a long term lease.
We lease facilities, totaling approximately 44,000 square
feet, in Fremont, California under leases that expire in
February 2006. We conduct wafer fabrication operations at these
facilities. We are currently negotiating an extension of this
lease.
We lease approximately 54,300 square feet in Hayward,
California. This lease expires in January 2006, and the facility
is currently vacant.
We lease approximately 18,250 square feet of general office
space in Scotts Valley, California under a lease that expires in
November 2010. We acquired this leased facility in connection
with our acquisition of InterSAN in May 2005.
We lease approximately 26,400 square feet of general office
space in Eden Prairie, Minnesota under a lease that expires in
March 2010. We acquired this leased facility in connection with
our acquisition of I-TECH in April 2005. We intend to
consolidate the former I-TECH operations at our other facilities
in the first quarter of fiscal 2006 and seek to sublease the
Minnesota facility thereafter.
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We lease approximately 57,000 square feet of general office
and manufacturing space in Shanghai, China to house the
operations of our subsidiary, Transwave Fiber (Shanghai), Inc.
This lease expires in September 2005, and we are currently
negotiating an extension of this lease.
In connection with our acquisition of Honeywells VCSEL
Optical Products business unit, we entered into a lease with
Honeywell for a manufacturing facility in Richardson, Texas,
totaling approximately 50,000 square feet, where the
operations of our AOC Division are currently being conducted.
This lease expires in November 2006. In February 2005, we leased
a 160,000 square foot facility in Allen, Texas, and we are
preparing to transfer the operations of the AOC Division to this
facility in the second half of fiscal 2006. A portion of this
facility consisting of approximately 35,000 square feet is
currently subleased.
We lease approximately 16,000 square feet of general office
space in Austin, Texas, to house the operations of our Medusa
Technologies Division. This lease expires in July 2008.
We lease approximately 4,540 square feet of general office
space in Singapore under a lease that expires in February 2008.
We conduct research and development and logistics operations at
this facility.
Employees
As of April 30 2005, we employed approximately
2,580 full-time employees, 636 of whom were located in the
United States and 1,944 of whom were located at our production
facilities in Ipoh, Malaysia and Shanghai, China and in
Singapore where we conduct research and development activities.
We also from time to time employ part-time employees and hire
contractors. Our employees are not represented by any collective
bargaining agreement, and we have never experienced a work
stoppage. We believe that our employee relations are good.
91
MANAGEMENT
Executive Officers and Directors
Our executive officers and directors, and their ages as of
June 30, 2005, are as follows:
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Name |
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Position(s) |
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Age | |
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Jerry S. Rawls
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President, Chief Executive Officer and Director |
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60 |
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Frank H. Levinson
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Chairman of the Board and Chief Technical Officer |
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52 |
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David Buse
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Senior Vice President and General Manager, Network Tools Group |
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54 |
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Anders Olsson
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Senior Vice President, Engineering |
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52 |
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Stephen K. Workman
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Senior Vice President, Chief Financial Officer &
Secretary |
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54 |
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Joseph A. Young
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Senior Vice President and General Manager, Optics Group |
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47 |
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Michael C. Child
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Director |
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50 |
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Roger C. Ferguson
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Director |
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62 |
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David C. Fries
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Director |
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60 |
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Larry D. Mitchell
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Director |
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62 |
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Jerry S. Rawls has served as a member of our board of
directors since March 1989 and as our Chief Executive Officer
since August 1999. Mr. Rawls has also served as our
President since April 2003 and previously held that title from
April 1989 to September 2002. From September 1968 to February
1989, Mr. Rawls was employed by Raychem Corporation, a
materials science and engineering company, where he held various
management positions including Division General Manager of the
Aerospace Products Division and Interconnection Systems
Division. Mr. Rawls holds a B.S. in Mechanical Engineering
from Texas Tech University and an M.S. in Industrial
Administration from Purdue University.
Frank H. Levinson founded Finisar in April 1987 and has
served as a member of our board of directors since February 1988
and as our Chairman of the Board and Chief Technical Officer
since August 1999. Dr. Levinson also served as our Chief
Executive Officer from February 1988 to August 1999. From
September 1980 to December 1983, Dr. Levinson was a member
of Technical Staff at AT&T Bell Laboratories. From
January 1984 to July 1984, he was a Member of Technical Staff at
Bellcore, a provider of services and products to the
communications industry. From April 1985 to December 1985,
Dr. Levinson was the principal optical scientist at Raychem
Corporation, and from January 1986 to February 1988, he was
Optical Department Manager at Raynet, Inc., a fiber optic
systems company. Dr. Levinson serves as a director of
Fabrinet, Inc., a privately held contract manufacturing company.
Dr. Levinson holds a B.S. in Mathematics/Physics from
Butler University and an M.S. and Ph.D. in Astronomy from the
University of Virginia.
David Buse has served as our Senior Vice President and
General Manager, Network Tools Group, since June 2005.
Mr. Buse joined Finisar in December 2003 as our Senior Vice
President, Sales and Marketing. From May 2002 to September 2003,
Mr. Buse was employed as Vice President of Worldwide Sales
and Marketing of Silicon Bandwidth, an interconnect technology
company. Prior thereto, he spent over 20 years at
Raychem/Tyco in various positions, most recently serving as
Americas National Sales Manager. Mr. Buse holds a B.S. in
Engineering Management from the United States Air Force Academy
and an M.B.A. from UCLA.
Anders Olsson joined Finisar in January 2004 as our
Senior Vice President, Engineering. From April 2003 to December
2003, Dr. Olsson was President and Chief Executive Officer
of Photon-X Inc., an optical sensing company. From April
2000 to April 2003, Dr. Olsson was the Chief Operating
Officer and Chief Technical Officer of CENiX Inc, a
high-speed integrated subsystems company for data-com and
telecom markets. Before co-founding CENiX, Dr. Olsson held
a number of positions at Bell Laboratories, Lucent Network
92
Systems, and Lucent Microelectronics; the first in basic
research and the last as Optoelectronics General Manager and
Vice President. Dr. Olsson holds an M.S. in Engineering
from Chalmers University of Technology of Gothenburg, Sweden,
and a Ph.D. in Electrical Engineering from Cornell University.
Stephen K. Workman has served as our Senior Vice
President, Finance and Chief Financial Officer since March 1999
and as our Secretary since August 1999. From November 1989 to
March 1999, Mr. Workman served as Chief Financial Officer
at Ortel Corporation. Mr. Workman holds a B.S. in
Engineering Science and an M.S. in Industrial Administration
from Purdue University.
Joseph A. Young has served as our Senior Vice President
and General Manager, Optics Group, since June 2005.
Mr. Young joined Finisar in October 2004 as our Senior Vice
President, Operations. Prior to joining the Company,
Mr. Young served as Director of Enterprise Products,
Optical Platform Division of Intel Corporation from May 2001 to
October 2004. Mr. Young served as Vice President of
Operations of LightLogic, Inc. from September 2000 to May 2001,
when it was acquired by Intel, and as Vice President of
Operations of Lexar Media, Inc. from December 1999 to September
2000. Mr. Young was employed from March 1983 to December
1999 by Tyco/Raychem, where he served in various positions,
including his last position as Director of Worldwide Operations
for the OEM Electronics Division of Raychem Corporation.
Mr. Young holds a B.S. in Industrial Engineering from
Rensselaer Polytechnic Institute, an M.S. in Operations Research
from the University of New Haven and an M.B.A. from the Wharton
School at the University of Pennsylvania.
Michael C. Child has been a member of our board of
directors since November 1998. Mr. Child has been employed
by TA Associates, Inc., a venture capital investment firm,
since July 1982 where he currently serves as a Managing
Director. Mr. Child holds a B.S. in Electrical Engineering
from the University of California at Davis and an M.B.A. from
the Stanford Graduate School of Business.
Roger C. Ferguson has been a member of our board of
directors since August 1999. From June 1999 to December 2001,
Mr. Ferguson served as Chief Executive Officer of
Semio Corp., an early stage software company.
Mr. Ferguson has served as a principal in VenCraft, LLC, a
venture capital partnership, since July 1997. From August 1993
to July 1997, Mr. Ferguson was Chief Executive Officer of
DataTools, Inc., a database software company. From 1987 to 1993,
Mr. Ferguson served as Chief Operating Officer for Network
General Inc., a network analysis company. Mr. Ferguson
also serves as the Chairman of the Board of Directors of
Semio Corp. Mr. Ferguson holds a B.A. in Psychology
from Dartmouth College and an M.B.A. from the Amos Tuck School
at Dartmouth.
David C. Fries has served as a member of our board of
directors since June 2005. Dr. Fries has been employed by
VantagePoint Venture Partners, a venture capital investment
firm, since August 2001 where he currently serves as a Managing
Director and Co-Head of the Semiconductor and Components
Practice. Prior to joining VantagePoint, he was the Chief
Executive Officer of Productivity Solutions, Inc., a
Florida-based developer of automated checkout technologies for
food and discount retailers, from 1995 to 1999. For seven years
prior to that, he was a general partner of Canaan Partners, a
venture capital firm. Dr. Fries served 17 years in
numerous executive roles in engineering, manufacturing, senior
management and finance at General Electric Company, including
directing GE Venture Capitals California operation, which
later became Canaan Partners. Dr. Fries holds a B.S. in
Chemistry from Florida Atlantic University and a Ph.D. in
Physical Chemistry from Case Western Reserve University. See
also Related Party Transactions regarding the
agreement between us and VantagePoint Venture Partners regarding
the appointment of a representative of VantagePoint Venture
Partners to our board of directors.
Larry D. Mitchell has been a member of our board of
directors since October 1999. Mr. Mitchell has been retired
since October 1997. From October 1994 to October 1997, he served
as a site General Manager in Roseville, California for
Hewlett-Packard. Mr. Mitchell also serves on the Board of
Directors of Placer Sierra Bancshares and its wholly-owned
subsidiary, Placer Sierra Bank. Mr. Mitchell holds a B.A.
in Engineering Science from Dartmouth College and an M.B.A. from
the Stanford Graduate School of Business.
Our President, Secretary and Chief Financial Officer are elected
by the Board of Directors, all other executive officers are
elected by the Board of Directors or appointed by the President,
and all officers serve at
93
the discretion of the Board of Directors. Each of our officers
and directors, other than nonemployee directors, devotes his
full time to the affairs of Finisar.
New Directors
On July 28, 2005 the following individuals were elected to
the Board of Directors, effective on August 31, 2005:
Robert N. Stephens served as the Chief Executive Officer
since April 1999 and President since October 1998 of Adaptec,
Inc, a storage solutions provider, until his retirement in May
2005. Mr. Stephens joined Adaptec in November 1995 as Chief
Operating Officer. Before joining Adaptec, Mr. Stephens was
the founder and chief executive officer of Power I/O, a
company that developed serial interface solutions and silicon
expertise for high-speed data networking, that was acquired by
Adaptec in 1995. Prior to founding Power I/O,
Mr. Stephens was President and CEO of Emulex Corporation,
which designs, develops, and supplies Fibre Channel host bus
adapters. Before joining Emulex, Mr. Stephens was senior
vice president, general manger, and founder of the Microcomputer
Products Group at Western Digital Corporation. He began his
career at IBM, where he served over 15 years in a variety
of management positions. Mr. Stephens holds bachelors
and masters degrees from San Jose State University.
Dominique Trempont has been a CEO in residence at Battery
Ventures since August 2003. Prior to joining Battery Ventures,
Mr. Trempont was Chairman, President and Chief Executive
Officer of Kanisa, Inc., a software company focused on
enterprise self-service applications, from November 1999 to
November 2002. Mr. Trempont was President and Chief
Executive Officer of Gemplus Corporation, a smart card company,
from May 1997 to June 1999. Prior to Gemplus, Mr. Trempont
served as Chief Financial Officer and later Chief Operating
Officer at NeXT Software. Mr. Trempont began his career at
Raychem Corporation, a high-tech material science company
focused on telecommunications, electronics, automotive and other
industries. Mr. Trempont received an undergraduate degree
in Economics from College Saint Louis (Belgium), a B.A. in
Business Administration and Computer Sciences from the
University of Louvain (Belgium) and a masters in Business
Administration from INSEAD (France).
Composition of the Board of Directors
Our Board of Directors is currently fixed at six directors. Our
certificate of incorporation provides that the terms of office
of the members of the Board of Directors will be divided into
three classes: Class I, whose term will expire at the
annual meeting of stockholders to be held in 2006,
Class II, whose term will expire at the annual meeting of
stockholders to be held in 2007 and Class III, whose term
will expire at the annual meeting of stockholders to be held in
2005. The Class I directors are Messrs. Ferguson and
Mitchell, the Class II directors are Messrs. Fries and
Levinson, and the Class III directors are
Messrs. Child and Rawls. At each annual meeting of
stockholders after the initial classification, the successors to
directors whose term will then expire will be elected to serve
from the time of election and qualification until the third
annual meeting following their election. Our nonemployee
directors devote such time to our affairs as is necessary to
discharge their duties. There are no family relationships among
any of our directors, officers or key employees.
Independence of Directors
Our board has determined that, except for Mr. Rawls, our
President and Chief Executive Officer, and Mr. Levinson,
our Chairman and Chief Technical Officer, each of the current
members of our board of directors is independent in
accordance with the applicable listing standards of Nasdaq as
currently in effect.
Meetings of the Board of Directors
During the fiscal year ended April 30, 2005, our board of
directors held 23 meetings. During that period, the Audit
Committee of the board held 23 meetings, the Compensation
Committee of the board held two meetings, and the Nominating and
Corporate Governance Committee of the board held three meetings.
No director attended fewer than 75% of the total number of
meetings of the board and all of the committees of the board on
which such director served during that period.
94
Corporate Governance and Board Committees
Our board of directors has adopted a Code of Business Conduct
and Ethics (the Code) that outlines the principles
of legal and ethical business conduct under which Finisar does
business. The Code, which is applicable to all directors,
employees and officers of the Company, is available at
http://investor.finisar.com/corpgov.cfm. Any substantive
amendment or waiver of the Code may be made only by the board of
directors upon a recommendation of the Audit Committee, and will
be disclosed on our website. In addition, disclosure of any
waiver of the Code for directors and executive officers will
also be made by the filing of a Form 8-K with the SEC.
The board has also adopted a written charter for each of the
Audit Committee, Compensation Committee and Nominating and
Corporate Governance Committee. Each charter is available on the
Companys website at
http://investor.finisar.com/corpgov.cfm.
The members of the Audit Committee are Messrs. Child,
Ferguson and Mitchell. The functions of the Audit Committee
include overseeing the quality of our financial reports and
other financial information and our compliance with legal and
regulatory requirements; appointing and evaluating our
independent auditors, including reviewing their independence,
qualifications and performance and reviewing and approving the
terms of their engagement for audit services and non-audit
services; and establishing and observing complaint procedures
regarding accounting, internal auditing controls and auditing
matters. Our board has determined that each member of the Audit
Committee meets the independence criteria set forth in the
applicable rules of Nasdaq and the SEC for audit committee
membership. The board has also determined that all members of
the Audit Committee possess the level of financial literacy
required by applicable Nasdaq and SEC rules and that at least
one member of the Audit Committee, Mr. Ferguson, is
qualified as an audit committee financial expert as
defined by the SEC. For additional information about the Audit
Committee, see Report of the Audit Committee below.
The members of the Compensation Committee during fiscal 2005
were Messrs. Child, Ferguson and Mitchell. Mr. Fries
was appointed to the Compensation Committee in June 2005. The
Compensation Committee reviews and approves the compensation and
benefits of our executive officers and establishes and reviews
general policies relating to compensation and benefits of our
employees. Each of the members of the Compensation Committee is
independent for purposes of the Nasdaq rules. For additional
information about the Compensation Committee, see Report
of the Compensation Committee on Executive Compensation
and Executive Compensation and Related Matters below.
The Nominating and Corporate Governance Committee was
established in June 2004. The members of the Nominating and
Corporate Governance Committee during fiscal 2005 were
Messrs. Child, Ferguson and Mitchell. Mr. Fries was
appointed to the Committee in June 2005. Each of the members of
the Nominating and Corporate Governance Committee is independent
for purposes of the Nasdaq rules. The Nominating and Corporate
Governance Committee considers qualified candidates for
appointment and nomination for election to the board of
directors and makes recommendations concerning such candidates,
develops corporate governance principles for recommendation to
the board of directors and oversees the regular evaluation of
our directors and management.
Director Nominations
Nominations of candidates for election as directors may be made
by the board of directors or by stockholders. The Nominating and
Corporate Governance Committee is responsible for, among other
things, the selection and recommendation to the board of
directors of nominees for election as directors.
When considering the nomination of directors for election at an
annual meeting, the Nominating and Corporate Governance
Committee reviews the needs of the board of directors for
various skills, background, experience and expected
contributions and the qualification standards established from
time to time by the Nominating and Corporate Governance
Committee. When reviewing potential nominees, including
incumbents, the Nominating and Corporate Governance Committee
considers the perceived needs of the board of directors, the
candidates relevant background, experience and skills and
expected contributions to the board
95
of directors. The Nominating and Corporate Governance Committee
also seeks appropriate input from the Chief Executive Officer in
assessing the needs of the board of directors for relevant
background, experience and skills of its members.
The Nominating and Corporate Governance Committees goal is
to assemble a board of directors that brings to Finisar a
diversity of experience at policy-making levels in business and
technology, and in areas that are relevant to Finisars
global activities. Directors should possess the highest personal
and professional ethics, integrity and values and be committed
to representing the long-term interests of our stockholders.
They must have an inquisitive and objective outlook and mature
judgment. They must also have experience in positions with a
high degree of responsibility and be leaders in the companies or
institutions with which they are affiliated. Director candidates
must have sufficient time available in the judgment of the
Nominating and Corporate Governance Committee to perform all
board and committee responsibilities that will be expected of
them. Members of the board of directors are expected to
rigorously prepare for, attend and participate in all meetings
of the board of directors and applicable committees. Other than
the foregoing, there are no specific minimum criteria for
director nominees, although the Nominating and Corporate
Governance Committee believes that it is preferable that a
majority of the board of directors meet the definition of
independent director set forth in Nasdaq and SEC
rules. The Nominating and Corporate Governance Committee also
believes it appropriate for one or more key members of the
Companys management, including the Chief Executive
Officer, to serve on the board of directors.
The Nominating and Corporate Governance Committee will consider
candidates for directors proposed by directors or management,
and will evaluate any such candidates against the criteria and
pursuant to the policies and procedures set forth above. If the
Nominating and Corporate Governance Committee believes that the
board of directors requires additional candidates for
nomination, the Nominating and Corporate Governance Committee
may engage, as appropriate, a third party search firm to assist
in identifying qualified candidates. All incumbent directors and
nominees will be required to submit a completed directors
and officers questionnaire as part of the nominating
process. The process may also include interviews and additional
background and reference checks for non-incumbent nominees, at
the discretion of the Nominating and Corporate Governance
Committee.
The Nominating and Corporate Governance Committee will also
consider candidates for directors recommenced by a stockholder,
provided that any such recommendation is sent in writing to the
board of directors, c/o Corporate Secretary,
1308 Moffett Park Drive, Sunnyvale, California 94089-1113;
Fax: (408) 745-6097; Email address:
corporate.secretary@finisar.com, at least 120 days prior to
the anniversary of the date definitive proxy materials were
mailed to stockholders in connection with the prior years
annual meeting of stockholders and contains the following
information:
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the candidates name, age, contact information and present
principal occupation or employment; and |
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a description of the candidates qualifications, skills,
background and business experience during at least the last five
years, including his or her principal occupation and employment
and the name and principal business of any company or other
organization where the candidate has been employed or has served
as a director. |
The Nominating and Corporate Governance Committee will evaluate
any candidates recommended by stockholders against the same
criteria and pursuant to the same policies and procedures
applicable to the evaluation of candidates proposed by directors
or management.
In addition, stockholders may make direct nominations of
directors for election at an annual meeting, provided the
advance notice requirements set forth in our bylaws have been
met. Under our bylaws, written notice of such nomination,
including certain information and representations specified in
the bylaws, must be delivered to our principal executive
offices, addressed to the Corporate Secretary, at least
120 days prior to the anniversary of the date definitive
proxy materials were mailed to stockholders in connection with
the prior years annual meeting of the stockholders, except
that if no annual meeting was held in the previous year or the
date of the annual meeting has been advanced by more than
30 days from the date contemplated at the
96
time of the previous years proxy statement, such notice
must be received not later than the close of business on the
10th day following the day on which the public announcement of
the date of such meeting is first made.
Communications by Stockholders with Directors
Stockholders may communicate with the board of directors, or any
individual director, by transmitting correspondence by mail,
facsimile or email, addressed as follows: Board of Directors or
individual director, c/o Corporate Secretary,
1308 Moffett Park Drive, Sunnyvale, California 94089-1113;
Fax: (408) 745-6097; Email Address:
corporate.secretary@finisar.com. The Corporate Secretary will
maintain a log of such communications and will transmit as soon
as practicable such communications to the board of directors or
to the identified director(s), although communications that are
abusive, in bad taste or that present safety or security
concerns may be handled differently, as determined by the
Corporate Secretary.
Director Attendance at Annual Meetings
We will make every effort to schedule our annual meeting of
stockholders at a time and date to accommodate attendance by
directors taking into account the directors schedules. All
directors are encouraged to attend the Companys annual
meeting of stockholders. Four directors attended the
Companys annual meeting of stockholders held on
May 6, 2005.
Compensation of Directors
Non-employee directors receive an annual retainer of $17,500,
$1,500 for attendance in person at each meeting of the board of
directors or committee meeting (with meetings of the board of
directors and all committees held within any 24 hour period
considered to be a single meeting) and $500 for attendance at
such meetings via telephone. In addition, members of the Audit
Committee receive an annual retainer of $5,000, and the Chairman
of the Audit Committee receives $2,500 for annual service in
such capacity. Non-employee directors are also eligible to
receive stock options. We reimburse directors for their
reasonable expenses incurred in attending meetings of the board
of directors.
97
Compensation of Executive Officers
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Summary Compensation Information |
The following table sets forth information concerning the
compensation of our Chief Executive Officer and our four other
most highly compensated executive officers, as of April 30,
2005, during the fiscal years ended April 30, 2005, 2004
and 2003.
Summary Compensation Table
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Long Term | |
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Compensation | |
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Annual Compensation | |
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Awards | |
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Securities | |
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Other Annual | |
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Underlying | |
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All Other | |
Name and Principal Position |
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Year | |
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Salary | |
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Bonus | |
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Compensation | |
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Options | |
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Compensation | |
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Jerry S. Rawls
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2005 |
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$ |
224,135 |
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$ |
6,724 |
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400,000 |
(1) |
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President and Chief |
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2004 |
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202,500 |
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6,075 |
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200,000 |
(1) |
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Executive Officer |
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2003 |
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218,077 |
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5,340 |
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1,000,000 |
(1) |
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Dave Buse(2)
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2005 |
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200,000 |
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5,615 |
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200,000 |
(1) |
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Senior Vice President and |
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2004 |
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73,077 |
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2,077 |
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400,000 |
(1) |
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General Manager, Network Tools Group |
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Kevin Cornell(3)
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2005 |
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222,142 |
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2,350 |
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200,000 |
(1) |
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Senior Vice President and |
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2004 |
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217,854 |
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500 |
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General Manager Network |
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2003 |
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40,312 |
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$ |
44,727 |
(4) |
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400,000 |
(1) |
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Tools Division |
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Anders Olsson(5)
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2005 |
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217,350 |
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70,370 |
(6) |
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200,000 |
(1) |
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Senior Vice President, Engineering |
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2004 |
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56,250 |
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5,159 |
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500,000 |
(1) |
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Stephen K. Workman
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2005 |
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215,000 |
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6,202 |
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200,000 |
(1) |
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Senior Vice President, |
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2004 |
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185,385 |
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2,031 |
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440,000 |
(1) |
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Finance, Chief Financial |
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2003 |
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193,846 |
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1,685 |
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Officer and Secretary |
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(1) |
Option vests at the rate of 20% per year over a period of
five years. |
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(2) |
Mr. Buse became Senior Vice President, Sales and Marketing,
in December 2003. He became Senior Vice President and General
Manager, Network Tools Group, in June 2005. |
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(3) |
Mr. Cornell became Senior Vice President and General
Manager, Network Tools Division, in July 2003. He resigned from
Finisar in July 2005. |
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(4) |
Signing bonus. |
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(5) |
Mr. Olsson became Senior Vice President, Engineering, in
January 2004. |
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(6) |
Includes a moving allowance of $64,120. |
98
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Stock Options Granted in Fiscal 2005 |
The following table sets forth information regarding grants of
stock options to the executive officers named in the Summary
Compensation Table above during the fiscal year ended
April 30, 2005. All of these options were granted under our
1999 Stock Option Plan. The percentage of total options set
forth below is based on an aggregate of 14,797,398 options
granted during the fiscal year. All options were granted at the
fair market value of our common stock, as determined by the
board of directors on the date of grant. Potential realizable
values are net of exercise price, but before taxes associated
with exercise. Amounts represent hypothetical gains that could
be achieved for the options if exercised at the end of the
option term. The assumed 5% and 10% rates of stock price
appreciation are provided in accordance with rules of the SEC
and do not represent Finisars estimate or projection of
the future common stock price.
Options Granted in Fiscal Year Ended April 30, 2005
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Individual Grants | |
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of Total | |
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Value at Assumed | |
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Options | |
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Granted to | |
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|
|
per | |
|
Price Appreciation for | |
|
|
Underlying | |
|
Employees | |
|
Exercise | |
|
|
|
Share at | |
|
Option Term | |
|
|
Options | |
|
in Fiscal | |
|
Price | |
|
Expiration | |
|
Date of | |
|
| |
Name |
|
Granted(1) | |
|
Year | |
|
($/Share) | |
|
Date | |
|
Grant | |
|
5% | |
|
10% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Jerry S. Rawls
|
|
|
400,000 |
|
|
|
2.70 |
|
|
$ |
1.92 |
|
|
|
6/2/14 |
|
|
$ |
1.92 |
|
|
$ |
482,991 |
|
|
$ |
1,223,994 |
|
Dave Buse
|
|
|
200,000 |
|
|
|
1.35 |
|
|
|
1.92 |
|
|
|
6/2/14 |
|
|
|
1.92 |
|
|
|
241,496 |
|
|
|
611,997 |
|
Kevin Cornell
|
|
|
200,000 |
|
|
|
1.35 |
|
|
|
1.92 |
|
|
|
6/2/14 |
|
|
|
1.92 |
|
|
|
241,496 |
|
|
|
611,997 |
|
Anders Olsson
|
|
|
200,000 |
|
|
|
1.35 |
|
|
|
1.92 |
|
|
|
6/2/14 |
|
|
|
1.92 |
|
|
|
241,496 |
|
|
|
611,997 |
|
Stephen K. Workman
|
|
|
200,000 |
|
|
|
1.35 |
|
|
|
1.92 |
|
|
|
6/2/14 |
|
|
|
1.92 |
|
|
|
241,496 |
|
|
|
611,997 |
|
|
|
(1) |
These options were granted June 2, 2004 and vest at the
rate of 20% per year over a period of five years. |
|
|
|
Option Exercises and Fiscal 2005 Year-End Values |
The following table provides the specified information
concerning exercises of options to purchase our common stock
during the fiscal year ended April 30, 2005, and
unexercised options held as of April 30, 2005, by the
executive officers named in the Summary Compensation Table above.
Aggregate Option Exercises In Fiscal 2005 and Values at
April 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities | |
|
Value of Unexercised | |
|
|
Shares | |
|
|
|
Underlying Unexercised | |
|
In-The-Money Options | |
|
|
Acquired | |
|
|
|
Options at Fiscal Year End | |
|
at Fiscal Year End(1) | |
|
|
on | |
|
Value | |
|
| |
|
| |
Name |
|
Exercise | |
|
Realized | |
|
Exercisable | |
|
Unexercisable | |
|
Exercisable | |
|
Unexercisable | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
(2) | |
|
(2) | |
|
(2) | |
|
(2) | |
Jerry S. Rawls
|
|
|
|
|
|
|
|
|
|
|
440,000 |
|
|
|
1,160,000 |
|
|
|
|
|
|
|
|
|
Dave Buse
|
|
|
|
|
|
|
|
|
|
|
80,000 |
|
|
|
520,000 |
|
|
|
|
|
|
|
|
|
Kevin Cornell
|
|
|
|
|
|
|
|
|
|
|
160,000 |
|
|
|
440,000 |
|
|
$ |
201,600 |
|
|
$ |
302,400 |
|
Anders Olsson
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
600,000 |
|
|
|
|
|
|
|
|
|
Stephen K. Workman
|
|
|
|
|
|
|
|
|
|
|
207,000 |
|
|
|
433,000 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
Based on a fair market value of $1.26, the closing price of our
common stock on April 29, 2005, as reported by the Nasdaq
National Market. |
|
(2) |
Stock options granted under the 1999 Stock Option Plan are
generally not immediately exercisable at the date of grant and
vest at the rate of 20% per year over a period of five
years. |
99
Employment Contracts and Termination of Employment and
Change-In-Control Arrangements
Jerry S. Rawls, Frank H. Levinson, David Buse, Anders Olsson,
Stephen K. Workman and Joseph A. Young are eligible to
participate in the Finisar Executive Retention and Severance
Plan. This plan provides that in the event of a qualifying
termination each of the participating executives will be
entitled to receive (i) a lump sum payment equal to two
years base salary (excluding bonus) and (ii) medical,
dental and insurance coverage for two years, or reimbursement of
premiums for COBRA continuation coverage during such period. A
qualifying termination is defined as an involuntary termination
other than for cause or a voluntary termination for good reason
upon or within 18 months following a change in control, as
such terms are defined in the executive severance plan. In
addition, the plan provides that the vesting of stock options
held by eligible officers will be accelerated as follows:
(i) one year of accelerated vesting upon a change of
control, if the options are assumed by a successor corporation,
(ii) 100% accelerated vesting if the options are not
assumed by a successor corporation, and (iii) 100%
accelerated vesting upon a qualifying termination.
Additionally, pursuant to the 1999 Stock Option Plan, upon a
change in control, as defined therein, the vesting of options
not assumed or substituted by the surviving corporation will
accelerate and the options will become immediately exercisable
and vested in full.
Indemnification of Directors and Executive Officers and
Limitation of Liability
As permitted by the Delaware General Corporation Law, we have
adopted provisions in our certificate of incorporation which
provide that our directors shall not be personally liable for
monetary damages to Finisar or its stockholders for a breach of
fiduciary duty as a director, except liability for:
|
|
|
|
|
a breach of the directors duty of loyalty to Finisar or
its stockholders; |
|
|
|
acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; |
|
|
|
an act related to our unlawful stock repurchase or payment of a
dividend under Section 174 of the Delaware General
Corporation Law; or |
|
|
|
transactions from which the director derived an improper
personal benefit. |
These limitations of liability do not apply to liabilities
arising under the federal securities laws and do not affect the
availability of equitable remedies such as injunctive relief or
rescission. Our certificate of incorporation also authorizes us
to indemnify our officers, directors and other agents to the
fullest extent permitted under Delaware law.
As permitted by the Delaware General Corporation Law, our bylaws
provide that:
|
|
|
|
|
we are required to indemnify our directors and officers to the
fullest extent permitted by the Delaware General Corporation
Law, subject to limited exceptions; |
|
|
|
we are required to advance expenses, as incurred, to our
directors and officers in connection with a legal proceeding to
the fullest extent permitted by the Delaware General Corporation
Law, subject to limited exceptions; and |
|
|
|
the rights provided in the bylaws are not exclusive. |
We intend to enter into separate indemnification agreements with
each of our directors and officers which may be broader than the
specific indemnification provisions contained in the Delaware
General Corporation Law. These indemnification agreements may
require us, among other things, to indemnify our directors and
officers against liabilities that may arise by reason of their
status or service as directors or officers, other than
liabilities arising from willful misconduct. These
indemnification agreements also may require us to advance any
expenses incurred by the directors or officers as a result of
any proceeding against them as to which they could be
indemnified and to obtain directors and officers
insurance if available on reasonable terms.
Our Chief Executive Officer, Chairman of the Board and Chief
Technical Officer and Senior Vice President, Finance and Chief
Financial Officer have been named as defendants in the
securities class action
100
lawsuit described under the caption Risk
Factors We are subject to pending legal
proceedings in this prospectus. These officers are likely
to assert a claim for indemnification in connection with that
litigation. Other than the securities class action litigation,
there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where
indemnification by us is sought. In addition, we are not aware
of any threatened litigation or proceeding which may result in a
claim for indemnification.
We intend to maintain directors and officers
liability insurance.
Compensation Committee Interlocks and Insider Participation
in Compensation Decisions
The Compensation Committee during fiscal 2005 was composed of
Michael C. Child, Roger C. Ferguson and Larry D. Mitchell. David
C. Fries was appointed to the Compensation Committee in June
2005. No member of our Compensation Committee serves as a member
of the board of directors or compensation committee of any
entity that has one or more executive officers serving as a
member of our board of directors or Compensation Committee.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
Compensation Philosophy
The goals of our compensation policy are to attract, retain and
reward executive officers who contribute to our overall success
by offering compensation that is competitive in the networking
industry, to motivate executives to achieve our business
objectives and to align the interests of officers with the
long-term interests of stockholders. We currently use salary,
bonuses and stock options to meet these goals.
Forms of Compensation
We provide our executive officers with a compensation package
consisting of base salary, incentive bonuses and participation
in benefit plans generally available to other employees. In
setting total compensation, the Compensation Committee considers
individual and company performance, as well as market
information regarding compensation paid by other companies in
our industry.
Base Salary. Salaries for our executive officers are
initially set based on negotiation with individual executive
officers at the time of recruitment and with reference to
salaries for comparable positions in the networking industry for
individuals of similar education and background to the executive
officers being recruited. We also give consideration to the
individuals experience, reputation in his or her industry
and expected contributions to Finisar. Salaries are generally
reviewed annually by the Compensation Committee and are subject
to increases based on (i) the Compensation Committees
determination that the individuals level of contribution
to Finisar has increased since his or her salary had last been
reviewed and (ii) increases in competitive pay levels.
Bonuses. It is our policy that a substantial component of
each officers potential annual compensation take the form
of a performance-based bonus. Bonus payments to officers other
than the Chief Executive Officer are determined by the
Compensation Committee, in consultation with the Chief Executive
Officer, based on our financial performance and the achievement
of the officers individual performance objectives. The
Chief Executive Officers bonus is determined by the
Compensation Committee, without participation by the Chief
Executive Officer, based on the same factors.
Long-Term Incentives. Longer term incentives are provided
through stock options, which reward executives and other
employees through the growth in value of our stock. The
Compensation Committee believes that employee equity ownership
is highly motivating, provides a major incentive for employees
to build stockholder value and serves to align the interests of
employees with those of stockholders. Grants of stock options to
executive officers are based upon each officers relative
position, responsibilities, historical and expected
contributions to Finisar, and the officers existing stock
ownership and previous option grants, with primary weight given
to the executive officers relative rank and
responsibilities. Initial stock option grants
101
designed to recruit an executive officer to join Finisar may be
based on negotiations with the officer and with reference to
historical option grants to existing officers. Stock options are
granted at an exercise price equal to the market price of our
common stock on the date of grant and will provide value to the
executive officers only when the price of our common stock
increases over the exercise price.
Compliance with Internal Revenue Code
Section 162(m). Section 162(m) of the Internal
Revenue Code restricts deductibility of executive compensation
paid to our Chief Executive Officer and each of the four other
most highly compensated executive officers holding office at the
end of any year to the extent such compensation exceeds
$1,000,000 for any of such officers in any year and does not
qualify for an exception under Section 162(m) or related
regulations. The Committees policy is to qualify its
executive compensation for deductibility under applicable tax
laws to the extent practicable. Income related to stock options
granted under the 1999 Stock Option Plan generally qualifies for
an exemption from these restrictions imposed by
Section 162(m). In the future, the Committee will continue
to evaluate the advisability of qualifying its executive
compensation for full deductibility.
2005 Compensation
Compensation for our Chief Executive Officer and other executive
officers for fiscal 2005 was set according to the established
compensation policy described above. At the end of fiscal 2005,
we determined that no performance bonuses would be paid to our
executive officers; however, we approved salary increases for
the Chief Executive Officer and certain other executive
officers, effective as of June 1, 2005.
|
|
|
COMPENSATION COMMITTEE |
|
|
Michael C. Child |
|
Roger C. Ferguson |
|
Larry D. Mitchell |
102
COMPARISON OF STOCKHOLDER RETURN
Set forth below is a line graph comparing the annual percentage
change in the cumulative total return on our common stock with
the cumulative total returns of the CRSP Total Return Index for
the Nasdaq Stock Market and the Amex Networking Index for the
period commencing on April 28, 2000 and ending on
April 29, 2005.
COMPARISON OF CUMULATIVE TOTAL RETURN FROM
APRIL 28, 2000 THROUGH APRIL 29, 2005(1):
FINISAR, NASDAQ INDEX AND AMEX NETWORKING INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
|
April 28, |
|
|
April 30, |
|
|
April 30, |
|
|
April 30, |
|
|
April 30, |
|
|
April 29, |
|
|
|
|
2000 |
|
|
2001 |
|
|
2002 |
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
Finisar
|
|
|
$ |
100.00 |
|
|
|
$ |
40.07 |
|
|
|
$ |
17.13 |
|
|
|
$ |
2.49 |
|
|
|
$ |
4.74 |
|
|
|
$ |
3.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nasdaq Index
|
|
|
$ |
100.00 |
|
|
|
$ |
54.70 |
|
|
|
$ |
43.98 |
|
|
|
$ |
38.41 |
|
|
|
$ |
50.25 |
|
|
|
$ |
50.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NWX
|
|
|
$ |
100.00 |
|
|
|
$ |
43.80 |
|
|
|
$ |
21.01 |
|
|
|
$ |
15.79 |
|
|
|
$ |
23.06 |
|
|
|
$ |
19.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Assumes that $100.00 was invested on April 28, 2000, at the
market price of our stock on such date, in our common stock and
each index. No cash dividends have been declared on our common
stock. Stockholder returns over the indicated period should not
be considered indicative of future stockholder returns. |
103
EQUITY COMPENSATION PLAN INFORMATION
We currently maintain four compensation plans that provide for
the issuance of our common stock to officers, directors, other
employees or consultants. These consist of the 1989 Stock Option
Plan, 1999 Stock Option Plan and the Purchase Plan, which have
been approved by our stockholders, and the 2001 Nonstatutory
Stock Option Plan (the 2001 Plan), which has not
been approved by our stockholders. The following table sets
forth information regarding outstanding options and shares
reserved for future issuance under the foregoing plans as of
April 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares | |
|
|
|
|
|
|
Remaining | |
|
|
Number of Shares | |
|
|
|
Available for | |
|
|
to Be Issued | |
|
|
|
Future Issuance | |
|
|
Upon Exercise of | |
|
Weighted-Average | |
|
Under Equity | |
|
|
Outstanding | |
|
Exercise Price of | |
|
Compensation | |
|
|
Options, | |
|
Outstanding | |
|
Plans (Excluding | |
|
|
Warrants and | |
|
Options, Warrants | |
|
Shares Reflected | |
|
|
Rights | |
|
and Rights | |
|
in Column (a)) | |
Plan Category(1) |
|
(a) | |
|
(b) | |
|
(c) | |
|
|
| |
|
| |
|
| |
Equity compensation plans approved by stockholders
|
|
|
45,106,010 |
|
|
$ |
2.24 |
|
|
|
10,423,664 |
(2) |
Equity compensation plan not approved by stockholders
|
|
|
3,567,864 |
|
|
$ |
3.36 |
|
|
|
1,893,627 |
|
|
|
(1) |
The information presented in this table excludes options assumed
by Finisar in connection with acquisitions of other companies.
As of April 30, 2005, 92,867 shares of our common
stock were issuable upon exercise of these assumed options, at a
weighted average exercise price of $2.54 per share. |
|
(2) |
Includes 149,371 shares that are reserved for issuance
under the Purchase Plan. |
1999 Stock Option Plan
As of June 30, 2005, a total of 74,590,812 shares of
our common stock have been authorized for issuance under the
1999 Stock Option Plan. The number of shares authorized for
issuance will be increased on May 1 of each year during the
term of the plan by 5% of the number shares of common stock
issued and outstanding on the immediately preceding
April 30. If any outstanding option expires, terminates or
is canceled, or if shares acquired pursuant to an option are
repurchased by us at their original exercise price, the expired
or repurchased shares are returned to the 1999 Stock Option Plan
and again become available for grant. The 1999 Stock Option Plan
is administered by the Board of Directors or a committee of the
Board. The plan allows grants of incentive stock options, within
the meaning of Section 422 of the Internal Revenue Code, to
employees, including officers, and employee directors. In
addition, it allows grants of nonstatutory options to employees,
non-employee directors and consultants. The plan expires in
April 2009, but may be terminated sooner by the Board of
Directors.
The exercise price of incentive stock options granted under the
1999 Stock Option Plan must not be less than the fair market
value of a share of the common stock on the date of grant. In
the case of nonstatutory stock options, the exercise price must
not be less than 85% of the fair market value of a share of the
common stock on the date of grant. With respect to an incentive
stock option granted to any optionee who owns stock representing
more than 10% of the voting power of all classes of
Finisars outstanding capital stock, the exercise price of
the option must be equal to at least 110% of the fair market
value of a share of the common stock on the date of grant, and
the term of the option may not exceed five years. The terms of
all other options may not exceed ten years. The aggregate fair
market value (determined as of the date of option grant) of the
common stock for which incentive stock options may become
exercisable for the first time by any optionee may not exceed
$100,000 in any calendar year. The Board of Directors has the
discretion to determine vesting schedules and exercise
requirements, if any, of all options granted under the plan.
However, the plan provides that in connection with a change in
control, if the acquiring corporation fails to assume the
plans outstanding options or replace them with
substantially equivalent new options, all options will become
immediately exercisable in full. In addition, the plan allows
the Board of Directors to provide in any option agreement full
104
acceleration of the exercisability of these options if, within
12 months following a change in control, the optionee is
terminated without cause or resigns for good reason,
which includes:
|
|
|
|
|
the assignment of any duties, or limitation of responsibilities,
that are substantially inconsistent with the optionees
status prior to the change of control, |
|
|
|
the relocation of an optionees principal work place more
than fifty miles from his work place prior to the change of
control or the imposition of substantially more demanding travel
requirements, or |
|
|
|
any material reduction in base compensation, bonus or benefits. |
2001 Nonstatutory Stock Option Plan
As of June 30, 2005, a total of 5,461,491 shares of
our common stock were reserved for issuance under the 2001 Plan.
The 2001 Plan was adopted by our board on February 16, 2001
and provides for the granting of nonstatutory stock options to
employees and consultants with an exercise price per share not
less than 85% of the fair market value of our common stock on
the date of grant. However, no person is eligible to be granted
an option under the 2001 Plan whose eligibility would require
approval of the 2001 Plan by our stockholders. Options granted
under the 2001 Plan generally have a ten-year term and vest at
the rate of 20% of the shares on the first anniversary of the
date of grant and 20% of the shares each additional year
thereafter until fully vested. Some of the options that have
been granted under the 2001 Plan are subject to full
acceleration of vesting in the event of a change in control of
Finisar.
1999 Employee Stock Purchase Plan
As of June 30, 2005, a total of 14,750,000 shares of
common stock were reserved for issuance under the 1999 employee
stock purchase plan. On the first day of May in each subsequent
calendar year, beginning with calendar year 2006 and continuing
through the 2010 calendar year, the share reserve will
automatically increase by 1,000,000 shares of our common
stock. The shares issuable under the 1999 employee stock
purchase plan may be made available from authorized but unissued
shares of our common stock or from shares of common stock
repurchased by us, including shares repurchased on the open
market. The reserved shares will also be used to fund stock
purchases under the International Plan, and any shares issued
under the parallel international employee stock purchase will
reduce, on a share-for-share basis, the number of shares
available for subsequent issuance under the 1999 employee stock
purchase plan.
The employee stock purchase plan permits eligible employees to
purchase our common stock through payroll deductions, which may
not exceed 20% of the employees total compensation. Stock
may be purchased under the plan at a price equal to 85% of the
fair market value of our common stock on either the first or the
last day of the offering period, whichever is lower. Employees
may end their participation in the offering at any time during
the offering period, and participation ends automatically on
termination of a participants employment with Finisar.
Participants may not purchase shares of common stock having a
value, measured at the beginning of the offering period, greater
than $25,000 in any calendar year or more than a number of
shares in any offering period determined by dividing $25,000 (or
$12,500 with respect to a six-month offering period) by the fair
market value of a share of Finisar common stock determined at
the beginning of the offering period.
401(k) Plan
Our 401(k) retirement and deferred savings plan covers all
eligible employees and is intended to qualify as a tax-qualified
plan under the Internal Revenue Code. Employees are eligible to
participate in the plan on the first day of the month
immediately following twelve months of service with Finisar. The
plan provides that each participant may contribute up to 20% of
his or her pre-tax gross compensation up to a statutory limit,
which is $14,000 in calendar year 2005. All amounts contributed
by participants and earnings on participant contributions are
fully vested at all times. Finisar may contribute an amount
equal to one-half of the first 6% of each participants
contribution. Finisars contributions vest one-sixth per
year over six years.
105
RELATED PARTY TRANSACTIONS
In March 1999, we granted Mr. Workman an option to purchase
an aggregate of 200,000 shares of common stock, with an
exercise price of $1.31 per share. Mr. Workman
exercised this option in full in April 1999. The exercise price
was paid by Mr. Workman by delivery of a promissory note in
the principal amount of $252,000 bearing interest at the rate of
6% per annum, which was collateralized by shares of our
common stock owned by Mr. Workman. This promissory note was
paid in full in May 2004.
Frank H. Levinson, our Chairman of the Board and Chief Technical
Officer, is a member of the board of directors of Fabrinet, Inc.
In June 2000, we entered into a volume supply agreement with
Fabrinet under which Fabrinet serves as a contract manufacturer
for us. In addition, Fabrinet purchases certain products from
us. During the fiscal year ended April 30, 2005, we made
payments of approximately $54.3 million to Fabrinet and
Fabrinet made payments of approximately $9.1 million to us.
In connection with the acquisition by funds affiliated with
VantagePoint Venture Partners in April 2005 of 34 million
shares of our common stock held by Infineon Technologies AG that
we had previously issued to Infineon in connection with our
acquisition of Infineons optical transceiver product
lines, we entered into an agreement with VantagePoint under
which we agreed to use our reasonable best efforts to elect a
nominee of VantagePoint to our board of directors, provided that
the nominee was reasonably acceptable to the boards
Nominating and Corporate Governance Committee as well as the
full board of directors. In June 2005, David C. Fries, a
Managing Director of VantagePoint, was elected to our board of
directors pursuant to that agreement. We also agreed to file a
registration statement to provide for the resale of the shares
held by VantagePoint and certain distributees of VantagePoint.
106
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us regarding
the beneficial ownership of our common stock as of June 30,
2005 by:
|
|
|
|
|
each stockholder who is known by us to beneficially own more
than 5% of our common stock; |
|
|
|
each of our executive officers listed on the Summary
Compensation Table under Compensation of Executive
Officers; |
|
|
|
each of our directors; and |
|
|
|
all of our executive officers and directors as a group: |
|
|
|
|
|
|
|
|
|
|
|
|
Shares of Common Stock | |
|
|
Beneficially Owned(1) | |
|
|
| |
Name of Beneficial Owner(1) |
|
Number | |
|
Percentage | |
|
|
| |
|
| |
5% Stockholders
|
|
|
|
|
|
|
|
|
VantagePoint Venture Partners(2)
|
|
|
34,000,000 |
|
|
|
12.3 |
% |
|
1001 Bayhill Drive, Suite 300
|
|
|
|
|
|
|
|
|
|
San Bruno, CA 94066
|
|
|
|
|
|
|
|
|
FMR Corp.(3)
|
|
|
22,488,192 |
|
|
|
8.1 |
|
|
82 Devonshire Street
|
|
|
|
|
|
|
|
|
|
Boston, MA 02109
|
|
|
|
|
|
|
|
|
Pioneer Global Asset Management S.p.A.(4)
|
|
|
22,455,884 |
|
|
|
8.1 |
|
|
Galleria San Carlo 6
|
|
|
|
|
|
|
|
|
|
20122 Milan, Italy
|
|
|
|
|
|
|
|
|
|
Executive Officers and Directors:
|
|
|
|
|
|
|
|
|
|
Frank H. Levinson(5)
|
|
|
28,871,319 |
|
|
|
10.4 |
|
Jerry S. Rawls(6)
|
|
|
6,309,392 |
|
|
|
2.3 |
|
Stephen K. Workman(7)
|
|
|
887,082 |
|
|
|
* |
|
Kevin Cornell(8)
|
|
|
200,000 |
|
|
|
* |
|
Anders Olsson(9)
|
|
|
150,000 |
|
|
|
* |
|
Larry D. Mitchell(10)
|
|
|
144,500 |
|
|
|
* |
|
Roger C. Ferguson(11)
|
|
|
122,000 |
|
|
|
* |
|
Dave Buse(12)
|
|
|
120,000 |
|
|
|
* |
|
Michael C. Child(13)
|
|
|
69,836 |
|
|
|
* |
|
David C. Fries(14)
|
|
|
|
|
|
|
* |
|
Robert N. Stephens(15)
|
|
|
|
|
|
|
* |
|
Dominique Trempont(16)
|
|
|
|
|
|
|
* |
|
All executive officers and directors as a group (12 persons)(17)
|
|
|
36,684,129 |
|
|
|
13.1 |
% |
|
|
(1) |
Unless otherwise indicated, the address of each of the named
individuals is: c/o Finisar Corporation, 1308 Moffett Park
Drive, Sunnyvale, CA 94089. Beneficial ownership is determined
in accordance with the rules of the SEC and generally includes
voting or investment power with respect to securities. All
shares of common stock subject to options exercisable within
60 days following June 30, 2005 are deemed to be
outstanding and beneficially owned by the person holding those
options for the purpose of computing the number of shares
beneficially owned and the percentage of ownership of that
person. They are not, however, deemed to be outstanding and
beneficially owned for the purpose of computing the percentage
ownership of any other person. |
|
|
Accordingly, percent ownership is based on
277,048,404 shares of common stock outstanding as of
June 30, 2005 plus any shares issuable pursuant to options
held by the person or group in question which |
107
|
|
|
may be exercised within 60 days following June 30,
2005. Except as indicated in the other footnotes to the table
and subject to applicable community property laws, based on
information provided by the persons named in the table, these
persons have sole voting and investment power with respect to
all shares of the common stock shown as beneficially owned by
them. |
|
(2) |
An aggregate of 34,000,000 shares of common stock were
acquired by VantagePoint Venture Partners III (Q), L.P.
(VP III (Q) LP), VantagePoint Venture
Partners III, L.P. (VP III LP),
VantagePoint Venture Partners IV (Q), L.P. (VP IV
(Q) LP), VantagePoint Venture Partners IV
Principals Fund, L.P. (VP Fund LP) and
VantagePoint Venture Partners IV, L.P. (VP Partners
LP) (collectively, the Funds) on
April 15, 2005. VantagePoint Venture Associates III,
L.L.C. (VP III LLC) is the general partner of
VP III (Q) LP and VP III LP. VantagePoint Venture
Associates IV, L.L.C. (VP IV LLC) is the general
partner of VP IV (Q) LP, VP Fund LP and VP Partners LP.
VP III LLC and VP IV LLC may be deemed to beneficially own,
and share the power to vote and power to dispose of the
34,000,000 shares held by the Funds, James D. Marver and
Alan E. Salzman are managing members of VP III LLC and VP
IV LLC, and may be deemed to be the beneficial owner of, and
share the power to vote and power to dispose of, the
34,000,000 shares of common stock held by the Funds. Each
of Mr. Marver and Mr. Salzman disclaims ownership of
the shares held by the Funds, other than shares in which they
have a pecuniary interest. |
|
(3) |
Based on information contained in a Schedule 13G dated
February 14, 2005, filed with the Securities and Exchange
Commission. Includes 21,629,792 shares beneficially owned
by Fidelity Management & Research Company
(Fidelity) as a result of acting as investment
adviser to various investment companies and 858,400 shares
beneficially owned by Fidelity Management Trust Company as a
result of serving as investment manager of its institutional
account(s). The number of shares of Finisar common stock owned
by the investment companies at December 31, 2004 included
1,213,268 shares of common stock resulting from the assumed
conversion of $6,703,000 principal amount of Finisars
5.25% Convertible Subordinated Notes Due 2008. Fidelity and
Fidelity Management Trust Company are both wholly-owned
subsidiaries of FMR Corp. Fidelity is registered under
Section 203 of the Investment Advisers Act of 1940 as an
investment advisor to various investment companies. Fidelity
Management Trust Company is a bank as defined in
Section 3(a)(6) of the Securities Exchange Act and serves
as investment manager of institutional account(s). Edward C.
Johnson 3rd, Chairman of FMR Corp., FMR Corp., through its
control of Fidelity, and the funds each has sole power to
dispose of the 21,629,792 shares owned by the funds.
Neither FMR Corp. nor Mr. Johnson 3rd has the sole
power to vote or direct the voting of the shares owned directly
by the Fidelity funds, which power resides with the funds
boards of trustees. Fidelity carries out the voting of the
shares under written guidelines established by the funds
boards of trustees. Mr. Johnson 3rd and FMR Corp.,
through its control of Fidelity Management Trust Company, each
has sole dispositive power over and sole power to vote or to
direct the voting of 858,400 shares owned by the
institutional accounts reported above. Members of the Edward C.
Johnson 3rd family are the predominant owners of
Class B shares of common stock of FMR Corp., representing
approximately 49% of the voting power of FMR Corp.
Mr. Johnson 3rd owns 12.0% and Abigail P. Johnson owns
24.5% of the aggregate outstanding voting stock of FMR Corp.
Mr. Johnson 3rd is the Chairman and Ms. Johnson
is a director of FMR Corp. The Johnson family group and all
other Class B shareholders have entered into a
shareholders voting agreement under which all Class B
shares will be voted in accordance with the majority vote of
Class B shares. Accordingly, through their ownership of
voting common stock and the execution of the shareholders
voting agreement, members of the Johnson family may be deemed,
under the Investment Company Act of 1940, to form a controlling
group with respect to FMR Corp. The address of FMR Corp.,
Fidelity, Fidelity Management Trust Company, Edward C. Johnson
3rd and Abigail P. Johnson is 82 Devonshire Street, Boston,
Massachusetts 02109. |
|
(4) |
Based on information contained in a Schedule 13G dated
February 10, 2005, filed with the Securities and Exchange
Commission. |
|
(5) |
Based on information contained in a Schedule 13G/ A dated
February 23, 2005, filed with the Securities and Exchange
Commission. Includes 21,626,319 shares held by the Frank H.
Levinson Revocable Living Trust and 6,485,000 shares held
by Seti Trading Co., Inc., (Seti), a company owned
50% by |
108
|
|
|
the Frank H. Levinson Revocable Living Trust and 50% by the
Wynette M. LaBrosse Trust, for which Mr. Levinsons
ex-wife serves as sole trustee. Includes 760,000 shares
issuable upon exercise of options exercisable within
60 days following June 30, 2005. Mr. Levinson is
the sole trustee of the Frank H. Levinson Revocable Living Trust
and exercises sole voting and dispositive power over the shares
held by the trust. Mr. Levinson and Wynnette M. LaBrosse
are the sole directors of Seti and, consequently, the
affirmative vote or consent of each of Mr. Levinson and
Ms. LaBrosse is required for any sale or other disposition
of the shares held by Seti. However, pursuant to a
shareholders agreement, each of Mr. Levinson and
Ms. LaBrosse maintain the right to direct Seti to
vote 50% of the shares held by Seti in accordance with
written instructions from Mr. Levinson or
Ms. LaBrosse. Accordingly, each of Mr. Levinson and
Ms. LaBrosse share dispositive power with respect to all
6,485,000 shares held by Seti and sole voting power with
respect to 3,242,500 shares held by Seti. Ms. LaBrosse
is the sole trustee of the Wynnette M. LaBrosse Trust and
exercises sole voting and dispositive power over
6,211,860 shares held by the trust. Mr. Levinson and
Ms. LaBrosse disclaim the existence of a group under
Rule 13d-5(b)(1) of the Securities Exchange Act of 1934, as
amended, with respect to the shares held by Seti. |
|
(6) |
Includes 2,673,189 shares held by The Rawls Family, L.P.
Mr. Rawls is the president of the Rawls Management
Corporation, the general partner of The Rawls Family, L.P.
Includes 760,000 shares issuable upon exercise of options
exercisable within 60 days following June 30, 2005. |
|
(7) |
Includes 335,000 shares issuable upon exercise of options
exercisable within 60 days following June 30, 2005. |
|
(8) |
Includes 200,000 shares issuable upon exercise of options
exercisable within 60 days following June 30, 2005.
Mr. Cornell resigned from Finisar in July 2005. |
|
(9) |
Includes 140,000 shares issuable upon exercise of options
exercisable within 60 days following June 30, 2005. |
|
|
(10) |
Includes 112,000 shares issuable upon exercise of options
exercisable within 60 days following June 30, 2005. |
|
(11) |
Includes 22,000 shares issuable upon exercise of options
exercisable within 60 days following June 30, 2005. |
|
(12) |
Includes 120,000 shares issuable upon exercise of options
exercisable within 60 days following June 30, 2005. |
|
(13) |
Includes 22,000 shares issuable upon exercise of options
exercisable within 60 days following June 30, 2005. |
|
(14) |
Does not include shares held by the Funds described in note
(2) above managed by VantagePoint Venture Partners, of
which Dr. Fries is a managing director. Dr. Fries
disclaims beneficial ownership of all shares held by the Funds,
except to the extent of his pecuniary interest in the Funds. |
|
(15) |
Mr. Stephens has been appointed to the Board of Directors
effective on August 31, 2005. |
|
(16) |
Mr. Trempont has been appointed to the Board of Directors
effective on August 31, 2005. |
|
(17) |
Includes 2,271,000 shares issuable upon exercise of options
exercisable within 60 days following June 30, 2005. |
SELLING SECURITYHOLDERS
The notes offered hereby were originally issued by us in a
private placement in October 2003. The notes were resold by the
initial purchasers to persons reasonably believed by the initial
purchasers to be qualified institutional buyers, as
defined in Rule 144A under the Securities Act, in
transactions exempt from the registration requirements of the
Securities Act. The selling securityholders, which term includes
the initial purchasers transferees, pledgees, donees or
their successors, may from time to time offer and sell pursuant
to this prospectus any or all of the notes and common stock
issued upon conversion of the notes.
109
The following table sets forth information with respect to the
selling securityholders and the respective principal amounts of
notes and common stock beneficially owned by each selling
securityholder that may be offered pursuant to this prospectus.
Such information has been obtained from the selling
securityholders. Unless otherwise indicated, none of the selling
securityholders has, or within the past three years has had, any
position, office or other material relationship with us or any
of our predecessors or affiliates. Because the selling
securityholders may offer all or some portion of the notes or
the common stock issuable upon conversion of the notes pursuant
to this prospectus, no estimate can be given as to the amount of
the notes or the common stock issuable upon conversion of the
notes that will be held by the selling securityholders upon
termination of any particular offering. In addition, the selling
securityholders identified below may have sold, transferred or
otherwise disposed of all or a portion of their notes since the
date on which they provided the information regarding their
notes in transactions exempt from the registration requirements
of the Securities Act.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Amount of | |
|
Number of Shares of Common Stock | |
|
|
Notes Beneficially | |
|
| |
|
|
Owed and Offered | |
|
Beneficially | |
|
|
|
Owned After | |
Selling Securityholder(1) |
|
Hereby(1) | |
|
Owned(1)(2) | |
|
Offered Hereby | |
|
the Offering | |
|
|
| |
|
| |
|
| |
|
| |
AIG DKR SoundShore Strategic Holding Fund Ltd.
|
|
$ |
1,041,000 |
|
|
|
280,971 |
|
|
|
280,971 |
|
|
|
0 |
|
AIG DKR SoundShore Opportunity Holding Fund Ltd.
|
|
|
68,000 |
|
|
|
18,353 |
|
|
|
18,353 |
|
|
|
0 |
|
AIG DKR SoundShore Holdings Ltd.
|
|
|
141,000 |
|
|
|
38,056 |
|
|
|
38,056 |
|
|
|
0 |
|
AIP Alpha Strategies I Fund
|
|
|
200,000 |
|
|
|
53,981 |
|
|
|
53,981 |
|
|
|
0 |
|
Alexandra Global Master Fund, Ltd.(5)
|
|
|
11,350,000 |
|
|
|
3,063,427 |
|
|
|
3,063,427 |
|
|
|
0 |
|
Amaranth L.L.C.
|
|
|
1,800,000 |
|
|
|
485,829 |
|
|
|
485,829 |
|
|
|
0 |
|
Ariesta International Limited(26)
|
|
|
2,385,000 |
|
|
|
643,724 |
|
|
|
643,724 |
|
|
|
0 |
|
Ariesta Trading LLC(27)
|
|
|
615,000 |
|
|
|
165,991 |
|
|
|
165,991 |
|
|
|
0 |
|
Arkansas Teacher Retirement System(14)
|
|
|
2,480,000 |
|
|
|
669,365 |
|
|
|
669,365 |
|
|
|
0 |
|
Associated Electric & Gas Insurance Services Limited(6)
|
|
|
200,000 |
|
|
|
53,981 |
|
|
|
53,981 |
|
|
|
0 |
|
Baptist Health of South Florida(14)
|
|
|
380,000 |
|
|
|
102,564 |
|
|
|
102,564 |
|
|
|
0 |
|
BNP Paribas Equity Strategies SNC(20)
|
|
|
2,606,000 |
|
|
|
703,373 |
|
|
|
703,373 |
|
|
|
0 |
|
Barclays Global Investors Equity Hedge Fund II(33)
|
|
|
35,000 |
|
|
|
9,446 |
|
|
|
9,446 |
|
|
|
0 |
|
Boilermakers Blacksmith Pension Trust
|
|
|
780,000 |
|
|
|
210,526 |
|
|
|
210,526 |
|
|
|
0 |
|
Calamos Market Neutral Fund Calamos Investment
Trust(6)
|
|
|
6,075,000 |
|
|
|
1,639,676 |
|
|
|
1,639,676 |
|
|
|
0 |
|
CIBC World Markets(24)
|
|
|
830,000 |
|
|
|
224,021 |
|
|
|
224,021 |
|
|
|
0 |
|
CNH CA Master Account, L.P.(7)
|
|
|
1,800,000 |
|
|
|
485,829 |
|
|
|
485,829 |
|
|
|
0 |
|
CooperNeff Convertible Strategies (Cayman) Master Fund, L.P.(21)
|
|
|
2,574,000 |
|
|
|
694,736 |
|
|
|
694,736 |
|
|
|
0 |
|
Consulting Group Capital Markets Funds(6)
|
|
|
1,025,000 |
|
|
|
276,653 |
|
|
|
276,653 |
|
|
|
|
|
Continental Assurance Company
|
|
|
1,000,000 |
|
|
|
269,905 |
|
|
|
269,905 |
|
|
|
0 |
|
Continental Casualty Company
|
|
|
9,000,000 |
|
|
|
2,429,149 |
|
|
|
2,429,149 |
|
|
|
0 |
|
DB AG London(25)
|
|
|
7,500,000 |
|
|
|
2,024,291 |
|
|
|
2,024,291 |
|
|
|
0 |
|
Deutsche Bank Securities Inc.
|
|
|
5,065,000 |
|
|
|
1,367,071 |
|
|
|
1,367,071 |
|
|
|
0 |
|
Duke Endowment
|
|
|
75,000 |
|
|
|
20,242 |
|
|
|
20,242 |
|
|
|
0 |
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Amount of | |
|
Number of Shares of Common Stock | |
|
|
Notes Beneficially | |
|
| |
|
|
Owed and Offered | |
|
Beneficially | |
|
|
|
Owned After | |
Selling Securityholder(1) |
|
Hereby(1) | |
|
Owned(1)(2) | |
|
Offered Hereby | |
|
the Offering | |
|
|
| |
|
| |
|
| |
|
| |
Engineers Joint Pension Fund(14)
|
|
|
260,000 |
|
|
|
70,175 |
|
|
|
70,175 |
|
|
|
0 |
|
Fidelity Financial Trust: Fidelity Convertible Securities
Fund(23)
|
|
|
7,000,000 |
|
|
|
1,889,338 |
|
|
|
1,889,338 |
|
|
|
0 |
|
Geode U.S. Convertible Arbitrage Fund(12)
|
|
|
3,000,000 |
|
|
|
809,716 |
|
|
|
809,716 |
|
|
|
0 |
|
KBC Financial Products USA Inc.(17)
|
|
|
5,500,000 |
|
|
|
2,254,407 |
|
|
|
1,484,480 |
|
|
|
769,927 |
|
KBC Financial Products (Cayman Islands) Ltd.(18)
|
|
|
2,500,000 |
|
|
|
674,763 |
|
|
|
674,763 |
|
|
|
0 |
|
LDG Limited(13)
|
|
|
243,000 |
|
|
|
65,587 |
|
|
|
65,587 |
|
|
|
0 |
|
Lyxor/ Convertible Arbitrage Fund, Limited(21)
|
|
|
234,000 |
|
|
|
63,157 |
|
|
|
63,157 |
|
|
|
0 |
|
Merrill Lynch, Pierce Fenner and Smith, Inc.(38)
|
|
|
4,795,000 |
|
|
|
1,294,197 |
|
|
|
1,294,197 |
|
|
|
0 |
|
Mill River Master Fund, L.P.(28)
|
|
|
500,000 |
|
|
|
134,952 |
|
|
|
134,952 |
|
|
|
0 |
|
Morgan Stanley Convertible Securities Trust(8)
|
|
|
600,000 |
|
|
|
161,943 |
|
|
|
161,943 |
|
|
|
0 |
|
National Bank of Canada
|
|
|
3,400,000 |
|
|
|
917,678 |
|
|
|
917,678 |
|
|
|
0 |
|
Nicholas Applegate Capital Management Convertible Mutual Fund(14)
|
|
|
470,000 |
|
|
|
126,855 |
|
|
|
126,855 |
|
|
|
0 |
|
Nisswa Master Fund Ltd.
|
|
|
250,000 |
|
|
|
67,476 |
|
|
|
67,476 |
|
|
|
0 |
|
Onyx Fund Holdings, LDC
|
|
|
750,000 |
|
|
|
202,429 |
|
|
|
202,429 |
|
|
|
0 |
|
Pioneer High Yield Fund(22)
|
|
|
41,175,000 |
|
|
|
11,113,360 |
|
|
|
11,113,360 |
|
|
|
0 |
|
Pioneer U.S. High Yield Corp. Bond Sub Fund (UCIT)(22)
|
|
|
4,575,000 |
|
|
|
1,234,817 |
|
|
|
1,234,817 |
|
|
|
0 |
|
Privilege Portfolio SICAV
|
|
|
2,000,000 |
|
|
|
539,811 |
|
|
|
539,811 |
|
|
|
0 |
|
Quantum Partners LDC(15)
|
|
|
4,000,000 |
|
|
|
1,079,622 |
|
|
|
1,079,622 |
|
|
|
0 |
|
Relay 3 Asset Holding Co. Limited(37)
|
|
|
23,000 |
|
|
|
6,207 |
|
|
|
6,207 |
|
|
|
0 |
|
San Diego City Employees Retirement System(14)
|
|
|
555,000 |
|
|
|
149,797 |
|
|
|
149,797 |
|
|
|
0 |
|
San Diego County Convertible(14)
|
|
|
1,185,000 |
|
|
|
319,838 |
|
|
|
319,838 |
|
|
|
0 |
|
Singlehedge U.S. Convertible Arbitrage Fund(21)
|
|
|
728,000 |
|
|
|
196,491 |
|
|
|
196,491 |
|
|
|
0 |
|
Southern Farm Bureau Life Insurance
|
|
|
460,000 |
|
|
|
124,156 |
|
|
|
124,156 |
|
|
|
0 |
|
Sterling Invest Co.
|
|
|
110,000 |
|
|
|
29,689 |
|
|
|
29,689 |
|
|
|
0 |
|
Standard Global Equity Partners, L.P.(29)
|
|
|
854,000 |
|
|
|
230,499 |
|
|
|
230,499 |
|
|
|
0 |
|
SP Holdings Ltd.(30)
|
|
|
94,000 |
|
|
|
25,371 |
|
|
|
25,371 |
|
|
|
0 |
|
Standard Pacific Capital Offshore Fund, Ltd.(31)
|
|
|
2,825,000 |
|
|
|
762,483 |
|
|
|
762,483 |
|
|
|
0 |
|
Standard Pacific MAC 16 Ltd.(32)
|
|
|
179,000 |
|
|
|
48,313 |
|
|
|
48,313 |
|
|
|
0 |
|
Standard Global Equity Partners II, L.P.(34)
|
|
|
34,000 |
|
|
|
9,176 |
|
|
|
9,176 |
|
|
|
0 |
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Amount of | |
|
Number of Shares of Common Stock | |
|
|
Notes Beneficially | |
|
| |
|
|
Owed and Offered | |
|
Beneficially | |
|
|
|
Owned After | |
Selling Securityholder(1) |
|
Hereby(1) | |
|
Owned(1)(2) | |
|
Offered Hereby | |
|
the Offering | |
|
|
| |
|
| |
|
| |
|
| |
Standard Global Equity Partners SA, L.P.(35)
|
|
|
352,000 |
|
|
|
95,006 |
|
|
|
95,006 |
|
|
|
0 |
|
Scorpion Offshore Investment Fund, Ltd.(36)
|
|
|
198,000 |
|
|
|
53,441 |
|
|
|
53,441 |
|
|
|
0 |
|
Sturgeon Limited(21)
|
|
|
358,000 |
|
|
|
96,626 |
|
|
|
96,626 |
|
|
|
0 |
|
Sunrise Partners Limited Partnership
|
|
|
2,000,000 |
|
|
|
539,811 |
|
|
|
539,811 |
|
|
|
0 |
|
TQA Master Fund, Ltd.(13)
|
|
|
724,000 |
|
|
|
195,411 |
|
|
|
195,411 |
|
|
|
0 |
|
TQA Master Plus Fund Ltd.(13)
|
|
|
2,547,000 |
|
|
|
687,449 |
|
|
|
687,449 |
|
|
|
0 |
|
Tewksbury Investment Fund Ltd.
|
|
|
250,000 |
|
|
|
67,476 |
|
|
|
67,476 |
|
|
|
0 |
|
Tribeca Investments Ltd.
|
|
|
8,000,000 |
|
|
|
2,159,244 |
|
|
|
2,159,244 |
|
|
|
0 |
|
UBS AG London(16)
|
|
|
5,000,000 |
|
|
|
1,349,527 |
|
|
|
1,349,527 |
|
|
|
0 |
|
UBS OConnor LLC F/B/O OConnor Global Convertible
Arbitrage Master Ltd.(19)
|
|
|
2,500,000 |
|
|
|
674,763 |
|
|
|
674,763 |
|
|
|
0 |
|
Van Kampen Harbor Fund(11)
|
|
|
900,000 |
|
|
|
242,914 |
|
|
|
242,914 |
|
|
|
0 |
|
Wachovia Capital Markets LLC(9)
|
|
|
1,210,000 |
|
|
|
326,585 |
|
|
|
326,585 |
|
|
|
0 |
|
Wake Forest University(14)
|
|
|
280,000 |
|
|
|
75,573 |
|
|
|
75,573 |
|
|
|
0 |
|
Wyoming State Treasurer(14)
|
|
|
605,000 |
|
|
|
163,292 |
|
|
|
163,292 |
|
|
|
0 |
|
Xavex-Convertible Arbitrage 7 Fund(13)
|
|
|
493,000 |
|
|
|
133,063 |
|
|
|
133,063 |
|
|
|
0 |
|
Zurich Institutional Benchmarks Master Fund, Ltd.(10)
|
|
|
5,243,000 |
|
|
|
1,415,114 |
|
|
|
1,415,114 |
|
|
|
0 |
|
Any other selling security holder of notes or future transferee
from any such holder(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
(1) |
Information concerning the selling securityholders may change
from time to time. Any such changed information will be set
forth in amendments or supplements to this prospectus if and
when necessary. |
|
|
(2) |
Assumes a conversion price of $3.705 per share, and a cash
payment in lieu of any fractional share interest. However, this
conversion price will be subject to adjustment as described
under Description of Notes Conversion
Rights. As a result, the amount of common stock issuable
upon conversion of the notes may increase or decrease in the
future. |
|
|
(3) |
Information concerning other selling securityholders will be set
forth in post-effective amendments to the registration statement
from time to time, if required. |
|
|
(4) |
Assumes that any other holders of notes or any future transferee
from any such holder does not beneficially own any common stock
other than the common stock issuable upon conversion of the
notes at the initial conversion rate. |
|
|
(5) |
This selling securityholder is a non-public entity. Mikhail A.
Filimonov and Dimitri Sogoloff have voting and investment
control over the securities that this selling securityholder
beneficially owns. |
|
|
(6) |
This selling securityholder is a non-public entity. Nick Calamos
has voting and investment control over the securities that this
selling securityholder beneficially owns. |
|
|
(7) |
This selling securityholder is a non-public entity. CNH
Partners, LLC has voting and investment control over the
securities that this selling securityholder beneficially owns.
The investment principals of CNH Partners, LLC are Robert Krail,
Mark Mitchell and Todd Pulvino. |
112
|
|
|
|
(8) |
This selling securityholder is an affiliate of a registered
broker-dealer. This selling securityholder purchased the
securities with the expectation of reselling the securities in
the ordinary course of business. This selling securityholder did
not have an agreement or understanding, directly or indirectly,
with any person to distribute the securities at the time it
purchased the securities. |
|
|
(9) |
Wachovia Capital Markets LLC is a registered broker-dealer who
acquired the securities for investment purposes. The securities
were not acquired as compensation for underwriting/broker-dealer
activities. Please see the discussion under Plan of
Distribution for the required disclosure regarding the
foregoing broker- dealer. |
|
|
(10) |
This selling securityholder is a non-public entity. Alexandra
Investment Management, LLC has voting and investment control
over the securities that this selling securityholder
beneficially owns. The managing members of Alexandra Investment
Management, LLC are Mikhail A. Filimonov and Dimitri Sogoloff. |
|
(11) |
Van Kampen Harbor Fund is a registered broker-dealer who
acquired the securities for investment purposes. The securities
were not acquired as compensation for underwriting/broker-dealer
activities. Please see the discussion under Plan of
Distribution for the required disclosure regarding the
foregoing broker-dealer. |
|
(12) |
This selling securityholder is a non-public entity. Geode
Capital Management, LLC has voting and investment control over
the securities that this selling securityholder beneficially
owns. The president of Geode Capital Management, LLC is Jacques
Perold. |
|
(13) |
This selling securityholder is a non-public entity. TQA
Investors, LLC has voting and investment control over the
securities that this selling securityholder beneficially owns.
The principals of TQA Investors, LLC are Robert Butman, John
Idone, Paul Bucci, George Esser and Bartholomeu Tesoriero. |
|
(14) |
This selling securityholder is a non-public entity.
Nicholas-Applegate Capital Management has voting and investment
control over the securities that this selling securityholder
beneficially owns. The chief investment officer of
Nicholas-Applegate Capital Management Capital Management is
Horacio Valeiras. |
|
(15) |
This selling securityholder is a non-public entity. Cynthia Paul
of Quantum Partners has voting and investment control over the
securities that this selling securityholder beneficially owns. |
|
(16) |
This selling securityholder is an affiliate of a registered
broker-dealer. This selling securityholder purchased the
securities with the expectation of reselling the securities in
the ordinary course of business. This selling securityholder did
not have an agreement or understanding, directly or indirectly,
with any person to distribute the securities at the time it
purchased the securities. |
|
(17) |
This selling securityholder is a registered broker-dealer who
acquired the securities for investment purposes. The securities
were not acquired as compensation for underwriting/broker-dealer
activities. Please see the discussion under Plan of
Distribution for the required disclosure regarding the
foregoing broker-dealer. This selling securityholder is a
non-public entity. Luke Edwards, the managing director of KBC
Financial Products USA Inc., exercises voting and investment
control over the securities on behalf of KBC Financial Products
USA Inc. |
|
(18) |
This selling securityholder is an affiliate of a registered
broker-dealer. This selling securityholder purchased the
securities with the expectation of reselling the securities in
the ordinary course of business. This selling securityholder did
not have an agreement or understanding, directly or indirectly,
with any person to distribute the securities at the time it
purchased the securities. This selling securityholder is a
non-public entity. Luke Edwards, the managing director of KBC
Financial Products USA Inc., exercises voting and investment
control over the securities on behalf of KBC Financial Products
(Cayman Islands) Ltd. |
|
(19) |
This selling securityholder is a non-public entity. UBS
OConnor LLC, a subsidiary of UBS AG, a public entity, has
voting and investment control over the securities that this
selling security holder beneficially owns. |
|
(20) |
This selling securityholder is an affiliate of a registered
broker-dealer. This selling securityholder purchased the
securities with the expectation of reselling the securities in
the ordinary course of |
113
|
|
|
business. This selling securityholder did not have an agreement
or understanding, directly or indirectly, with any person to
distribute the securities at the time it purchased the
securities. This selling securityholder is a non-public entity.
The investment committee of CooperNeff Advisors Inc., which
consists of Jean Dominjon, Thomas J. Mahoney and Andrew Sterge,
has voting and investment control over the securities that this
selling securityholder beneficially owns. |
|
(21) |
This selling securityholder is a non-public entity. The
investment committee of CooperNeff Advisors Inc. which consists
of Jean Dominjon, Thomas J. Mahoney and Andrew Sterge, has
voting and investment control over the securities that this
selling securityholder beneficially owns. |
|
(22) |
This selling securityholder is an affiliate of a registered
broker-dealer. This selling securityholder purchased the
securities with the expectation of reselling the securities in
the ordinary course of business. This selling securityholder did
not have an agreement or understanding, directly or indirectly,
with an person to distribute the securities at the time it
purchased the securities. This selling securityholder is a
non-public entity. Margaret Patel, the portfolio manager at
Pioneer Investment Management Inc., has voting and investment
control over the securities that this selling securityholder
beneficially owns. |
|
(23) |
This selling securityholder is an affiliate of a registered
broker-dealer. This selling securityholder purchased the
securities with the expectation of reselling the securities in
the ordinary course of business. This selling securityholder did
not have an agreement or understanding, directly or indirectly,
with any person to distribute the securities at the time it
purchased the securities. The selling securityholder is either
an investment company or a portfolio of an investment company
registered under Section 8 of the Investment Company Act of
1940, as amended, or a private investment account advised by
Fidelity Management & Research Company (FMR
Co.). FMR Co. is a Massachusetts corporation and an
investment advisor registered under Section 203 of the
Investment Advisers Act of 1940, as amended, and provides
investment to each of such Fidelity entities identified above,
and to other registered investment companies and to certain
other funds with are generally offered to a limited group of
investors. FMR Co. is a wholly-owned subsidiary of FMR Corp., a
Delaware corporation. None of the Selling Holders listed above
has, or within the past three years had had, any position,
office or other material relationship with Finisar Corporation
or any of its predecessors or affiliates. |
|
(24) |
This selling securityholder is a registered broker-dealer who
acquired the securities for investment purposes. The securities
were not acquired as compensation for underwriting/broker-dealer
activities. |
|
(25) |
This selling securityholder is an affiliate of a registered
broker-dealer. This selling securityholder purchased the
securities with the expectation of reselling the securities in
the ordinary course of business. This selling securityholder did
not have an agreement or understanding, directly or indirectly,
with any person to distribute the securities at the time it
purchased the securities. |
|
(26) |
This selling securityholder is a non-public entity. Anthony
Frascella, Robert M. Lynch, Jr. and Kevin Toner have voting
and investment control over the securities that this selling
securityholder beneficially owns. |
|
(27) |
This selling securityholder is a registered broker-dealer who
acquired the securities for investment purposes. The securities
were not acquired as compensation for underwriting/broker-dealer
activities. This selling securityholder is a non-public entity.
Anthony Frascella, Robert M. Lynch, Jr. and Kevin Toner
have voting and investment control over the securities that this
selling securityholder beneficially owns. |
|
(28) |
This selling securityholder is an affiliate of a registered
broker-dealer. This selling securityholder purchased the
securities with the expectation of reselling the securities in
the ordinary course of business. This selling securityholder did
not have an agreement or understanding, directly or indirectly,
with any person to distribute the securities at the time it
purchased the securities. This selling securityholder is a
non-public entity. Mill River Management L.L.C. is the General
Partner of the selling securityholder and has voting and
investment control over the securities that this selling
securityholder beneficially owns. David L. Babson &
Company Inc. is the sole member of Mill River Management L.L.C.
DLB Acquisition Corporation is the sole shareholder of David L.
Babson & |
114
|
|
|
Company Inc. Massachusetts Mutual Life Insurance Company owns
approximately 98% of the shares of DLB Acquisition Corporation. |
|
(29) |
This selling securityholder is a non-public entity. Standard
Pacific Capital LLC is the general partner of this selling
securityholder. Standard Pacific Partners L.P. is the managing
member of Standard Pacific Capital LLC. Standard Pacific
Holdings LLC is the managing member of Standard Pacific Partners
L.P. and as such has voting and dispositive power over the
securities held by the selling securityholder. Andrew Midler is
the sole member of Standard Pacific Holdings LLC.
Mr. Midler, Standard Pacific Holdings LLC, Standard Pacific
Partners L.P., and Standard Pacific Capital LLC disclaim
beneficial ownership of securities held by the selling
securityholder except for their pecuniary interest therein. |
|
(30) |
This selling securityholder is a non-public entity. Standard
Pacific Capital LLC acts as the investment manager for this
selling securityholder with respect to the securities indicated
above and as such has voting and dispositive power over the
securities held by the selling securityholder. Andrew Midler is
the portfolio manager of the selling securityholder on behalf of
Standard Pacific Capital LLC. Mr. Midler and Standard
Pacific Capital LLC disclaim beneficial ownership of the
securities held by the selling securityholder except for their
pecuniary interest therein. |
|
(31) |
This selling securityholder is a non-public entity. Standard
Pacific Capital LLC acts as the investment manager for this
selling securityholder with respect to the securities indicated
above and as such has voting and dispositive power over the
securities held by the selling securityholder. Andrew Midler is
the portfolio manager of this selling securityholder on behalf
of Standard Pacific Capital LLC. Mr. Midler and Standard
Pacific Capital LLC disclaim beneficial ownership of the
securities held by the selling securityholder except for their
pecuniary interest herein. |
|
(32) |
This selling securityholder is a non-public entity. Standard
Pacific Capital LLC acts as the investment manager for this
selling securityholder with respect to the securities indicated
above and as such has voting and dispositive power over the
securities held by the selling securityholder. Andrew Midler is
the portfolio manager of the selling securityholder on behalf of
Standard Pacific Capital LLC. Mr. Midler and Standard
Pacific Capital LLC disclaim beneficial ownership of the
securities held by the selling securityholder except for their
pecuniary interest therein. |
|
(33) |
This selling securityholder is an affiliate of a registered
broker-dealer. This selling securityholder purchased the
securities with the expectation of reselling the securities in
the ordinary course of business. This selling securityholder did
not have an agreement or understanding, directly or indirectly,
with any person to distribute the securities at the time it
purchased the securities. This selling securityholder is a
non-public entity. Standard Pacific Capital LLC acts as the
investment manager for this selling securityholder with respect
to the securities. |
|
(34) |
This selling securityholder is a non-public entity. Standard
Pacific Capital LLC is the general partner of this selling
securityholder. Standard Pacific Partners L.P. is the managing
member of Standard Pacific Capital LLC. Standard Pacific
Holdings LLC is the managing member of Standard Pacific Partners
L.P. and as such has voting and dispositive power over the
securities held by the selling securityholder. Andrew Midler is
the sole member of Standard Pacific Holdings LLC.
Mr. Midler, Standard Pacific Holdings LLC, Standard Pacific
Partners L.P., and Standard Pacific Capital LLC disclaim
beneficial ownership of securities held by the selling
securityholder except for their pecuniary interest therein. |
|
(35) |
This selling securityholder is a non-public entity. Standard
Pacific Capital LLC is the general partner of this selling
securityholder. Standard Pacific Partners L.P. is the managing
member of Standard Pacific Capital LLC. Standard Pacific
Holdings LLC is the managing member of Standard Pacific Partners
L.P. and as such has voting and dispositive power over the
securities held by the selling securityholder. Andrew Midler is
the sole member of Standard Pacific Holdings LLC.
Mr. Midler, Standard Pacific Holdings LLC, Standard Pacific
Partners L.P., and Standard Pacific Capital LLC disclaim
beneficial ownership of securities held by the selling
securityholder except for their pecuniary interest therein. |
|
(36) |
This selling securityholder is a non-public entity. Standard
Pacific Capital LLC acts as the investment manager for this
selling securityholder with respect to the securities indicated
above and as such has voting and dispositive power over the
securities held by the selling securityholder. Andrew Midler is
the portfolio manager of the selling securityholder on behalf of
Standard Pacific Capital LLC. Mr. Midler |
115
|
|
|
and Standard Pacific Capital LLC disclaim beneficial ownership
of the securities held by the selling securityholder except for
their pecuniary interest therein. |
|
(37) |
This selling securityholder is a non-public entity. Standard
Pacific Capital LLC acts as the investment manager for this
selling securityholder with respect to the securities indicated
above and as such has voting and dispositive power over the
securities held by the selling securityholder. Andrew Midler is
the portfolio manager of the selling securityholder on behalf of
Standard Pacific Capital LLC. Mr. Midler and Standard
Pacific Capital LLC disclaim beneficial ownership of the
securities held by the selling securityholder except for their
pecuniary interest therein. |
|
(38) |
This selling security holder is a registered broker-dealer who
acquired the securities for investment purposes. The securities
were not acquired as compensation for underwriting/broker-dealer
activities. |
PLAN OF DISTRIBUTION
We will not receive any of the proceeds of the sale of the notes
or the underlying common stock offered by this prospectus. The
notes and the underlying common stock may be sold from time to
time to purchasers:
|
|
|
|
|
directly by the selling securityholders; and |
|
|
|
through underwriters, broker-dealers or agents who may receive
compensation in the form of discounts, concessions or
commissions from the selling securityholders or the purchasers
of the notes and the underlying common stock. |
The selling securityholders and any such broker-dealers or
agents who participate in the distribution of the notes and the
underlying common stock may be deemed to be
underwriters. As a result, any profits on the sale
of the notes and underlying common stock by selling
securityholders and any discounts, commissions or concessions
received by any such broker-dealers or agents might be deemed to
be underwriting discounts and commissions under the Securities
Act. If the selling securityholders were to be deemed
underwriters, the selling securityholders may be subject to
certain statutory liabilities, including, but not limited to,
Sections 11, 12 and 17 of the Securities Act and
Rule 10b-5 under the Exchange Act.
If the notes and underlying common stock are sold through
underwriters or broker-dealers, the selling securityholders will
be responsible for underwriting discounts or commissions or
agents commissions.
The notes and underlying common stock may be sold in one or more
transactions at:
|
|
|
|
|
fixed prices; |
|
|
|
prevailing market prices at the time of sale; |
|
|
|
varying prices determined at the time of sale; or |
|
|
|
negotiated prices. |
These sales may be effected in transactions:
|
|
|
|
|
on any national securities exchange or quotation service on
which the notes and underlying common stock may be listed or
quoted at the time of the sale, including the Nasdaq National
Market in the case of the common stock; |
|
|
|
in the over-the-counter market; |
|
|
|
in transactions otherwise than on such exchanges or services or
in the over-the-counter market; or |
|
|
|
through the writing of options. |
These transactions may include block transactions or crosses.
Crosses are transactions in which the same broker acts as an
agent on both sides of the trade.
In connection with sales of the notes and underlying common
stock or otherwise, the selling securityholders may enter into
hedging transactions with broker-dealers. These broker-dealers
may in turn engage in
116
short sales of the notes and underlying common stock in the
course of hedging their positions. The selling securityholders
may also sell the notes and underlying common stock short and
deliver notes and underlying common stock to close out short
positions, or loan or pledge notes and underlying common stock
to broker-dealers that in turn may sell the notes and underlying
common stock.
To our knowledge, there are currently no plans, arrangements or
understandings between any selling securityholders and any
underwriter, broker-dealer or agent regarding the sale of the
notes and the underlying common stock by the selling
securityholders. Selling securityholders may not sell any or all
of the notes and the underlying common stock offered by them
pursuant to this prospectus. Any selling securityholder may
instead transfer, devise or gift the notes and the underlying
common stock by other means not described in this prospectus. In
addition, any notes or underlying common stock covered by this
prospectus that qualify for sale pursuant to Rule 144 or
Rule 144A of the Securities Act may be sold under
Rule 144 or Rule 144A rather than pursuant to this
prospectus.
Our common stock trades on the Nasdaq National Market under the
symbol FNSR. No assurance can be given as to the
development of liquidity or any trading market for the notes.
See Risk Factors Because there is no current
market for the notes, an active trading market for the notes may
not develop.
The selling securityholders and any other person participating
in such distribution will be subject to the Exchange Act. The
Exchange Act rules include, without limitation,
Regulation M, which may limit the timing of purchases and
sales of any of the notes and the underlying common stock by the
selling securityholders and any other such person. In addition,
Regulation M of the Exchange Act may restrict the ability
of any person engaged in the distribution of the notes and the
underlying common stock to engage in market-making activities
with respect to the particular notes and the underlying common
stock being distributed for a period of up to five business days
prior to the commencement of such distribution. This may affect
the marketability of the notes and the underlying common stock
and the ability of any person or entity to engage in
market-making activities with respect to the notes and the
underlying common stock.
Pursuant to the registration rights agreement filed as an
exhibit to this registration statement, we and the selling
securityholders will be indemnified by each other against
certain liabilities, including certain liabilities under the
Securities Act or will be entitled to contribution in connection
with these liabilities.
We have agreed to pay substantially all of the expenses
incidental to the registration, offering and sale of the notes
and underlying common stock to the public other than
commissions, fees and discounts of underwriters, brokers,
dealers and agents.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 750,000,000 shares
of common stock, $0.001 par value per share, and
5,000,000 shares of preferred stock, $0.001 par value
per share.
The following is a summary of some of the terms of our common
stock, preferred stock, charter, bylaws and stockholder rights
plan and certain provisions of Delaware Law. The following
summary does not purport to be complete and is qualified in its
entirety by reference to the terms of our charter, bylaws,
stockholder rights plan and Delaware law. Please see those
documents and Delaware law for further information.
Common Stock
As of June 30, 2005, there were 277,048,404 shares of
our common stock outstanding. The holders of our common stock
are entitled to one vote for each share held of record on all
matters submitted to a vote of stockholders. Holders of common
stock are not entitled to cumulate their votes in the election
of directors. Accordingly, holders of a majority of the shares
of common stock entitled to vote in any election of directors
may elect all of the directors standing for election. Subject to
preferences applicable to any outstanding preferred stock,
holders of common stock are entitled to receive ratably any
dividends declared by the Board of Directors out of funds
legally available therefor. See Dividend Policy. In
the event of a liquidation, dissolution or winding up of
Finisar, holders of common stock are entitled to share ratably
in the assets
117
remaining after payment of liabilities and the liquidation
preferences of any outstanding preferred stock. Holders of our
common stock have no preemptive, conversion or redemption
rights. Each outstanding share of common stock is, and all
shares of common stock issued upon conversion of the notes will
be, fully paid and non-assessable.
Preferred Stock
Our Board of Directors has the authority, without further action
by our stockholders, to issue preferred stock in one or more
series. In addition, the Board of Directors may fix the rights,
preferences and privileges of any preferred stock it determines
to issue. Any or all of these rights may be superior to the
rights of the common stock. Preferred stock could thus be issued
quickly with terms calculated to delay or prevent a change in
control of Finisar or to make removal of management more
difficult. Additionally, the issuance of preferred stock may
decrease the market price of our common stock or otherwise
adversely affect the rights of holders of our common stock. At
present, we have no plans to issue any shares of preferred stock.
Registration Rights
|
|
|
Holders of
21/2% Convertible
Subordinated Notes due 2010 |
Pursuant to a registration rights agreement dated as of
October 15, 2003 between Finisar and the initial purchasers
of our
21/2% Convertible
Subordinated Notes, we filed, at our expense, with the
Commission a shelf registration statement covering resales by
holders of all notes and the common stock issuable upon
conversion of the notes. The registration statement became
effective in February 2004. We are required to use our best
efforts to keep the registration statement effective until the
earlier of (A) the date that is two years after the last
date of original issuance of any of the notes or
(October 15, 2005); (B) the date when the holders of
the notes and the common stock issuable upon conversion of the
notes are able to sell all such securities immediately without
restriction pursuant to the volume limitation provisions of
Rule 144 under the Securities Act or any successor rule
thereto or otherwise; or (C) the sale pursuant to the shelf
registration statement of all securities registered thereunder.
We will be permitted to suspend the use of the prospectus that
is part of the shelf registration statement under certain
circumstances relating to pending corporate developments, public
filings with the Commission and similar events for a period not
to exceed 30 days in any three-month period and not to
exceed an aggregate of 90 days in any 12-month period. If:
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|
|
|
|
the registration statement shall cease to be effective or fail
to be usable without being succeeded within five business days
by a post-effective amendment or a report filed with the
Commission pursuant to the Exchange Act that cures the failure
of the registrations statement to be effective or usable; or |
|
|
|
the prospectus has been suspended as described in the proceeding
paragraph longer than the period permitted by such paragraph; |
each, a registration default, additional interest as liquidated
damages will accrue on the notes, from and including the day
following the registration default to but excluding the day on
which the registration default has been cured. Liquidated
damages will be paid semi-annually in arrears, with the first
semi-annual payment due on the first interest payment date, as
applicable, following the date on which such liquidated damages
begin to accrue, and will accrue at a rate per year equal to:
|
|
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|
|
an additional 0.25% of the principal amount to and including the
90th day following such registration default; and |
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|
an additional 0.5% of the principal amount from and after the
91st day following such registration default. |
In no event will liquidated damages accrue at a rate per year
exceeding 0.5%. If a holder has converted some or all of its
notes into common stock, the holder will be entitled to receive
equivalent amounts based on the principal amount of the notes
converted. Additional information relating to the notes can be
found under the heading Selling Securityholders.
118
Under an acquisition agreement with I-TECH CORP., we agreed to
file with the Commission, at our expense, a shelf registration
statement covering the resale of shares of our common stock
issued upon conversion of convertible promissory notes having an
aggregate principal amount of approximately $12.1 million
which were issued to the sole shareholder of I-TECH CORP. in the
acquisition. We are required to use our reasonable efforts to
keep the registration statement effective until two months after
the date on which the convertible promissory notes have been
fully converted into shares of our common stock. We will be
permitted to suspend the use of the prospectus that is part of
the shelf registration statement under certain circumstances
relating to material undisclosed information or events
concerning us.
|
|
|
VantagePoint Venture Partners |
Under an agreement with Infineon, we filed with the Commission,
at our expense, a shelf registration statement covering the
resale of 34,000,000 shares of our common stock issued in
connection with the acquisition of certain assets related to the
transceiver and transponder business of Infineons fiber
optics business unit. In April 2005, Infineon sold the
34,000,000 shares of common stock to certain funds managed
by VantagePoint Venture Partners (collectively, VantagePoint) in
a private transaction and assigned its registration rights to
VantagePoint. We agreed to keep the registration statement
effective until the earlier of:
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|
|
|
|
Such time as all of the shares have been sold by
VantagePoint; or |
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|
|
such time as VantagePoint is permitted to sell all of the shares
held by it without registration pursuant to Rule 144(k)
under the Securities Act (or any similar provision then in force
permitting the sale of restricted securities without limitation
on the amount of securities sold or the manner of sale). |
We will be permitted to suspend the use of the prospectus that
is part of the shelf registration statement under certain
circumstances relating to material undisclosed information or
events concerning us, provided that such delay does not exceed
three (3) months and may not be exercised more than once in
any 12-month period.
Under an acquisition agreement with Data Transit Corp., we
agreed to file with the Commission, at our expense, a shelf
registration statement covering the resale of shares of our
common stock issued upon conversion of a convertible installment
note issued to Data Transit Corp. in the acquisition. We are
required to use our reasonable efforts to keep the registration
statement effective until such time as all of the shares
issuable upon conversion of the note have been sold. We will be
permitted to suspend the use of the prospectus that is part of
the shelf registration statement under certain circumstances
relating to material undisclosed information or events
concerning us.
Antitakeover Provisions
Finisar is subject to Section 203 of the Delaware General
Corporation Law regulating corporate takeovers, which prohibits
a Delaware corporation from engaging in any business combination
with an interested stockholder for a period of three
years, unless:
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|
|
prior to the time that a stockholder became an interested
stockholder, the board of directors of the corporation approved
either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder; |
119
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|
|
the interested stockholder owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the voting
stock outstanding (a) shares owned by persons who are
directors and also officers, and (b) shares owned by
employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange
offer; or |
|
|
|
at or subsequent to the time that a stockholder became an
interested stockholder, the business combination is approved by
the board of directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the
affirmative vote of at least
662/3%
of the outstanding voting stock which is not owned by the
interested stockholder. |
Except as otherwise specified in Section 203, an
interested stockholder is defined to include
(a) any person that is the owner of 15% or more of the
outstanding voting stock of the corporation, or is an affiliate
or associate of the corporation and was the owner of 15% or more
of the outstanding voting stock of the corporation at any time
within three years immediately prior to the date of
determination and (b) the affiliates and associates of any
such person.
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|
Certificate of Incorporation and Bylaw Provisions |
Provisions of our certificate of incorporation and bylaws may
have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to
acquire, control of Finisar. These provisions could cause the
value of the notes and the price of our common stock to
decrease. Some of these provisions allow us to issue preferred
stock without any vote or further action by the stockholders,
eliminate the right of stockholders to act by written consent
without a meeting and eliminate cumulative voting in the
election of directors. These provisions may make it more
difficult for stockholders to take specific corporate actions
and could have the effect of delaying or preventing a change in
control of Finisar.
Our certificate of incorporation provides that the Board of
Directors will be divided into three classes of directors, with
each class serving a staggered three-year term. The
classification system of electing directors may discourage a
third party from making a tender offer or otherwise attempting
to obtain control of us and may maintain the incumbency of the
Board of Directors, because the classification of the Board of
Directors generally increases the difficulty of replacing a
majority of the directors.
In September 2002, our Board of Directors adopted a stockholder
rights plan under which our stockholders received one share
purchase right for each share of our common stock held by them.
The rights are not currently exercisable or tradable separately
from our common stock and are currently evidenced by the common
stock certificates. The rights expire on September 24, 2012
unless earlier redeemed or exchanged by us. Subject to
exceptions, the rights will separate from our common stock and
become exercisable when a person or group (other than certain
exempt persons) acquires, or announces its intention to commence
a tender or exchange offer upon completion of which such person
or group would acquire, 20% or more of our common stock without
prior Board approval. Should such an event occur, then, unless
the rights are redeemed or exchanged or have expired, Finisar
stockholders, other than the acquirer, will be entitled to
purchase shares of our common stock at a 50% discount from its
then-Current Market Price (as defined) or, in the case of
certain business combinations, purchase the common stock of the
acquirer at a 50% discount.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is
American Stock Transfer and Trust Company.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed
upon for us by DLA Piper Rudnick Gray Cary US LLP, East Palo
Alto, California.
120
EXPERTS
Ernst & Young LLP, independent registered public
accounting firm, has audited our consolidated financial
statements and schedule at April 30, 2005 and 2004, and for
each of the three years in the period ended April 30, 2005,
as set forth in their report. We have included our financial
statements and schedule in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young
LLPs report, given on their authority as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form S-1, including the exhibits and schedules thereto,
under the Securities Act with respect to the shares to be sold
in this offering. This prospectus does not contain all the
information set forth in the registration statement. For further
information about us and the shares to be sold in this offering,
please refer to the registration statement. Statements contained
in this prospectus as to the contents of any contract, agreement
or other document referred to, are not necessarily complete, and
in each instance please refer to the copy of the contract,
agreement or other document filed as an exhibit to the
registration statement, each statement being qualified in all
respects by this reference.
We file periodic and current reports, proxy statements, and
other information with the SEC. You may read and copy all or any
portion of the registration statement or any reports, statements
or other information we file with the SEC at the SECs
public reference room at Room 1024, Judiciary Plaza,
450 Fifth Street, N.C., Washington, D.C. 20549. You
can request copies of these documents upon payment of a
duplicating fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the
public reference rooms. Our SEC filings, including the
registration statement will also be available to you on the
SECs Web site. The address of this site is
http://www.sec.gov.
121
FINISAR CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS INDEX
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|
|
Financial Statements as of April 30, 2005 and 2004 and
for each of the three years in the period ended April 30,
2005
|
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|
|
|
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|
F-2 |
|
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|
|
F-3 |
|
|
|
|
F-4 |
|
|
|
|
F-5 |
|
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|
|
F-8 |
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|
|
F-10 |
|
|
|
|
F-50 |
|
F-1
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Finisar Corporation
We have audited the accompanying consolidated balance sheets of
Finisar Corporation as of April 30, 2005 and 2004, and the
related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended April 30, 2005. Our audits also
included the financial statement schedule listed in the Index at
Item 15(a). These financial statements and schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Finisar Corporation at April 30, 2005
and 2004, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
April 30, 2005, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Finisar Corporations internal control
over financial reporting as of April 30, 2005, based on
criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated July 26, 2005
expressed an unqualified opinion on managements assessment
of the effectiveness of internal control over financial
reporting and an adverse opinion on the effectiveness of
internal control over financial reporting.
San Jose, California
July 26, 2005
F-2
FINISAR CORPORATION
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands, except share | |
|
|
and per share data) | |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
29,431 |
|
|
$ |
69,872 |
|
|
Short-term investments
|
|
|
72,931 |
|
|
|
73,526 |
|
|
Restricted investments, short-term
|
|
|
3,717 |
|
|
|
6,329 |
|
|
Accounts receivable, net of allowance for doubtful accounts of
$1,379 and $1,669 at April 30, 2005 and 2004
|
|
|
42,443 |
|
|
|
28,481 |
|
|
Accounts receivable, other
|
|
|
11,371 |
|
|
|
11,314 |
|
|
Inventories
|
|
|
36,330 |
|
|
|
34,717 |
|
|
Prepaid expenses
|
|
|
3,470 |
|
|
|
4,736 |
|
|
Deferred income taxes
|
|
|
|
|
|
|
2,045 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
199,693 |
|
|
|
231,020 |
|
Property, plant and improvements, net
|
|
|
87,264 |
|
|
|
107,736 |
|
Restricted investments, long-term
|
|
|
5,393 |
|
|
|
8,921 |
|
Purchased technology, net
|
|
|
33,046 |
|
|
|
46,906 |
|
Other purchased intangible assets, net
|
|
|
4,424 |
|
|
|
1,055 |
|
Goodwill, net
|
|
|
119,690 |
|
|
|
60,620 |
|
Minority investments
|
|
|
21,366 |
|
|
|
24,227 |
|
Other assets
|
|
|
18,109 |
|
|
|
14,220 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
488,985 |
|
|
$ |
494,705 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
30,430 |
|
|
$ |
29,460 |
|
|
Accrued compensation
|
|
|
4,500 |
|
|
|
4,376 |
|
|
Non-cancelable purchase obligations
|
|
|
6,449 |
|
|
|
7,038 |
|
|
Other accrued liabilities
|
|
|
14,073 |
|
|
|
14,634 |
|
|
Deferred revenue
|
|
|
5,916 |
|
|
|
620 |
|
|
Current portion of long-term liabilities
|
|
|
2,242 |
|
|
|
2,000 |
|
|
Convertible notes
|
|
|
15,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
79,421 |
|
|
|
58,128 |
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
|
Convertible notes, net of beneficial conversion feature of
$16,501 and $20,757 at April 30, 2005 and 2004
|
|
|
250,019 |
|
|
|
229,493 |
|
|
Other long-term liabilities
|
|
|
13,623 |
|
|
|
2,194 |
|
|
Deferred income taxes
|
|
|
1,632 |
|
|
|
2,045 |
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
265,274 |
|
|
|
233,732 |
|
Commitments and contingent liabilities:
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 5,000,000 shares
authorized, no shares issued and outstanding at April 30,
2005 and 2004
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 500,000,000 shares
authorized, 258,931,278 shares issued and outstanding at
April 30, 2005 and 222,531,335 shares issued and
outstanding at April 30, 2004
|
|
|
259 |
|
|
|
222 |
|
|
Additional paid-in capital
|
|
|
1,314,960 |
|
|
|
1,259,759 |
|
|
Notes receivable from stockholders
|
|
|
|
|
|
|
(481 |
) |
|
Deferred stock compensation
|
|
|
|
|
|
|
(162 |
) |
|
Accumulated other comprehensive income
|
|
|
381 |
|
|
|
710 |
|
|
Accumulated deficit
|
|
|
(1,171,310 |
) |
|
|
(1,057,203 |
) |
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
144,290 |
|
|
|
202,845 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
488,985 |
|
|
$ |
494,705 |
|
|
|
|
|
|
|
|
See accompanying notes.
F-3
FINISAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
Revenues
|
|
$ |
280,823 |
|
|
$ |
185,618 |
|
|
$ |
166,482 |
|
Cost of revenues
|
|
|
205,631 |
|
|
|
143,585 |
|
|
|
130,501 |
|
Amortization of acquired developed technology
|
|
|
22,268 |
|
|
|
19,239 |
|
|
|
21,983 |
|
Impairment of acquired developed technology
|
|
|
3,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
49,268 |
|
|
|
22,794 |
|
|
|
13,998 |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
62,799 |
|
|
|
62,193 |
|
|
|
60,295 |
|
|
Sales and marketing
|
|
|
29,783 |
|
|
|
20,063 |
|
|
|
20,232 |
|
|
General and administrative
|
|
|
23,374 |
|
|
|
16,738 |
|
|
|
15,201 |
|
|
Amortization of (benefit from) deferred stock compensation
|
|
|
162 |
|
|
|
(105 |
) |
|
|
(1,719 |
) |
|
Acquired in-process research and development
|
|
|
1,558 |
|
|
|
6,180 |
|
|
|
|
|
|
Amortization of purchased intangibles
|
|
|
1,104 |
|
|
|
572 |
|
|
|
758 |
|
|
Impairment of tangible assets
|
|
|
18,798 |
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill and intangible assets
|
|
|
|
|
|
|
|
|
|
|
10,586 |
|
|
Restructuring costs
|
|
|
287 |
|
|
|
382 |
|
|
|
9,378 |
|
|
Other acquisition costs
|
|
|
|
|
|
|
222 |
|
|
|
198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
137,865 |
|
|
|
106,245 |
|
|
|
114,929 |
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(88,597 |
) |
|
|
(83,451 |
) |
|
|
(100,931 |
) |
Interest income
|
|
|
2,396 |
|
|
|
3,171 |
|
|
|
4,689 |
|
Interest expense
|
|
|
(14,468 |
) |
|
|
(28,872 |
) |
|
|
(11,388 |
) |
Other income (expense), net
|
|
|
(12,582 |
) |
|
|
(4,347 |
) |
|
|
(51,314 |
) |
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and cumulative effect of an accounting
change
|
|
|
(113,251 |
) |
|
|
(113,499 |
) |
|
|
(158,944 |
) |
Provision for income taxes
|
|
|
856 |
|
|
|
334 |
|
|
|
229 |
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of an accounting change
|
|
|
(114,107 |
) |
|
|
(113,833 |
) |
|
|
(159,173 |
) |
Cumulative effect of an accounting change to adopt SFAS 142
|
|
|
|
|
|
|
|
|
|
|
(460,580 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(114,107 |
) |
|
$ |
(113,833 |
) |
|
$ |
(619,753 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before cumulative effect of an accounting change
|
|
$ |
(0.49 |
) |
|
$ |
(0.53 |
) |
|
$ |
(0.82 |
) |
|
Cumulative effect of an accounting change to adopt SFAS 142
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(2.35 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(0.49 |
) |
|
$ |
(0.53 |
) |
|
$ |
(3.17 |
) |
|
|
|
|
|
|
|
|
|
|
Shares used in computing net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
232,210 |
|
|
|
216,117 |
|
|
|
195,666 |
|
Pro forma amounts assuming the change in accounting principle
was applied retroactively (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(114,107 |
) |
|
$ |
(113,833 |
) |
|
$ |
(619,753 |
) |
|
Net loss per share, basic and diluted
|
|
$ |
(0.49 |
) |
|
$ |
(0.53 |
) |
|
$ |
(3.17 |
) |
Shares used in computing pro forma net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
232,210 |
|
|
|
216,117 |
|
|
|
195,666 |
|
See accompanying notes.
F-4
FINISAR CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes | |
|
|
|
Other | |
|
|
|
|
|
|
Common Stock | |
|
Additional | |
|
Receivable | |
|
Deferred | |
|
Comprehensive | |
|
|
|
Total | |
|
|
| |
|
Paid-In | |
|
from | |
|
Stock | |
|
Income | |
|
Accumulated | |
|
Stockholders | |
|
|
Shares | |
|
Amount | |
|
Capital | |
|
Stockholders | |
|
Compensation | |
|
(Loss) | |
|
Deficit | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except share data) | |
Balance at April 30, 2002
|
|
|
192,552,246 |
|
|
$ |
192 |
|
|
$ |
1,209,305 |
|
|
$ |
(1,488 |
) |
|
$ |
(6,181 |
) |
|
$ |
791 |
|
|
$ |
(323,617 |
) |
|
$ |
879,002 |
|
Issuance of common stock and warrants upon acquisition of Genoa
|
|
|
6,753,247 |
|
|
|
7 |
|
|
|
6,391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,398 |
|
Issuance of common stock upon conversion of note issued on
acquisition of certain assets
|
|
|
4,027,446 |
|
|
|
4 |
|
|
|
6,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,750 |
|
Compensation expense related to options vesting acceleration
|
|
|
|
|
|
|
|
|
|
|
233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
233 |
|
Issuance of common stock for completion of milestones related to
acquisition of Transwave
|
|
|
87,095 |
|
|
|
|
|
|
|
485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
485 |
|
Issuance of common stock for completion of milestones related to
acquisition of Sensors Unlimited
|
|
|
3,160,335 |
|
|
|
3 |
|
|
|
1,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,637 |
|
Exercise of warrants, stock options, net of repurchase of
unvested shares
|
|
|
(175,712 |
) |
|
|
|
|
|
|
(247 |
) |
|
|
237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10 |
) |
Issuance of common stock through employee stock purchase plan
|
|
|
891,036 |
|
|
|
1 |
|
|
|
1,732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,733 |
|
Reversal of deferred stock compensation due to employee
terminations
|
|
|
|
|
|
|
|
|
|
|
(6,855 |
) |
|
|
|
|
|
|
6,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,719 |
) |
|
|
|
|
|
|
|
|
|
|
(1,719 |
) |
Payments received on stockholder notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174 |
|
Unrealized loss on short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(500 |
) |
|
|
|
|
|
|
(500 |
) |
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
550 |
|
|
|
|
|
|
|
550 |
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(619,753 |
) |
|
|
(619,753 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(619,703 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2003
|
|
|
207,295,693 |
|
|
$ |
207 |
|
|
$ |
1,219,424 |
|
|
$ |
(1,077 |
) |
|
$ |
(1,045 |
) |
|
$ |
841 |
|
|
$ |
(943,370 |
) |
|
$ |
274,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2003
|
|
|
207,295,693 |
|
|
$ |
207 |
|
|
$ |
1,219,424 |
|
|
$ |
(1,077 |
) |
|
$ |
(1,045 |
) |
|
$ |
841 |
|
|
$ |
(943,370 |
) |
|
$ |
274,980 |
|
Compensation expense related to option modification
|
|
|
|
|
|
|
|
|
|
|
93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93 |
|
Compensation expense Related to non-employee option grants
|
|
|
|
|
|
|
|
|
|
|
891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
891 |
|
F-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes | |
|
|
|
Other | |
|
|
|
|
|
|
Common Stock | |
|
Additional | |
|
Receivable | |
|
Deferred | |
|
Comprehensive | |
|
|
|
Total | |
|
|
| |
|
Paid-In | |
|
from | |
|
Stock | |
|
Income | |
|
Accumulated | |
|
Stockholders | |
|
|
Shares | |
|
Amount | |
|
Capital | |
|
Stockholders | |
|
Compensation | |
|
(Loss) | |
|
Deficit | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except share data) | |
Issuance of common stock for completion of milestones related to
acquisition of Transwave
|
|
|
116,040 |
|
|
|
|
|
|
|
147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147 |
|
Exercise of warrants, stock options, net of repurchase of
unvested shares
|
|
|
3,396,422 |
|
|
|
3 |
|
|
|
4,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,715 |
|
Issuance of common stock through employee stock purchase plan
|
|
|
1,251,492 |
|
|
|
1 |
|
|
|
1,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,425 |
|
Issuance of common stock for conversion of convertible notes
|
|
|
9,926,339 |
|
|
|
10 |
|
|
|
32,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,829 |
|
Issuance of common stock for fees associated with the purchase
of assets
|
|
|
545,349 |
|
|
|
1 |
|
|
|
1,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,238 |
|
Reversal of deferred stock compensation due to employee
terminations
|
|
|
|
|
|
|
|
|
|
|
(988 |
) |
|
|
|
|
|
|
988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(105 |
) |
|
|
|
|
|
|
|
|
|
|
(105 |
) |
Payments received on stockholder notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
596 |
|
Unrealized loss on short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(322 |
) |
|
|
|
|
|
|
(322 |
) |
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191 |
|
|
|
|
|
|
|
191 |
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(113,833 |
) |
|
|
(113,833 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(113,964 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2004
|
|
|
222,531,335 |
|
|
$ |
222 |
|
|
$ |
1,259,759 |
|
|
$ |
(481 |
) |
|
$ |
(162 |
) |
|
$ |
710 |
|
|
$ |
(1,057,203 |
) |
|
$ |
202,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2004
|
|
|
222,531,335 |
|
|
$ |
222 |
|
|
$ |
1,259,759 |
|
|
$ |
(481 |
) |
|
$ |
(162 |
) |
|
$ |
710 |
|
|
$ |
(1,057,203 |
) |
|
$ |
202,845 |
|
Compensation expense related to option modification
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 |
|
Issuance of common stock for completion of milestones related to
acquisition of Transwave
|
|
|
144,806 |
|
|
|
|
|
|
|
256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
256 |
|
Issuance of common stock related to acquisition of certain assets
|
|
|
34,000,000 |
|
|
|
34 |
|
|
|
52,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,496 |
|
Exercise of warrants, stock options, net of repurchase of
unvested shares
|
|
|
1,654,422 |
|
|
|
2 |
|
|
|
1,452 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,468 |
|
Issuance of common stock through employee stock purchase plan
|
|
|
600,715 |
|
|
|
1 |
|
|
|
1,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,016 |
|
Amortization of deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
162 |
|
|
|
|
|
|
|
|
|
|
|
162 |
|
Payments received on stockholder notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
467 |
|
F-6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes |
|
|
|
Other | |
|
|
|
|
|
|
Common Stock | |
|
Additional | |
|
Receivable |
|
Deferred |
|
Comprehensive | |
|
|
|
Total | |
|
|
| |
|
Paid-In | |
|
from |
|
Stock |
|
Income | |
|
Accumulated | |
|
Stockholders | |
|
|
Shares | |
|
Amount | |
|
Capital | |
|
Stockholders |
|
Compensation |
|
(Loss) | |
|
Deficit | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
| |
|
| |
|
| |
|
|
(In thousands, except share data) | |
Unrealized loss on short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(465 |
) |
|
|
|
|
|
|
(465 |
) |
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136 |
|
|
|
|
|
|
|
136 |
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(114,107 |
) |
|
|
(114,107 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(114,436 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2005
|
|
|
258,931,278 |
|
|
$ |
259 |
|
|
$ |
1,314,960 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
381 |
|
|
$ |
(1,171,310 |
) |
|
$ |
144,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-7
FINISAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(114,107 |
) |
|
$ |
(113,833 |
) |
|
$ |
(619,753 |
) |
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
28,841 |
|
|
|
30,516 |
|
|
|
24,013 |
|
Compensation expense related to modification of existing options
|
|
|
16 |
|
|
|
93 |
|
|
|
233 |
|
Compensation expense related to non-employee options grants
|
|
|
|
|
|
|
891 |
|
|
|
|
|
Amortization of deferred stock compensation
|
|
|
162 |
|
|
|
(105 |
) |
|
|
(1,719 |
) |
Acquired in-process research and development
|
|
|
1,558 |
|
|
|
6,180 |
|
|
|
|
|
Amortization of beneficial conversion feature of convertible
notes
|
|
|
4,256 |
|
|
|
10,220 |
|
|
|
4,784 |
|
Amortization of goodwill and other purchased intangibles
|
|
|
1,103 |
|
|
|
572 |
|
|
|
758 |
|
Amortization of acquired developed technology
|
|
|
22,269 |
|
|
|
19,239 |
|
|
|
21,983 |
|
Amortization of discount on restricted securities
|
|
|
(244 |
) |
|
|
(313 |
) |
|
|
(543 |
) |
Loss on debt conversion
|
|
|
|
|
|
|
10,763 |
|
|
|
|
|
Loss on sale of equipment
|
|
|
1,174 |
|
|
|
|
|
|
|
|
|
Gain on extinguishment of debt
|
|
|
|
|
|
|
(86 |
) |
|
|
|
|
Loss on retirement of assets
|
|
|
329 |
|
|
|
257 |
|
|
|
|
|
Loss on sale of product lines
|
|
|
|
|
|
|
|
|
|
|
37,372 |
|
Other-than-temporary decline in fair value of investments
|
|
|
|
|
|
|
528 |
|
|
|
|
|
Share of losses of equity accounted investee
|
|
|
1,766 |
|
|
|
1,302 |
|
|
|
764 |
|
Impairment of minority investments
|
|
|
10,000 |
|
|
|
1,631 |
|
|
|
12,000 |
|
Non-cash portion of restructuring charges
|
|
|
|
|
|
|
|
|
|
|
3,722 |
|
Impairment of goodwill and intangible assets
|
|
|
3,656 |
|
|
|
|
|
|
|
10,586 |
|
Impairment of assets
|
|
|
18,798 |
|
|
|
|
|
|
|
|
|
Cumulative effect of an accounting change to adopt SFAS 142
|
|
|
|
|
|
|
|
|
|
|
460,580 |
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(13,290 |
) |
|
|
537 |
|
|
|
4,620 |
|
Inventories
|
|
|
1,058 |
|
|
|
5,493 |
|
|
|
21,619 |
|
Other assets
|
|
|
(5,266 |
) |
|
|
(7,454 |
) |
|
|
3,507 |
|
Income tax receivable
|
|
|
|
|
|
|
|
|
|
|
7,504 |
|
Deferred income taxes
|
|
|
1,632 |
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
970 |
|
|
|
6,042 |
|
|
|
(11,044 |
) |
Accrued compensation
|
|
|
124 |
|
|
|
(73 |
) |
|
|
(3,044 |
) |
Other accrued liabilities
|
|
|
1,911 |
|
|
|
(5,203 |
) |
|
|
2,921 |
|
Deferred revenue
|
|
|
5,296 |
|
|
|
44 |
|
|
|
212 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(27,988 |
) |
|
|
(32,759 |
) |
|
|
(18,925 |
) |
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, equipment and improvements
|
|
|
(21,202 |
) |
|
|
(13,488 |
) |
|
|
(18,826 |
) |
Purchases of short-term investments
|
|
|
(177,642 |
) |
|
|
(57,669 |
) |
|
|
(98,203 |
) |
Sale/maturity of short-term investments
|
|
|
177,776 |
|
|
|
62,442 |
|
|
|
87,391 |
|
F-8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Purchases of restricted securities
|
|
|
|
|
|
|
(14,411 |
) |
|
|
|
|
Maturity of restricted securities
|
|
|
6,381 |
|
|
|
8,437 |
|
|
|
6,562 |
|
Acquisition of subsidiaries, net of cash assumed
|
|
|
694 |
|
|
|
|
|
|
|
23 |
|
Acquisition of product line assets
|
|
|
(13,694 |
) |
|
|
(75,270 |
) |
|
|
(243 |
) |
Proceeds from sale of product line
|
|
|
|
|
|
|
|
|
|
|
5,560 |
|
Proceeds from sale of property and equipment
|
|
|
743 |
|
|
|
|
|
|
|
|
|
Purchases of, and loan to, minority investments, net of loan
repayments
|
|
|
(1,000 |
) |
|
|
1,684 |
|
|
|
153 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(27,944 |
) |
|
|
(88,275 |
) |
|
|
(17,583 |
) |
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on capital lease obligations
|
|
|
|
|
|
|
|
|
|
|
(361 |
) |
Financing liability related to sale-leaseback of building
|
|
|
12,900 |
|
|
|
|
|
|
|
|
|
Repayments of liability related to sale-leaseback of building
|
|
|
(360 |
) |
|
|
|
|
|
|
|
|
Repayments of borrowings under convertible notes
|
|
|
|
|
|
|
(1,860 |
) |
|
|
|
|
Payment received on stockholder notes receivable
|
|
|
467 |
|
|
|
596 |
|
|
|
174 |
|
Proceeds from exercise of stock options and stock purchase plan,
net of repurchase of unvested shares
|
|
|
2,484 |
|
|
|
6,140 |
|
|
|
1,724 |
|
Proceeds from issuance of convertible debt, net of issue costs
|
|
|
|
|
|
|
145,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
15,491 |
|
|
|
149,988 |
|
|
|
1,537 |
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(40,441 |
) |
|
|
28,954 |
|
|
|
(34,971 |
) |
Cash and cash equivalents at beginning of year
|
|
|
69,872 |
|
|
|
40,918 |
|
|
|
75,889 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
29,431 |
|
|
$ |
69,872 |
|
|
$ |
40,918 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$ |
9,512 |
|
|
$ |
7,731 |
|
|
$ |
6,578 |
|
Cash paid for taxes
|
|
$ |
42 |
|
|
$ |
334 |
|
|
$ |
159 |
|
Supplemental schedule of non-cash investing and financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of convertible promissory note on asset purchase
|
|
$ |
16,270 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of convertible promissory note on acquisition of
subsidiary
|
|
$ |
12,061 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of convertible promissory note for minority investment
|
|
$ |
3,750 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock and warrants and assumption of options
in connection with acquisitions
|
|
$ |
52,752 |
|
|
$ |
147 |
|
|
$ |
6,883 |
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for fees associated with the purchase
of assets
|
|
$ |
|
|
|
$ |
1,237 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of promissory notes on acquisition of product line
|
|
$ |
|
|
|
$ |
|
|
|
$ |
6,750 |
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon conversion of promissory note
|
|
$ |
|
|
|
$ |
|
|
|
$ |
6,750 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-9
FINISAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
1. |
Summary of Significant Accounting Policies |
Finisar Corporation was incorporated in the state of California
on April 17, 1987. In November 1999, Finisar Corporation
reincorporated in the state of Delaware. Finisar Corporation
designs, manufactures, and markets fiber optic subsystems and
components and network test and monitoring systems for
high-speed data communications.
These consolidated financial statements include the accounts of
Finisar Corporation and its wholly-owned subsidiaries
(collectively Finisar or the Company).
Intercompany accounts and transactions have been eliminated in
consolidation.
The Company maintains its financial records on the basis of a
fiscal year ending on April 30, with fiscal quarters ending
on the Sunday closest to the end of the period (thirteen-week
periods). For ease of reference, all references to period end
dates have been presented as though the period ended on the last
day of the calendar month. The first three quarters of fiscal
2005 ended on August 1, 2004, October 31, 2004 and
January 30, 2005, respectively. The first three quarters of
fiscal 2004 ended on July 27, 2003, October 26, 2003
and January 25, 2004, respectively. The first three
quarters of fiscal 2003 ended on July 28, 2002,
October 27, 2002 and January 26, 2003, respectively.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these
estimates.
The Companys revenue transactions consist predominately of
sales of products to customers. The Company follows
SEC Staff Accounting Bulletin (SAB) No. 104
Revenue Recognition. Specifically, the Company recognizes
revenue when persuasive evidence of an arrangement exists, title
and risk of loss have passed to the customer (generally upon
shipment), the price is fixed or determinable and collectability
is reasonably assured. For those arrangements with multiple
elements, or in related arrangements with the same customer, the
Company invoices and charges for each separate element and
allocates revenue to the separate elements based upon each
elements fair value as determined by the list price for
each element.
At the time revenue is recognized, the Company establishes an
accrual for estimated warranty expenses associated with sales,
recorded as a component of cost of revenues. The Companys
customers and distributors generally do not have return rights.
However, the Company has established an allowance for estimated
customer returns, based on historical experience, which is
netted against revenue.
Statement of Financial Accounting Standards
(SFAS) No. 131 Disclosures about Segments of an
Enterprise and Related Information establishes standards for
the way that public business enterprises report information
about operating segments in annual financial statements and
requires that those enterprises report selected information
about operating segments in interim financial reports.
SFAS 131 also establishes standards for related disclosures
about products and services, geographic areas and major
customers. The
F-10
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Company has determined that it operates in two segments
consisting of optical subsystems and components and network test
and monitoring systems.
|
|
|
Concentrations of Credit Risk |
Financial instruments which potentially subject Finisar to
concentrations of credit risk include cash, cash equivalents,
short-term and restricted investments and accounts receivable.
Finisar places its cash, cash equivalents and short-term and
restricted investments with high-credit quality financial
institutions. Such investments are generally in excess of
Federal Deposit Insurance Corporation (FDIC) insurance
limits. Concentrations of credit risk, with respect to accounts
receivable, exist to the extent of amounts presented in the
financial statements. Generally, Finisar does not require
collateral or other security to support customer receivables.
Finisar performs periodic credit evaluations of its customers
and maintains an allowance for potential credit losses based on
historical experience and other information available to
management. Losses to date have been within managements
expectations. At April 30, 2005 and April 30, 2004,
one optical subsystems and components customer, Cisco Systems,
represented 19.9% and 12.2%, respectively, of total accounts
receivable.
|
|
|
Current Vulnerabilities Due to Certain
Concentrations |
Finisar sells products primarily to customers located in North
America. During fiscal 2005, 2004 and 2003, sales of optical
subsystems to Cisco Systems represented 27.8%, 22.2% and 10.4%,
respectively, of total revenues. No other customer accounted for
more than 10% of revenues in any of these fiscal years.
|
|
|
Foreign Currency Translation |
The functional currency of our foreign subsidiaries is the local
currency. 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
exchange rates prevailing during the year. Any translation
adjustments resulting from this process are shown separately as
a component of accumulated other comprehensive income. Foreign
currency transaction gains and losses are included in the
determination of net loss.
Research and development expenditures are charged to operations
as incurred.
Advertising costs are expensed as incurred. Advertising is used
infrequently in marketing the Companys products.
Advertising costs during fiscal 2005, 2004 and 2003 were
$580,000, $242,000, and $750,000, respectively.
|
|
|
Shipping and Handling Costs |
The Company records costs related to shipping and handling in
cost of sales for all periods presented.
|
|
|
Cash and Cash Equivalents |
Finisars cash equivalents consist of money market funds
and highly liquid short-term investments with qualified
financial institutions. Finisar considers all highly liquid
investments with an original maturity from the date of purchase
of three months or less to be cash equivalents.
F-11
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Short-term investments consist of interest bearing securities
with maturities of greater than 90 days from the date of
purchase and an equity security. Pursuant to Statement of
Financial Accounting Standard No. 115, Accounting for
Certain Investments in Debt and Equity Securities
(SFAS 115), the Company has classified its
short-term investments as available-for-sale. Available-for-sale
securities are stated at market value, which approximates fair
value, and unrealized holding gains and losses, net of the
related tax effect, are excluded from earnings and are reported
as a separate component of accumulated other comprehensive
income until realized. A decline in the market value of the
security below cost that is deemed other than temporary is
charged to earnings, resulting in the establishment of a new
cost basis for the security.
Restricted investments consist of interest bearing securities
with maturities of greater than three months from the date of
purchase and investments held in escrow under the terms of the
Companys convertible subordinated notes. In accordance
with SFAS 115, the Company has classified its restricted
investments as held-to-maturity. Held-to-maturity securities are
stated at amortized cost.
The Company uses the cost method of accounting for investments
in companies that do not have a readily determinable fair value
in which it holds an interest of less than 20% and over which it
does not have the ability to exercise significant influence. For
entities in which the Company holds an interest of greater than
20% or in which the Company does have the ability to exercise
significant influence, the Company uses the equity method. In
determining if and when a decline in the market value of these
investments below their carrying value is other-than-temporary,
the Company evaluates the market conditions, offering prices,
trends of earnings and cash flows, price multiples, prospects
for liquidity and other key measures of performance. The
Companys policy is to recognize an impairment in the value
of its minority equity investments when clear evidence of an
impairment exists, such as (a) the completion of a new
equity financing that may indicate a new value for the
investment, (b) the failure to complete a new equity
financing arrangement after seeking to raise additional funds or
(c) the commencement of proceedings under which the assets
of the business may be placed in receivership or liquidated to
satisfy the claims of debt and equity stakeholders. The
Companys minority investments in private companies are
generally made in exchange for preferred stock with a
liquidation preference that is intended to help protect the
underlying value of its investment.
|
|
|
Fair Value of Financial Instruments |
The carrying amounts of certain of the Companys financial
instruments, including cash and cash equivalents, accounts
receivable, accounts payable, accrued compensation and other
accrued liabilities, approximate fair value because of their
short maturities. As of April 30, 2005 and 2004, the fair
value of the Companys convertible subordinated debt was
approximately $206.6 million and $230.2 million,
respectively.
Inventories are stated at the lower of cost (determined on a
first-in, first-out basis) or market.
The Company permanently writes down the cost of inventory that
the Company specifically identifies and considers obsolete or
excessive to fulfill future sales estimates. The Company defines
obsolete inventory as inventory that will no longer be used in
the manufacturing process. Excess inventory is generally defined
as inventory in excess of projected usage and is determined
using managements best estimate of future demand, based
upon information then available to the Company. The Company also
considers: (1) parts and
F-12
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
subassemblies that can be used in alternative finished products,
(2) parts and subassemblies that are unlikely to be
engineered out of the Companys products, and
(3) known design changes which would reduce the
Companys ability to use the inventory as planned.
|
|
|
Property, Equipment and Improvements |
Property, equipment and improvements are stated at cost, net of
accumulated depreciation and amortization. Property, plant,
equipment and improvements are depreciated on a straight-line
basis over the estimated useful lives of the assets, generally
three years to seven years except for buildings which are
depreciated over 40 years. Land is carried at acquisition
cost and not depreciated. Leased land is depreciated over the
life of the lease.
|
|
|
Goodwill and Other Intangible Assets |
Goodwill and other intangible assets result from acquisitions
accounted for under the purchase method. Amortization of
goodwill and other intangibles has been provided on a
straight-line basis over periods ranging from three to five
years. The amortization of goodwill ceased with the adoption of
SFAS 142 beginning in the first quarter of fiscal 2003 (see
Note 4).
|
|
|
Accounting for the Impairment of Long-Lived Assets |
The Company periodically evaluates whether changes have occurred
to long-lived assets that would require revision of the
remaining estimated useful life of the property, improvements
and assigned intangible assets or render them not recoverable.
If such circumstances arise, the Company uses an estimate of the
undiscounted value of expected future operating cash flows to
determine whether the long-lived assets are impaired. If the
aggregate undiscounted cash flows are less than the carrying
amount of the assets, the resulting impairment charge to be
recorded is calculated based on the excess of the carrying value
of the assets over the fair value of such assets, with the fair
value determined based on an estimate of discounted future cash
flows.
Finisar accounts for employee stock option grants in accordance
with Accounting Principles Board (APB) Opinion No. 25
Accounting for Stock Issued to Employees and complies
with the disclosure provisions of SFAS No. 123
Accounting for Stock-Based Compensation and
SFAS No. 148 Accounting for Stock-based
Compensation Transition and Disclosure. The
Company accounts for stock issued to non-employees in accordance
with provisions of SFAS No. 123 and Emerging Issues
Task Force Issue No. 96-18 Accounting for Equity
Investments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling Goods or Services.
F-13
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The following table illustrates the effect on net loss and loss
per share if the Company had applied the fair value recognition
provisions of SFAS 123 to employee stock benefits,
including shares issued under the Companys stock option
plans and Employee Stock Purchase Plan (collectively
options). For purposes of these pro forma
disclosures, the estimated fair value of the options is assumed
to be amortized to expense over the options vesting
periods and the amortization of deferred compensation has been
added back. Pro forma information follows (in thousands, except
per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Net loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
(114,107 |
) |
|
$ |
(113,833 |
) |
|
$ |
(619,753 |
) |
|
|
|
|
|
|
|
|
|
|
Add stock based employee compensation reported in net loss
|
|
|
162 |
|
|
|
(12 |
) |
|
|
(1,719 |
) |
|
|
|
|
|
|
|
|
|
|
Deduct total stock based employee compensation expense
determined under fair value based method for all awards
|
|
|
(20,360 |
) |
|
|
(29,813 |
) |
|
|
(9,288 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
$ |
(134,305 |
) |
|
$ |
(143,658 |
) |
|
$ |
(630,760 |
) |
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
(0.49 |
) |
|
$ |
(0.53 |
) |
|
$ |
(3.17 |
) |
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$ |
(0.58 |
) |
|
$ |
(0.66 |
) |
|
$ |
(3.22 |
) |
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic and diluted reported and pro
forma net loss per share
|
|
|
232,210 |
|
|
|
216,117 |
|
|
|
195,666 |
|
The fair value of the Companys stock option grants prior
to the Companys initial public offering was estimated at
the date of grant using the minimum value option valuation
model. The fair value of the Companys stock options grants
subsequent to the initial public offering was valued using the
Black-Scholes valuation model based on the actual stock closing
price on the day previous to the date of grant. These option
valuation models were developed for use in estimating the fair
value of traded options that have no vesting restrictions and
are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions. Because
Finisars stock-based awards have characteristics
significantly different from those of traded options and because
changes in the subjective input assumptions can materially
affect the fair value estimate, in managements opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of its stock-based awards. The fair
value of these options at the date of grant was estimated using
the following weighted-average assumptions for fiscal 2005, 2004
and 2003: risk-free interest rates of 3.5%, 2.1%, and 2.4%,
respectively; a dividend yield of 0%; a volatility factor of
1.17, 0.89, and 1.27, respectively; and a weighted-average
expected life of the option of 3.28, 3.0 and 3.0 years,
respectively.
Basic and diluted net loss per share are presented in accordance
with SFAS No. 128 Earnings Per Share for all
periods presented. Basic net loss per share has been computed
using the weighted-average number of shares of common stock
outstanding during the period. Diluted net loss per share has
been computed using the weighted-average number of shares of
common stock and dilutive potential common shares from options
and warrants (under the treasury stock method), convertible
redeemable preferred stock (on an if-converted basis) and
convertible notes (on an as-if-converted basis) outstanding
during the period.
F-14
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The following table presents the calculation of basic and
diluted net loss per share (in thousands, except per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(114,107 |
) |
|
$ |
(113,833 |
) |
|
$ |
(619,753 |
) |
|
|
|
|
|
|
|
|
|
|
Denominator for basic net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding total
|
|
|
232,274 |
|
|
|
217,268 |
|
|
|
200,382 |
|
|
Weighted-average shares outstanding subject to
repurchase
|
|
|
(64 |
) |
|
|
(831 |
) |
|
|
(2,681 |
) |
|
Weighted-average shares outstanding performance stock
|
|
|
|
|
|
|
(320 |
) |
|
|
(2,035 |
) |
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding basic and diluted
|
|
|
232,210 |
|
|
|
216,117 |
|
|
|
195,666 |
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$ |
(0.49 |
) |
|
$ |
(0.53 |
) |
|
$ |
(3.17 |
) |
|
|
|
|
|
|
|
|
|
|
Common stock equivalents related to potentially dilutive
securities excluded from computation above because they are
anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
|
4,521 |
|
|
|
11,765 |
|
|
|
2,975 |
|
|
Stock subject to repurchase
|
|
|
64 |
|
|
|
831 |
|
|
|
2,681 |
|
|
Conversion of convertible subordinated notes
|
|
|
58,647 |
|
|
|
41,512 |
|
|
|
22,645 |
|
|
Conversion of convertible notes
|
|
|
14,981 |
|
|
|
|
|
|
|
|
|
|
Deferred share consideration in acquisitions
|
|
|
|
|
|
|
1 |
|
|
|
1,455 |
|
|
Warrants assumed in acquisition
|
|
|
942 |
|
|
|
1,004 |
|
|
|
86 |
|
|
|
|
|
|
|
|
|
|
|
Potentially dilutive securities
|
|
|
79,155 |
|
|
|
55,113 |
|
|
|
29,842 |
|
|
|
|
|
|
|
|
|
|
|
Financial Accounting Standards Board Statement of Financial
Accounting Standard No. 130, Reporting Comprehensive
Income (SFAS 130) establishes rules for
reporting and display of comprehensive income and its
components. SFAS 130 requires unrealized gains or losses on
the Companys available-for-sale securities and foreign
currency translation adjustments to be included in comprehensive
income.
The components of comprehensive loss for the fiscal years ended
April 30, 2005, 2004 and 2003 were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Net loss
|
|
$ |
(114,107 |
) |
|
$ |
(113,833 |
) |
|
$ |
(619,753 |
) |
Foreign currency translation adjustment
|
|
|
136 |
|
|
|
191 |
|
|
|
(500 |
) |
Change in unrealized gain (loss) on securities, net of
reclassification adjustments for realized gain/(loss)
|
|
|
(465 |
) |
|
|
(322 |
) |
|
|
550 |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$ |
(114,436 |
) |
|
$ |
(113,964 |
) |
|
$ |
(619,703 |
) |
|
|
|
|
|
|
|
|
|
|
F-15
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The components of accumulated other comprehensive loss, net of
taxes, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
April 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Net unrealized gains/(losses) on available-for-sale securities
|
|
$ |
(496 |
) |
|
$ |
(31 |
) |
Cumulative translation adjustment
|
|
|
877 |
|
|
|
741 |
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
$ |
381 |
|
|
$ |
710 |
|
|
|
|
|
|
|
|
|
|
|
Effect of New Accounting Statements |
In December 2004, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards
(SFAS) 123R, which replaces SFAS 123 and supersedes
Accounting Principles Board (APB) 25. As permitted by
SFAS 123, the Company currently account for share-based
payments to employees using APB 25s intrinsic value
method. Under APB 25 the Company generally recognize no
compensation expense for employee stock options, as the exercise
prices of the options granted are usually equal to the quoted
market price of our common stock on the day of the grant.
SFAS 123R requires all share-based payments to employees,
including grants of employee stock options, to be recognized in
the financial statements based on their fair values, except in
limited circumstances when stock options have been exchanged in
a business combination. The pro forma disclosures previously
permitted under SFAS 123 will no longer be an alternative
to financial statement recognition. In April 2005, the Security
and Exchange Commission (SEC) issued a rule delaying the
required adoption date for SFAS 123R to the first interim
period of the first fiscal year beginning on or after
June 15, 2005. The Company will adopt SFAS 123R as of
May 1, 2006.
Under SFAS 123R, the Company must determine the appropriate
fair value model to be used for valuing share-based payments,
the amortization method of compensation cost and the transition
method to be used at date of adoption. The transition methods
include retroactive and prospective adoption options. The
prospective method requires that compensation expense be
recorded for all unvested stock options and restricted stock at
the beginning of the first quarter of adoption. The retroactive
method requires that compensation expense for all unvested stock
options and restricted stock begins with the first period
restated. Under the retroactive option, prior periods may be
restated either as of the beginning of the year of adoption or
for all periods presented. The Company expects to adopt
SFAS 123R under the prospective method. The Company is
evaluating the requirements of SFAS 123R and have not yet
determined the effect of adopting SFAS 123R or whether the
adoption will result in amounts that are similar to the current
pro forma disclosures under SFAS 123, although the Company
expects that the adoption of SFAS 123R will result in
significant stock-based compensation expense.
In December 2004, the FASB issued SFAS 153, Exchanges of
Nonmonetary Assets, as an amendment of APB 29, Accounting
for Nonmonetary Transactions. SFAS 153 addresses the
measurement of exchanges of nonmonetary assets and eliminates
the exception from fair value measurement for nonmonetary
exchanges of similar productive assets in APB 29 and
replaces it with an exception for exchanges that do not have
commercial substance. This Statement specifies that a
nonmonetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a
result of the exchange. The provisions of this Statement are
effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005 and must be applied
prospectively. We do not expect that the adoption of
SFAS 153 will have a material effect on our results of
operations.
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs an Amendment of APB No. 43,
Chapter 4, or SFAS 151, which is the result of the
FASBs efforts to converge U.S. accounting standards
for inventory with International Accounting Standards.
SFAS 151 requires abnormal amounts of idle facility
expense, freight, handling costs, and wasted material to be
recognized as current-period charges. It also
F-16
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the
production facilities. SFAS 151 is effective for inventory
costs incurred during fiscal years beginning after June 15,
2005. The Company does not expect the adoption of SFAS 151
to have a material impact on our results of operations.
|
|
2. |
Business Combinations and Asset Acquisitions |
|
|
|
Acquisition of Honeywell VCSEL Optical Products
Business |
On March 1, 2004, the Company completed the acquisition of
Honeywell International Inc.s VCSEL Optical Products
business unit for a purchase price and transaction expenses
totaling approximately $80.9 million in cash and
$1.2 million in the Companys common stock. The
acquisition was accounted for under the purchase method of
accounting. The acquisition was undertaken to lower the
Companys cost of goods sold as a result of being more
vertically integrated, to gain access to intellectual property
and know-how associated with making short wavelength VCSELs for
both data communications and other market applications in the
future and the additional revenue and earnings growth associated
with new product opportunities. The amount of goodwill recorded
in this acquisition reflected the value to be realized
associated with these incremental cost savings and future
revenue opportunities. The results of operations of this
business unit, which the Company now refers to as our Advanced
Optical Components Division, are included in the Companys
consolidated financial statements beginning on March 1,
2004.
|
|
|
Acquisition of Assets of Data Transit Corp. |
On August 6, 2004, the Company completed the purchase of
substantially all of the assets of Data Transit Corp. in
exchange for a cash payment of $500,000 and the issuance of a
convertible promissory note in the original principal amount of
$16.3 million. Transaction costs totaled $682,000. The
acquisition of Data Transit expanded the Companys product
offering for testing and monitoring systems, particularly those
systems based on the SAS and SATA protocols used in the disk
drive industry. The amount of goodwill recorded with this
acquisition reflected the incremental earnings associated with
selling this new test and monitoring capability, the underlying
know-how for making these products which the Company plans to
incorporate into its XGig product platform and cost synergies
associated with integrating the operations of Data Transit with
the Companys Network Tools Division. The principal balance
of the note issued in this acquisition bears interest at
8% per annum and is due and payable, if not earlier
converted, on the second anniversary of its issuance. Generally,
the terms of the convertible promissory note provide for
automatic conversion of the outstanding principal and interest
into shares of our common stock on a biweekly basis, commencing
on the later of the effectiveness of a registration statement
covering the resale of the shares or one year after the closing
date. The conversion price is the average closing bid price of
the stock for the three days preceding the date of conversion.
The amount of principal and interest to be converted on each
conversion date is based on the average trading volume of our
common stock over the preceding 14 days. The acquisition
was accounted for as a purchase and, accordingly, the results of
operations of the acquired assets (beginning with the closing
date of the acquisition) and the estimated fair value of assets
acquired were included in the Companys consolidated
financial statements beginning in the second quarter of fiscal
2005.
|
|
|
Acquisition of Transceiver and Transponder Product Line
From Infineon Technologies AG |
On April 29, 2004, the Company entered into an agreement
with Infineon Technologies AG to acquire Infineons
fiber optics business unit. On October 11, 2004, the
Company entered into an amended purchase agreement under which
the terms of the original acquisition agreement were modified.
On January 25, 2005, the Company and Infineon terminated
the amended purchase agreement and entered into a new agreement
under which the Company acquired certain assets of
Infineons fiber optics business unit associated with the
design, development and manufacture of optical transceiver and
transponder products in exchange for
F-17
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
34 million shares of the Companys common stock. The
closing of the acquisition took place on January 31, 2005,
the first day of the Companys fourth quarter of fiscal
2005. The acquisition expanded the Companys product
offering and customer base for optical transceivers and
transponders and expanded its portfolio of intellectual property
used in designing and manufacturing these products as well as
those to be developed in the future. The amount of goodwill
recorded in this acquisition reflected the value to be realized
associated with cost savings resulting from integrating these
products with the Companys Optical Subsystems and
Components Division as well as the incremental growth in revenue
and earnings from the sale of future products. The Company did
not acquire any employees or assume any liabilities as part of
the acquisition, except for obligations under customer
contracts. The acquisition was accounted for as a purchase and,
accordingly, the results of operations of the acquired assets
(beginning with the closing date of the acquisition) and the
estimated fair value of assets acquired were included in the
Companys consolidated financial statements beginning in
the fourth quarter of fiscal 2005.
|
|
|
Acquisition of I-TECH CORP. |
On April 8, 2005, the Company completed the acquisition of
I-TECH CORP, a privately-held network test and monitoring
company based in Eden Prairie, Minnesota. The acquisition
expanded the Companys product offering for testing and
monitoring systems, particularly for those systems relying on
the use of the Fibre Channel protocol, and expanded its
portfolio of intellectual property used in designing and
manufacturing these products as well as those to be developed in
the future. The amount of goodwill recorded with this
acquisition reflected the underlying patents and know-how used
in manufacturing future products and cost synergies associated
with integrating the operations of I-TECH with the
Companys Network Tools Division. The acquisition agreement
provided for the merger of I-TECH with a wholly-owned subsidiary
of Finisar and the issuance by Finisar to the sole holder of
I-TECHs common stock of promissory notes in the aggregate
principal amount of approximately $12.1 million which are
convertible into shares of Finisar common stock over a period of
one year following the closing of the acquisition. The exact
number of shares of Finisar common stock to be issued pursuant
to the promissory notes is dependent on the trading price of
Finisars common stock on the dates of conversion of the
notes. The results of operations of I-TECH (beginning with the
closing date of the acquisition) and the estimated fair value of
assets acquired were included in the Companys consolidated
financial statements beginning in the fourth quarter of fiscal
2005.
F-18
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The following is a summary of business combinations
(BC) and asset acquisitions (AA) made by
the Company during the three-year period ended April 30,
2005. All of the business combinations were accounted for under
the purchase method of accounting:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating | |
|
Acquisition | |
Entity Name |
|
Type | |
|
Description of Business |
|
Segment | |
|
Date | |
|
|
| |
|
|
|
| |
|
| |
Fiscal 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Data Transit Corp. (Data Transit)
|
|
|
AA |
|
|
Network test and monitoring software |
|
|
2 |
|
|
|
August 6, 2004 |
|
Infineon Technologies A. G. (Infineon) transceiver
and transponder product lines
|
|
|
AA |
|
|
Optical components |
|
|
1 |
|
|
|
January 31, 2005 |
|
I-TECH Corp. (I-TECH)
|
|
|
BC |
|
|
Network test and monitoring products |
|
|
2 |
|
|
|
April 8, 2005 |
|
Fiscal 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Honeywell International Inc. (Honeywell) optical
products business unit
|
|
|
AA |
|
|
VCSEL optical components |
|
|
1 |
|
|
|
March 1, 2004 |
|
Fiscal 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Genoa Corporation (Genoa)
|
|
|
BC |
|
|
Active optical components for data communication and
telecommunications applications |
|
|
1 |
|
|
|
April 3, 2003 |
|
New Focus Inc (New Focus)
|
|
|
AA |
|
|
Purchase of certain assets and intellectual property of New
Focus passive optical components line |
|
|
1 |
|
|
|
May 10, 2002 |
|
|
|
(1) |
Optical Subsystems and Components |
|
(2) |
Network Performance Test and Monitoring |
The following is a summary (in thousands) of the consideration
paid by the Company for each of these business combinations and
asset acquisitions. For transactions in which shares of Finisar
common stock were issued at closing, the value of the shares was
determined in accordance with EITF 99-12 using the average
closing price of Finisar common stock for the five day period
ending two days after the announcement of the transaction.
F-19
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock | |
|
Options/Warrants | |
|
|
|
|
|
|
|
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
Number and | |
|
|
|
Number and | |
|
Convertible | |
|
Cash Including | |
|
Total | |
|
|
Value | |
|
Type of | |
|
Value | |
|
Type of | |
|
Note | |
|
Acquisition Costs | |
|
Consideration | |
Entity Name |
|
$(000) | |
|
Shares(1)(2) | |
|
$(000) | |
|
Shares(2) | |
|
$(000) | |
|
$(000) | |
|
$(000) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Fiscal 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Data Transit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,270 |
|
|
|
1,450 |
|
|
|
17,720 |
|
Infineon
|
|
|
52,496 |
|
|
|
34,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,427 |
|
|
|
59,923 |
|
I-TECH
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,061 |
|
|
|
157 |
|
|
|
12,218 |
|
Fiscal 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Honeywell
|
|
|
1,237 |
|
|
|
545,349 |
(C) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,854 |
(2) |
|
|
82,091 |
|
Fiscal 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Genoa
|
|
|
5,727 |
|
|
|
6,753,247 |
(C) |
|
|
671 |
|
|
|
1,029,601 |
(W) |
|
|
|
|
|
|
500 |
|
|
|
6,898 |
|
New Focus
|
|
|
6,750 |
|
|
|
4,027,446 |
(C) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,384 |
|
|
|
12,134 |
|
|
|
(1) |
Shares of common stock (C) or warrants to purchase common
stock (W). |
|
(2) |
Including $5,583 included in other accrued liabilities as of
April 30, 2004. |
The following is a summary of the initial purchase price
allocation for each of the Companys business combinations
and asset acquisitions (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Assets Acquired | |
|
|
|
|
|
|
| |
|
|
|
|
Net | |
|
|
|
In-process | |
|
|
|
|
|
|
Tangible | |
|
Developed | |
|
Research & | |
|
Customer | |
|
|
|
|
Entity Name |
|
Assets | |
|
Technology | |
|
Development | |
|
Base | |
|
Tradename | |
|
Goodwill | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Fiscal 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Data Transit
|
|
$ |
1,813 |
|
|
$ |
6,414 |
|
|
$ |
318 |
|
|
$ |
2,100 |
|
|
$ |
758 |
|
|
$ |
6,317 |
|
|
$ |
17,720 |
|
Infineon
|
|
$ |
9,877 |
|
|
|
4,567 |
|
|
|
1,126 |
|
|
|
864 |
|
|
|
|
|
|
|
43,489 |
|
|
$ |
59,923 |
|
I-TECH
|
|
$ |
1,319 |
|
|
|
1,084 |
|
|
|
114 |
|
|
|
750 |
|
|
|
|
|
|
|
8,951 |
|
|
$ |
12,218 |
|
Fiscal 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Honeywell
|
|
$ |
20,414 |
|
|
|
14,862 |
|
|
|
6,180 |
|
|
|
|
|
|
|
|
|
|
|
40,635 |
|
|
$ |
82,091 |
|
Fiscal 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Genoa
|
|
$ |
1,929 |
|
|
|
1,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,838 |
|
|
$ |
6,898 |
|
New Focus
|
|
$ |
1,512 |
|
|
|
10,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12,134 |
|
The amounts allocated to current technology were determined
based on discounted cash flows which result from the expected
sale of products that were being manufactured and sold at the
time of the acquisition over their expected useful life. The
amounts allocated to in-process research and development
(IPRD) were determined through established valuation
techniques in the high-technology industry and were expensed
upon acquisition because technological feasibility had not been
established and no future alternative uses existed. Research and
development costs to bring the products from the acquired
companies to technological feasibility are not expected to have
a material impact on the Companys future results of
operations or cash flows. Goodwill represents the excess of
purchase consideration over the fair value of the assets,
including identifiable intangible assets, net of the fair value
of liabilities assumed. Intangible assets related to the
acquisitions, excluding goodwill, are amortized to expense on a
straight-line basis over their estimated useful lives ranging
from three to five years.
F-20
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The following is a summary of the weighted average amortization
period for intangible assets acquired in fiscal 2005 in years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed | |
|
Customer | |
|
|
|
|
|
|
Technology | |
|
Base | |
|
Tradename | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
Data Transit
|
|
|
4.6 |
|
|
|
6.6 |
|
|
|
7.0 |
|
|
|
5.3 |
|
Infineon
|
|
|
3.0 |
|
|
|
5.0 |
|
|
|
|
|
|
|
3.3 |
|
I-Tech
|
|
|
3.7 |
|
|
|
4.0 |
|
|
|
|
|
|
|
3.8 |
|
The consolidated statements of operations of Finisar presented
throughout this prospectus include the operating results of the
acquired companies from the date of each respective acquisition.
The following unaudited pro forma financial information reflects
the consolidated results of Finisar as if the acquisitions of
Infineon, Data Transit, I-Tech, and the Honeywell VCSEL Optical
Products Business had taken place on May 1, 2003. The pro
forma information primarily includes adjustments for revenue,
depreciation, amortization of acquired developed technology and
other acquired intangible assets, in-process research and
development, and interest on convertible notes. The pro forma
financial information is not necessarily indicative of the
results of operations as it would have been had the transaction
been effected on the assumed date.
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Consolidated | |
|
|
Financial Information for | |
|
|
the Years Ended April 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Revenues
|
|
|
301,723 |
|
|
|
245,366 |
|
Net loss
|
|
|
(110,615 |
) |
|
|
(107,236 |
) |
Net loss per share
|
|
|
(0.44 |
) |
|
|
(0.43 |
) |
|
|
3. |
Loan Related to Acquisition of Assets from New Focus, Inc. |
In partial consideration for the purchase of certain assets from
New Focus, Inc. for a total value of $12.1 million in May
2002, the Company delivered to New Focus a non-interest bearing
convertible promissory note in the principal amount of
$6.75 million. On August 9, 2002, the note was
converted into 4,027,446 shares of common stock. The
Company made payments of $1.4 million in August 2003 and
$2.0 million in September 2004 to pay down minimum
commitments to New Focus under a royalty arrangement entered
into in connection with the acquisition. The remaining minimum
royalty commitment is $2.0 million and has been recorded as
a current liability in the Companys financial statements
at April 30, 2005. Because such payments are not fixed in
time, they have not been discounted as otherwise required under
APB Opinion No. 21.
|
|
4. |
Purchased Intangible Assets Including Goodwill |
In accordance with SFAS 142, the Company performed the
required transitional two-step impairment tests of goodwill and
indefinite-lived intangible assets as of May 1, 2002. In
the first step of the analysis, the Companys assets and
liabilities, including existing goodwill and other intangible
assets, were assigned to its identified reporting units to
determine their carrying value. For this purpose, the reporting
units were determined to be the Companys two business
segments. After comparing the carrying value of each reporting
unit to its fair value, it was determined that goodwill recorded
by both reporting units was impaired. After the second step of
comparing the implied fair value of the goodwill to its carrying
value, the Company recognized a transitional impairment loss of
$460.6 million in the first quarter of fiscal 2003. Of this
impairment loss, $406.4 million was related to the optical
subsystems and components reporting unit and $54.2 million
was
F-21
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
related to the network test and monitoring systems reporting
unit. This loss was recognized as the cumulative effect of an
accounting change. The impairment loss had no income tax effect.
The fair value of the reporting units was determined using the
income approach. The income approach focuses on the
income-producing capability of an asset, measuring the current
value of the asset by calculating the present value of its
future economic benefits such as cash earnings, cost savings,
tax deductions and proceeds from disposition. Value indications
are developed by discounting expected cash flows to their
present value at a rate of return that incorporates the
risk-free rate for the use of funds, the expected rate of
inflation and risks associated with the particular investment.
The calculation for the optical subsystems and components
reporting unit assumed an accelerating rate of growth through
fiscal 2006 (compounded growth rate of 32 percent) followed
by a period of slowing growth through fiscal 2010 (compound
growth rate of 27 percent). The calculation for the network
test and monitoring systems reporting unit assumed a compound
annual growth rate in revenues of approximately 10 percent.
Both calculations assumed a weighted average discount rate of
18 percent.
On May 3, 2002, the Company recorded additional goodwill of
$485,000 in the optical subsystems and components reporting unit
as a result of achievement of certain milestones specified in
the Transwave acquisition agreement. The Company recorded an
impairment loss of $485,000 in the three months ended
July 31, 2002 for this additional consideration, since the
Companys transitional impairment charge, recorded in the
first quarter of the fiscal 2003, indicated it could not be
supported.
In future years, a reduction of the estimated fair values
associated with certain of the Companys reporting units
could result in an additional impairment loss. Also, the Company
is contingently obligated to release from escrow additional
stock consideration related to the acquisition of Transwave,
subject to the satisfaction of certain conditions. Should such
consideration become payable, any resulting goodwill will become
subject to impairment testing at the time the goodwill is
recorded.
As required by SFAS 142, intangible assets that did not
meet the criteria for recognition apart from goodwill were
reclassified. The Company reclassified $6.1 million of net
assembled workforce and customer base to goodwill as of
April 30, 2002.
During the fourth quarters of fiscal 2003, 2004 and 2005, the
Company performed the required annual impairment testing of
goodwill and indefinite-lived intangible assets and determined
that no impairment charge was required.
F-22
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The following financial information reflects consolidated
results adjusted as though the accounting for goodwill and other
intangible assets was consistent in all comparable annual
periods presented (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Reported net loss
|
|
$ |
(114,107 |
) |
|
$ |
(113,833 |
) |
|
$ |
(159,173 |
) |
Add back goodwill (including assembled workforce and customer
base) amortization, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted loss before cumulative effect of an accounting change
|
|
|
(114,107 |
) |
|
|
(113,833 |
) |
|
|
(159,173 |
) |
Cumulative effect of an accounting change
|
|
|
|
|
|
|
|
|
|
|
(460,580 |
) |
|
|
|
|
|
|
|
|
|
|
Adjusted net loss
|
|
$ |
(114,107 |
) |
|
$ |
(113,833 |
) |
|
$ |
(619,753 |
) |
|
|
|
|
|
|
|
|
|
|
Adjusted basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported basic net loss per share
|
|
$ |
(0.49 |
) |
|
$ |
(0.53 |
) |
|
$ |
(0.82 |
) |
Add back goodwill (including assembled workforce and customer
base) amortization, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted loss before cumulative effect of an accounting change
|
|
|
(0.49 |
) |
|
|
(0.53 |
) |
|
|
(0.82 |
) |
Cumulative effect of an accounting change
|
|
|
|
|
|
|
|
|
|
|
(2.35 |
) |
|
|
|
|
|
|
|
|
|
|
Adjusted basic net loss per share
|
|
$ |
(0.49 |
) |
|
$ |
(0.53 |
) |
|
$ |
(3.17 |
) |
|
|
|
|
|
|
|
|
|
|
The following table reflects changes in the carrying amount of
goodwill by reporting unit (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Optical Subsystems | |
|
Network Test and | |
|
Consolidated | |
|
|
and Components | |
|
Monitoring Systems | |
|
Total | |
|
|
| |
|
| |
|
| |
Balance at April 30, 2002
|
|
|
406,357 |
|
|
|
70,223 |
|
|
|
476,580 |
|
Addition related to achievement of milestones
|
|
|
485 |
|
|
|
|
|
|
|
485 |
|
Addition related to acquisition of subsidiary
|
|
|
3,838 |
|
|
|
|
|
|
|
3,838 |
|
Transitional impairment loss
|
|
|
(406,357 |
) |
|
|
(54,223 |
) |
|
|
(460,580 |
) |
Impairment loss
|
|
|
(485 |
) |
|
|
|
|
|
|
(485 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2003
|
|
$ |
3,838 |
|
|
$ |
16,000 |
|
|
$ |
19,838 |
|
|
|
|
|
|
|
|
|
|
|
Addition related to achievement of milestones
|
|
|
147 |
|
|
|
|
|
|
|
147 |
|
Addition related to acquisition of subsidiary
|
|
|
40,635 |
|
|
|
|
|
|
|
40,635 |
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2004
|
|
$ |
44,620 |
|
|
$ |
16,000 |
|
|
$ |
60,620 |
|
|
|
|
|
|
|
|
|
|
|
Addition related to achievement of milestones
|
|
|
256 |
|
|
|
|
|
|
|
256 |
|
Addition related to acquisition of subsidiary
|
|
|
43,546 |
|
|
|
15,268 |
|
|
|
58,814 |
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2005
|
|
$ |
88,422 |
|
|
$ |
31,268 |
|
|
$ |
119,690 |
|
|
|
|
|
|
|
|
|
|
|
During fiscal 2004, the Company recorded additional goodwill in
the optical subsystems and components reporting unit in the
amount of $147,000 as a result of achievement of certain
milestones specified in the Transwave acquisition agreement.
During fiscal 2004, the Company recorded an additional
$40.6 million in conjunction with the acquisition of the
Honeywell VCSEL Optical Products business unit.
During fiscal 2005, the Company recorded additional goodwill in
the optical subsystems and components reporting unit in the
amount of $256,000 as a result of achievement of certain
milestones specified in the
F-23
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Transwave acquisition agreement. In fiscal 2005, the Company
recorded the following additional goodwill in conjunction with
several companies acquired in fiscal 2005: $43.5 million in
conjunction with the Infineon acquisition, $9.0 million in
conjunction with the I-TECH acquisition, and $6.3 million
in conjunction with the Data Transit acquisition.
The following table reflects intangible assets subject to
amortization as of April 30, 2005 and April 30, 2004
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30,2005 | |
|
|
| |
|
|
Gross Carrying | |
|
Accumulated | |
|
Net Carrying | |
|
|
Amount | |
|
Amortization | |
|
Amount | |
|
|
| |
|
| |
|
| |
Purchased technology
|
|
$ |
105,831 |
|
|
$ |
(72,785 |
) |
|
$ |
33,046 |
|
Trade name
|
|
|
3,625 |
|
|
|
(2,465 |
) |
|
|
1,160 |
|
Customer Relationships
|
|
|
3,714 |
|
|
|
(450 |
) |
|
|
3,264 |
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
113,170 |
|
|
$ |
(75,700 |
) |
|
$ |
37,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2004 | |
|
|
| |
|
|
Gross Carrying | |
|
Accumulated | |
|
Net Carrying | |
|
|
Amount | |
|
Amortization | |
|
Amount | |
|
|
| |
|
| |
|
| |
Purchased technology
|
|
$ |
104,387 |
|
|
$ |
(57,481 |
) |
|
$ |
46,906 |
|
Trade name
|
|
|
2,867 |
|
|
|
(1,812 |
) |
|
|
1,055 |
|
Customer Relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
107,254 |
|
|
$ |
(59,293 |
) |
|
$ |
47,961 |
|
|
|
|
|
|
|
|
|
|
|
The amortization expense on these intangible assets for fiscal
2005 was $23.4 million compared to $19.8 million for
fiscal 2004 and $22.7 million for fiscal 2003. During the
second fiscal quarter of 2005, the Company determined that the
remaining intangible assets related to certain purchased passive
optical technology, which was related to the Companys
acquisition of certain assets of New Focus, Inc., was obsolete,
and had a fair value of zero. Accordingly an impairment charge
of $3.7 million was recorded against the remaining net book
value of these assets during the second quarter of fiscal 2005.
Estimated amortization expense for each of the next five fiscal
years ending April 30, is as follows (dollars in thousands):
|
|
|
|
|
Year |
|
Amount | |
|
|
| |
2006
|
|
$ |
19,121 |
|
2007
|
|
|
6,693 |
|
2008
|
|
|
5,440 |
|
2009
|
|
|
3,280 |
|
2010 and beyond
|
|
|
2,936 |
|
|
|
|
|
|
|
$ |
37,470 |
|
|
|
|
|
F-24
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The following is a summary of the Companys
available-for-sale investments as of April 30, 2005 and
2004 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross | |
|
Gross | |
|
|
|
|
Amortized | |
|
Unrealized | |
|
Unrealized | |
|
Market | |
Investment Type |
|
Cost | |
|
Gain | |
|
Loss | |
|
Value | |
|
|
| |
|
| |
|
| |
|
| |
As of April 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
$ |
47,546 |
|
|
$ |
4 |
|
|
$ |
(258 |
) |
|
$ |
47,292 |
|
|
Government agency
|
|
|
32,298 |
|
|
|
1 |
|
|
|
(243 |
) |
|
|
32,056 |
|
|
Municipal
|
|
|
349 |
|
|
|
|
|
|
|
|
|
|
|
349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
80,193 |
|
|
$ |
5 |
|
|
$ |
(501 |
) |
|
$ |
79,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$ |
6,767 |
|
|
$ |
|
|
|
$ |
(1 |
) |
|
$ |
6,766 |
|
|
Short-term investments
|
|
|
73,426 |
|
|
|
5 |
|
|
|
(500 |
) |
|
|
72,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
80,193 |
|
|
$ |
5 |
|
|
$ |
(501 |
) |
|
$ |
79,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
$ |
84,822 |
|
|
$ |
123 |
|
|
$ |
(71 |
) |
|
$ |
84,874 |
|
|
Government agency
|
|
|
35,199 |
|
|
|
36 |
|
|
|
(120 |
) |
|
$ |
35,115 |
|
|
Municipal
|
|
|
1,854 |
|
|
|
5 |
|
|
|
(4 |
) |
|
$ |
1,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
121,875 |
|
|
$ |
164 |
|
|
$ |
(195 |
) |
|
$ |
121,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$ |
48,318 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
48,318 |
|
|
Short-term investments
|
|
|
73,557 |
|
|
|
164 |
|
|
|
(195 |
) |
|
$ |
73,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
121,875 |
|
|
$ |
164 |
|
|
$ |
(195 |
) |
|
$ |
121,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company monitors its investment portfolio for impairment on
a periodic basis in accordance with Emerging Issues Task Force
Issue No. 03-1. In the event that the carrying value of an
investment exceeds its fair value and the decline in value is
determined to be other-than-temporary, an impairment charge is
recorded and a new cost basis for the investment is established.
In order to determine whether a decline in value is
other-than-temporary, the Company evaluates, among other
factors: the duration and extent to which the fair value has
been less than the carrying value; the Companys financial
condition and business outlook, including key operational and
cash flow metrics, current market conditions and future trends
in the our industry; our relative competitive position within
the industry; and the Companys intent and ability to
retain the investment for a period of time sufficient to allow
for any anticipated recovery in fair value. The decline in value
of these investments, shown in the table above as Gross
Unrealized Losses, is primarily related to changes in
interest rates and is considered to be temporary in nature. The
Company has no investments that have been in a continuous
unrealized loss position for more than twelve months.
F-25
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The following is a summary of the Companys
available-for-sale investments as of April 30, by
contractual maturity (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Amortized | |
|
Market | |
|
Amortized | |
|
Market | |
|
|
Cost | |
|
Value | |
|
Cost | |
|
Value | |
|
|
| |
|
| |
|
| |
|
| |
Mature in less than one year
|
|
$ |
39,185 |
|
|
$ |
39,096 |
|
|
$ |
86,889 |
|
|
$ |
86,942 |
|
Mature in one to five years
|
|
|
35,571 |
|
|
|
35,197 |
|
|
|
29,870 |
|
|
|
29,794 |
|
Mature in five to ten years
|
|
$ |
425 |
|
|
$ |
417 |
|
|
$ |
3,565 |
|
|
$ |
3,560 |
|
Mature in over ten years
|
|
$ |
5,012 |
|
|
$ |
4,987 |
|
|
$ |
1,551 |
|
|
$ |
1,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
80,193 |
|
|
$ |
79,697 |
|
|
$ |
121,875 |
|
|
$ |
121,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
While certain of these instruments mature more than one year
from the balance sheet date, they have been classified as
current assets because they are readily marketable and the
Company views these investments as assets which are available
within the year following the balance sheet date should the need
arise. The gross realized gains and losses for fiscal 2005 were
immaterial. The gross realized gain for fiscal 2004 was
$206,000; the gross realized loss for fiscal 2004 was
immaterial. Realized gains and losses were calculated based on
the specific identification method.
The Company has purchased and pledged to a collateral agent, as
security for the exclusive benefit of the holders of the
51/4%
and
21/2% convertible
subordinated notes, U.S. government securities, which will
be sufficient upon receipt of scheduled principal and interest
payments thereon, to provide for the payment in full of the
first eight scheduled interest payments due on each series of
notes. These restricted securities are classified as held to
maturity and are held on the Companys consolidated balance
sheet at amortized cost. The following table summarizes the
Companys restricted securities as of April 30, 2005
and April 30, 2004 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross | |
|
|
|
|
Amortized | |
|
Unrealized | |
|
Market | |
|
|
Cost | |
|
Gain/(Loss) | |
|
Value | |
|
|
| |
|
| |
|
| |
As of April 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Government agency
|
|
$ |
9,110 |
|
|
$ |
(143 |
) |
|
$ |
8,967 |
|
|
|
|
|
|
|
|
|
|
|
|
Classified as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term less than 1 year
|
|
$ |
3,717 |
|
|
$ |
(30 |
) |
|
$ |
3,687 |
|
|
|
Long term 1 to 3 years
|
|
|
5,393 |
|
|
|
(113 |
) |
|
|
5,280 |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
9,110 |
|
|
$ |
(143 |
) |
|
$ |
8,967 |
|
|
|
|
|
|
|
|
|
|
|
As of April 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
Government agency
|
|
$ |
15,250 |
|
|
$ |
(63 |
) |
|
$ |
15,187 |
|
|
|
|
|
|
|
|
|
|
|
|
Classified as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term less than 1 year
|
|
$ |
6,329 |
|
|
$ |
18 |
|
|
$ |
6,347 |
|
|
|
Long term 1 to 3 years
|
|
|
8,921 |
|
|
|
(81 |
) |
|
|
8,840 |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
15,250 |
|
|
$ |
(63 |
) |
|
$ |
15,187 |
|
|
|
|
|
|
|
|
|
|
|
F-26
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Minority investments is comprised of several investments in
other companies accounted for under the cost method and one
investment in another company accounted for under the equity
method.
Included in minority investments at April 30, 2005 is
$15.4 million representing the carrying value of the
Companys minority investment in four privately held
companies accounted for under the cost method. These four
minority investments include a $1.0 million cash investment
in and a $3.75 million convertible note to CyOptics, which
occurred during second and fourth quarters of fiscal 2005 (see
Note 13), and a $4.2 million investment in a private
company which was acquired through the acquisition of
Infineons transceiver and transponder product line in the
fourth quarter of fiscal 2005. Included in minority investments
at April 30, 2004 is $16.5 million representing the
carrying value of the Companys minority investment in five
privately held companies accounted for under the cost method.
During fiscal 2005 and 2004, the Company recorded charges of
$10.0 million and $1.6 million, respectively, for
impairments in the value of these minority investments, which
were recorded in other income (expense), net.
The Companys investments in these early stage companies
was primarily motivated by its desire to gain early access to
new technology. The Companys investments were passive in
nature in that the Company generally did not obtain
representation on the board of directors of the companies in
which it invested. At the time the Company made its investments,
in most cases the companies had not completed development of
their products and the Company did not enter into any
significant supply agreements with any of the companies in which
it invested. The Companys policy is to recognize an
impairment in the value of its minority equity investments when
clear evidence of an impairment exists, such as (a) the
completion of a new equity financing that may indicate a new
value for the investment, (b) the failure to complete a new
equity financing arrangement after seeking to raise additional
funds or (c) the commencement of proceedings under which
the assets of the business may be placed in receivership or
liquidated to satisfy the claims of debt and equity stakeholders.
|
|
|
Equity Method Investments |
Included in minority investments is $6.0 million and
$7.7 million at April 30, 2005 and 2004, respectively,
representing the carrying value of the Companys minority
investment in one private company accounted for under the equity
method. During fiscal 2004, the Company settled its
$6.7 million loan with this company for $1.7 million
in cash and $5.0 million in preferred stock. The Company
had a 27% ownership interest in this company at April 30,
2005 compared to a 31% ownership interest at April 30,
2004. For fiscal 2005 and 2004, the Company recorded expenses of
$1.8 million and $1.3 million, respectively,
representing its share in the loss of this company, which was
recorded in other income (expense), net.
Inventories consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
April 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Raw materials
|
|
$ |
12,657 |
|
|
$ |
20,072 |
|
Work-in-process
|
|
|
10,720 |
|
|
|
8,512 |
|
Finished goods
|
|
|
12,953 |
|
|
|
6,133 |
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$ |
36,330 |
|
|
$ |
34,717 |
|
|
|
|
|
|
|
|
F-27
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
In fiscal 2005, the Company recorded charges of
$11.3 million for excess and obsolete inventory and sold
inventory components that were written-off in prior periods of
$9.3 million, resulting in a net charge to cost of revenues
of $2.0 million. In fiscal 2004, the Company recorded
charges of $22.3 million for excess and obsolete inventory
and sold inventory components that were written-off in prior
periods with an approximate original cost of $17.9 million,
resulting in a net charge to cost of sales of $4.4 million.
In fiscal 2003, the Company recorded charges of
$24.3 million for excess and obsolete inventory and sold
inventory components that were written-off in prior periods with
an approximate original cost of $15.1 million, resulting in
a net charge to cost of revenues of $9.2 million.
In fiscal 2003, the Company recorded a charge of
$24.3 million to cost of revenue to increase its reserve
for excess inventory currently held in both its optical
subsystems and components and network test and monitoring
systems business segments. The breakdown of this charge was as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw | |
|
Work in | |
|
Finished | |
|
|
|
|
Materials | |
|
Process | |
|
Goods | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
Optical subsystems
|
|
$ |
8,741 |
|
|
$ |
7,717 |
|
|
$ |
4,095 |
|
|
$ |
20,553 |
|
Network test
|
|
|
2,664 |
|
|
|
897 |
|
|
|
151 |
|
|
|
3,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
11,405 |
|
|
$ |
8,614 |
|
|
$ |
4,246 |
|
|
$ |
24,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company makes inventory commitment and purchase decisions
based upon sales forecasts. To mitigate the component supply
constraints that have existed in the past and to fill orders
with non-standard configurations, the Company builds inventory
levels for certain items with long lead times and enters into
certain longer-term commitments for certain items. The Company
permanently writes off 100% of the cost of inventory that is
specifically identified and considered obsolete or excessive to
fulfill future sales estimates. The Company defines obsolete
inventory as inventory that will no longer be used in the
manufacturing process. The Company periodically discards
obsolete inventory. Excess inventory is generally defined as
inventory in excess of projected usage, and is determined using
the Companys best estimate of future demand at the time,
based upon information then available. In making these
assessments, the Company is required to make judgments as to the
future demand for current or committed inventory levels. The
Company uses a 12-month demand forecast and in addition also
considers:
|
|
|
|
|
parts and subassemblies that can be used in alternative finished
products; |
|
|
|
parts and subassemblies that are unlikely to be engineered out
of our products; and |
|
|
|
known design changes which would reduce our ability to use the
inventory as planned. |
Significant differences between the Companys estimates and
judgments regarding future timing of product transitions, volume
and mix of customer demand for the Companys products and
actual timing, volume and demand mix may result in additional
write-offs in the future, or additional usage of previously
written-off inventory in future periods for which the Company
would benefit by a reduced cost of revenues in those future
periods.
F-28
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
8. |
Property, Equipment and Improvements |
Property, equipment and improvements consist of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
April 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Land
|
|
$ |
9,747 |
|
|
$ |
18,788 |
|
Buildings
|
|
|
10,593 |
|
|
|
21,271 |
|
Computer equipment
|
|
|
31,674 |
|
|
|
27,712 |
|
Office equipment, furniture and fixtures
|
|
|
3,209 |
|
|
|
3,542 |
|
Machinery and equipment
|
|
|
108,899 |
|
|
|
94,002 |
|
Leasehold improvements
|
|
|
7,786 |
|
|
|
6,858 |
|
Contruction-in-process
|
|
|
3,341 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
175,249 |
|
|
|
172,173 |
|
Accumulated depreciation and amortization
|
|
|
(87,985 |
) |
|
|
(64,437 |
) |
|
|
|
|
|
|
|
Property, equipment and improvements (net)
|
|
$ |
87,264 |
|
|
$ |
107,736 |
|
|
|
|
|
|
|
|
|
|
9. |
Impairment of Tangible Assets |
During the quarter ended January 31, 2005, the Company
recorded an impairment charge of $18.8 million to write
down the carrying value of one of its corporate office
facilities located in Sunnyvale, California upon entering into a
sale-leaseback agreement. The property was written down to its
appraised value, which was based on the work of an independent
appraiser in conjunction with the sale-leaseback agreement. Due
to retention by the Company of an option to acquire the leased
properties at fair value at the end of the fifth year of the
lease, the sale-leaseback transaction was recorded in the
Companys fourth quarter ending April 30, 2005 as a
financing transaction under which the sale will not be recorded
until the option expires or is otherwise terminated. At
April 30, 2005, the carrying value of the financing
liability, included in Other Long-Term Liabilities, was
$12.3 million and the current portion of the financing
liability, included in Current Portion of Long-term Liabilities,
was $200,000.
|
|
10. |
Letter of Credit Reimbursement Agreement |
On April 29, 2005, the Company entered into a letter of
credit reimbursement agreement with Silicon Valley Bank for a
period of one year. Under the terms of the agreement, Silicon
Valley Bank is providing a $7 million letter of credit
facility to house existing letters of credit issued by Silicon
Valley Bank and any other letters of credit that may be required
by the Company. The cost related to the credit facility
consisted of a loan fee of 0.50% of the credit facility amount,
or $35,000, plus the banks out of pocket expenses
associated with the credit facility. The credit facility is
unsecured with a negative pledge on all assets, including
intellectual property. The negative pledge requires that the
Company will not create a security in favor of a subsequent
creditor without the approval of Silicon Valley Bank. The
agreement requires the Company to maintain its primary banking
and cash management relationships with Silicon Valley Bank or
SVB Securities and to maintain a minimum unrestricted cash and
cash equivalents balance, net of any outstanding debt and
letters of credit exposure, of $40 million at all times. At
April 30, 2005 the Company was in compliance with all terms
of this agreement. Outstanding letters of credit secured by this
agreement at April 30, 2005 totaled $2,950,510.
|
|
11. |
Non-recourse Accounts Receivable Purchase Agreement |
On October 29, 2004, the Company entered into a
non-recourse accounts receivable purchase agreement with Silicon
Valley Bank for a period of one year. Under the terms of the
agreement, the Company may sell to
F-29
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Silicon Valley Bank up to $20 million of qualifying
receivables whereby all right, title and interest in the
Companys invoices are purchased by Silicon Valley Bank.
Under the agreement, the Company has no obligation to make any
payments on any of the invoices purchased by Silicon Valley
bank, regardless of failure by account debtors to make their
payments on time. The discount interest for the facility is
based on the number of days in the discount period multiplied by
Silicon Valley Banks prime rate plus 0.50% and a
non-refundable administrative fee of 0.25% of the face amount of
each invoice. Through April 30, 2005, the Company has made
three such sales of receivables, totaling $13.3 million.
Interest expense and fees under this agreement were
approximately $70,000 and $33,000, respectively, for fiscal 2005.
The Companys future commitments at April 30, 2005
include minimum payments under non-cancelable operating lease
agreements, a lease commitment under a sale-leaseback agreement
and non-cancelable purchase obligations as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due in Fiscal Year | |
|
|
| |
Commitments |
|
Total | |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
Thereafter | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Operating leases
|
|
$ |
7,865 |
|
|
$ |
4,814 |
|
|
$ |
1,864 |
|
|
$ |
556 |
|
|
$ |
358 |
|
|
$ |
273 |
|
|
$ |
|
|
Lease commitment under sale- leaseback agreement
|
|
|
51,464 |
|
|
|
2,962 |
|
|
|
3,028 |
|
|
|
3,096 |
|
|
|
3,166 |
|
|
|
3,237 |
|
|
|
35,975 |
|
Purchase obligations
|
|
|
6,449 |
|
|
|
6,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$ |
65,778 |
|
|
$ |
14,225 |
|
|
$ |
4,892 |
|
|
$ |
3,652 |
|
|
$ |
3,524 |
|
|
$ |
3,510 |
|
|
$ |
35,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent expense under the non-cancelable operating leases was
approximately $4.6 million in fiscal 2005,
$2.9 million in fiscal 2004, and $4.0 million in
fiscal 2003. The Company subleases a portion of its facilities
that it considers to be in excess of its requirements. Sublease
income was $20,000 in fiscal 2005, $20,000 in fiscal 2004, and
$142,000 in fiscal 2003. Certain leases have scheduled rent
increases which have been included in the above table. Other
leases contain provisions to adjust rental rates for inflation
during their terms, most of which are based on to-be-published
indices. Rents subject to these adjustments are included in the
above table based on current rates.
Purchase obligations consist of standby repurchase obligations
and are related to materials purchased and held by
subcontractors on behalf of the Company to fulfill the
subcontractors purchase order obligations at their
facilities. The Companys purchase obligations of
$6.5 million has been expensed and recorded on the balance
sheet as non-cancelable purchase obligations as of
April 30, 2005.
The Companys convertible debt is summarized as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest | |
|
Due In | |
Description |
|
Amount | |
|
Rate | |
|
Fiscal Year | |
|
|
| |
|
| |
|
| |
Convertible subordinated notes due 2008
|
|
$ |
100,250 |
|
|
|
5.25 |
% |
|
|
2008 |
|
Convertible subordinated notes due 2010
|
|
|
150,000 |
|
|
|
2.50 |
% |
|
|
2010 |
|
Convertible note Data Transit Acquisition
|
|
|
16,270 |
|
|
|
8.00 |
% |
|
|
2007 |
|
Convertible note I-Tech Acquisition
|
|
|
12,061 |
|
|
|
3.35 |
% |
|
|
2006 |
|
Convertible note CyOptics minority investment
|
|
|
3,750 |
|
|
|
3.35 |
% |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
282,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-30
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The Companys convertible debt is due by fiscal year as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
| |
|
|
Total | |
|
2006 | |
|
2007 | |
|
2008 |
|
2009 | |
|
2010 |
|
Thereafter | |
|
|
| |
|
| |
|
| |
|
|
|
| |
|
|
|
| |
Convertible notes
|
|
$ |
282,331 |
|
|
$ |
15,811 |
|
|
$ |
16,270 |
|
|
$ |
|
|
|
$ |
100,250 |
|
|
$ |
|
|
|
$ |
150,000 |
|
|
|
|
Convertible Subordinated Notes due 2008 |
On October 15, 2001, the Company sold $125 million
aggregate principal amount of
51/4% convertible
subordinated notes due October 15, 2008. Interest on the
notes is
51/4% per
year on the principal amount, payable semiannually on April 15
and October 15. The notes are convertible, at the option of the
holder, at any time on or prior to maturity into shares of the
Companys common stock at a conversion price of
$5.52 per share, which is equal to a conversion rate of
approximately 181.159 shares per $1,000 principal amount of
notes. The conversion price is subject to adjustment.
Because the market value of the stock rose above the conversion
price between the day the notes were priced and the day the
proceeds were collected, the Company recorded a discount of
$38.3 million related to the intrinsic value of the
beneficial conversion feature. This amount is being amortized to
interest expense over the life of the convertible notes, or
sooner upon conversion. During fiscal 2005, 2004 and 2003, the
Company recorded interest expense amortization of
$4.3 million, $10.2 million and $4.8 million,
respectively.
At issuance of the notes, the Company purchased and pledged to a
collateral agent, as security for the exclusive benefit of the
holders of the notes, approximately $15.3 million of
U.S. government securities to provide for the payment in
full of the first six scheduled interest payments due on the
notes. At April 30, 2005, no securities remained pledged,
as the first six scheduled interest payments had been made as of
that date.
The notes are subordinated to all of the Companys existing
and future senior indebtedness and effectively subordinated to
all existing and future indebtedness and other liabilities of
its subsidiaries. Because the notes are subordinated, in the
event of bankruptcy, liquidation, dissolution or acceleration of
payment on the senior indebtedness, holders of the notes will
not receive any payment until holders of the senior indebtedness
have been paid in full. The indenture does not limit the
incurrence by the Company or its subsidiaries of senior
indebtedness or other indebtedness. The Company may redeem the
notes, in whole or in part, at any time on or after
October 15, 2004 up to, but not including, the maturity
date at specified redemption prices, plus accrued and unpaid
interest.
Upon a change in control of the Company, each holder of the
notes may require the Company to repurchase some or all of the
notes at a purchase price equal to 100% of the principal amount
of the notes plus accrued and unpaid interest. Instead of paying
the change of control purchase price in cash the Company may, at
its option, pay it in shares of the Companys common stock
valued at 95% of the average of the closing sales prices of its
common stock for the five trading days immediately preceding and
including the third trading day prior to the date the Company is
required to repurchase the notes. The Company cannot pay the
change in control purchase price in common stock unless the
Company satisfies the conditions described in the indenture
under which the notes have been issued.
The notes are represented by one or more global notes, deposited
with the trustee as custodian for The Depository Trust Company,
or DTC, and registered in the name of Cede & Co.,
DTCs nominee. Beneficial interests in the global notes
will be shown on, and transfers will be effected only through,
records maintained by DTC and its participants. The notes are
eligible for trading in the PORTAL market.
During fiscal 2004, the Company, in privately negotiated
transactions, exchanged and repurchased $24.8 million in
aggregate principal amount of its convertible notes due 2008 for
9,926,339 shares of the Companys common stock and
cash in the amount of $1.9 million. In connection with the
exchanges and repurchases, the Company recorded additional
non-cash interest expense of approximately $10.8 million
F-31
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
representing the fair value of the incremental shares issued to
induce the exchange and non-cash interest expense of
approximately $5.8 million representing the remaining
unamortized discount for the beneficial conversion feature
related to the convertible notes exchanged and repurchased. In
fiscal 2004, $684,000 of unamortized debt issue costs related to
the convertible notes exchanged and repurchased was charged to
additional paid-in capital, and $54,000 was charged to expense.
There were no exchanges and repurchases related to these
convertible notes in 2005.
Unamortized debt issuance costs associated with this note were
$1.9 million and $2.3 million at April 30, 2005
and 2004, respectively. Amortization of prepaid loan costs are
classified as other income (expense), net on the consolidated
statements of operations. Amortization of prepaid loan costs
were $542,000 in fiscal 2005, $569,000 in 2004 and $1,037,000 in
2003.
|
|
|
Convertible Subordinated Notes due 2010 |
On October 15, 2003, the Company sold $150 million
aggregate principal amount of
21/2% convertible
subordinated notes due October 15, 2010. Interest on the
notes is
21/2% per
year, payable semiannually on April 15 and October 15,
beginning on April 15, 2004. The notes are convertible, at
the option of the holder, at any time on or prior to maturity
into shares of the Companys common stock at a conversion
price of $3.705 per share, which is equal to a conversion
rate of approximately 269.9055 shares per $1,000 principal
amount of notes. The conversion price is subject to adjustment.
At issuance of the notes the Company purchased and pledged to a
collateral agent, as security for the exclusive benefit of the
holders of the notes, approximately $14.4 million of
U.S. government securities, which will be sufficient upon
receipt of scheduled principal and interest payments thereon, to
provide for the payment in full of the first eight scheduled
interest payments due on the notes. At April 30, 2005,
approximately $9.1 million of U.S. government
securities remained pledged as security for the note holders.
The notes are subordinated to all of the Companys existing
and future senior indebtedness and effectively subordinated to
all existing and future indebtedness and other liabilities of
its subsidiaries. Because the notes are subordinated, in the
event of bankruptcy, liquidation, dissolution or acceleration of
payment on the senior indebtedness, holders of the notes will
not receive any payment until holders of the senior indebtedness
have been paid in full. The indenture does not limit the
incurrence by the Company or its subsidiaries of senior
indebtedness or other indebtedness. The Company may redeem the
notes, in whole or in part, at any time on or after
October 15, 2007 up to, but not including, the maturity
date at specified redemption prices, plus accrued and unpaid
interest.
Upon a change in control of the Company, each holder of the
notes may require the Company to repurchase some or all of the
notes at a purchase price equal to 100% of the principal amount
of the notes plus accrued and unpaid interest. Instead of paying
the change of control purchase price in cash, the Company may,
at its option, pay it in shares of the Companys common
stock valued at 95% of the average of the closing sales prices
of its common stock for the five trading days immediately
preceding and including the third trading day prior to the date
the Company is required to repurchase the notes. The Company
cannot pay the change in control purchase price in common stock
unless the Company satisfies the conditions described in the
indenture under which the notes have been issued.
The notes were issued in fully registered form and are
represented by one or more global notes, deposited with the
trustee as custodian for The Depository Trust Company, or DTC,
and registered in the name of Cede & Co., DTCs
nominee. Beneficial interests in the global notes will be shown
on, and transfers will be effected only through, records
maintained by DTC and its participants.
The Company has agreed to use its best efforts to file a shelf
registration statement covering the notes and the common stock
issuable upon conversion of the stock and keep such registration
statement effective until two years after the latest date on
which the Company issued notes in the offering (or such earlier
date when
F-32
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
the holders of the notes and the common stock issuable upon
conversion of the notes are able to sell their securities
immediately pursuant to Rule 144(k) under the Securities
Act). If the Company does not comply with these registration
obligations, the Company will be required to pay liquidated
damages to the holders of the notes or the common stock issuable
upon conversion. The Company will not receive any of the
proceeds from the sale by any selling security holders of the
notes or the underlying common stock. A registration statement
covering the notes and the common stock issuable upon conversion
thereof was declared effective in February 2004.
Unamortized debt issuance costs associated with this note were
$3.8 million and $4.5 million at April 30, 2005
and 2004, respectively. Amortization of prepaid loan costs are
classified as Other Income (Expense), Net on the consolidated
statement of operations. Amortization of prepaid loan costs were
$707,000 in fiscal 2005 and $376,000 in 2004.
As of April 30, 2005 and 2004, the fair value of the
Companys convertible subordinated debt was approximately
$206.6 million and $230.2 million, respectively.
|
|
|
Convertible Note Acquisition of Assets of Data
Transit Corp. |
On August 6, 2004, the Company completed the purchase of
substantially all of the assets of Data Transit Corp. in
exchange for a cash payment of $500,000 and the issuance of a
convertible promissory note in the original principal amount of
$16.3 million. Transaction costs totaled $682,000. The
principal balance of the note bears interest at 8% per
annum and is due and payable, if not earlier converted, on the
second anniversary of its issuance. Generally, the terms of the
convertible promissory note provide for automatic conversion of
the outstanding principal and interest into shares of our common
stock on a biweekly basis, commencing on the later of the
effectiveness of a registration statement covering the resale of
the shares or one year after the closing date. Because the
number of shares to be issued is based upon the market price of
our common stock, we are unable at this time to determine the
exact number of shares that will be issued pursuant to the note.
The conversion price is the average closing bid price of the
stock for the three days preceding the date of conversion. The
amount of principal and interest to be converted on each
conversion date is based on the average trading volume of our
common stock over the preceding 14 days.
|
|
|
Convertible Note Acquisition of I-TECH
CORP. |
On April 8, 2005, the Company completed the acquisition of
I-TECH CORP, a privately-held network test and monitoring
company, in exchange for the issuance of two promissory notes to
the sole holder of I-TECHs common stock. The promissory
notes, which have an aggregate principal amount of approximately
$12.1 million and an interest rate of 3.35%, are
convertible into shares of Finisar common stock upon the
occurrence of certain events and at the election of the Company
and the holder of the notes. The exact number of shares of
Finisar common stock to be issued pursuant to the promissory
notes is dependent on the trading price of Finisars common
stock on the dates of conversion of the notes. Because the
number of shares to be issued is based upon the market price of
our common stock, we are unable at this time to determine the
exact number of shares that will be issued pursuant to the note.
|
|
|
Convertible Note Minority Investment in
CyOptics, Inc. |
On April 29, 2005, the Company entered into a Series F
Preferred Stock Purchase Agreement (the SPA) with
CyOptics, Inc. Pursuant to the SPA, the Company issued a
convertible promissory note in the principal amount of
approximately $3.8 million and an interest rate of 3.35% as
consideration for our purchase of 24,298,580 shares of
CyOptics Series F Preferred Stock.
The terms of the note provide for four weekly conversions of
equal portions of the outstanding principal of the note into
shares of our common stock, commencing on June 14, 2005.
The number of shares to be issued
F-33
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
upon each conversion is determined by dividing the amount
converted by the average closing bid price of our common stock
for either (i) the four trading days immediately prior to
the conversion, or (ii) the trading day prior to the
conversion, as selected by the holder of the note. Because the
number of shares to be issued is based upon the market price of
our common stock, we are unable at this time to determine the
exact number of shares that will be issued pursuant to the note.
|
|
|
Common Stock and Preferred Stock |
As of April 30, 2005, Finisar is authorized to issue
500,000,000 shares of $0.001 par value common stock
and 5,000,000 shares of $0.001 par value preferred
stock. (See Subsequent Event footnote, Note 24). The board
of directors has the authority to issue the undesignated
preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof. The holder of
each share of common stock has the right to one vote.
Common stock subject to future issuance as of April 30,
2005 is as follows:
|
|
|
|
|
Conversion of convertible notes
|
|
|
58,647,062 |
|
Conversion of convertible notes issued for acquisitions and
equity method investments
|
|
|
34,857,613 |
|
Exercise of outstanding warrants
|
|
|
942,332 |
|
Exercise of outstanding options
|
|
|
48,796,742 |
|
Available for grant under stock option plans
|
|
|
9,139,672 |
|
Reserved for issuance under the employee stock purchase plan
|
|
|
149,371 |
|
|
|
|
|
|
|
|
152,532,792 |
|
|
|
|
|
In connection with the acquisition of Shomiti Systems, Inc.
(Shomiti) in fiscal 2001, the Company assumed
warrants to purchase stock of Shomiti. These warrants entitle
the holder to purchase 10,153 shares of Finisar common
stock at an exercise price of $11.49. The warrants expire at
various dates through 2007. None of the warrants have been
exercised to date.
In conjunction with the acquisition of Genoa in fiscal 2003, the
Company assumed warrants to purchase stock of Genoa and issued
warrants to purchase stock of Finisar. The assumed warrants
entitle the holders to purchase 29,766 shares of
Finisar common stock at an exercise price of $15.25 and expire
at various dates through 2011. The warrants issued by the
Company entitle the holders to purchase 999,835 shares
of Finisar common stock at an exercise price of $1.00 per
share and expire at various dates through 2011. During 2005,
warrants issued by the Company to
purchase 21,845 shares of Finisar common stock were
exercised.
The Company has authority to issue up to 5,000,000 shares
of preferred stock, $0.001 par value. The preferred stock
may be issued in one or more series having such rights,
preferences and privileges as may be designated by the
Companys board of directors. Pursuant to such Board action
in March 2001, the Company designated 4,500,000 shares of
its preferred stock as Series A Preferred Stock. Each share
of Series A Preferred Stock was automatically convertible
into three shares of the Companys common stock, subject to
adjustment for stock splits, stock dividends, recapitalizations
and similar events, upon the effectiveness of an increase in the
authorized number of shares of the Companys common stock
to not less than the number of shares sufficient to allow the
conversion of each share of the Series A Preferred Stock
(the Charter
F-34
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Amendment). Pending conversion of the Series A
Preferred Stock, a holder of a share of Series A Preferred
Stock had the same rights as a holder of the number of shares of
the Companys common stock into which the share of
Series A Preferred Stock was convertible with respect to
the rights to vote, to receive dividends and to receive
distributions on a liquidation or winding up of Finisar. Shares
of Series A Preferred Stock were issued in connection with
the acquisitions of Shomiti and Transwave. On June 19,
2001, the Charter Amendment was approved and the outstanding
shares of the Series A Preferred Stock were automatically
converted into common stock on a 3-for-1 basis upon the filing
of an amendment to the Companys Certificate of
Incorporation with the Delaware Secretary of State. In September
2002, the Companys board of directors designated
500,000 shares of its preferred stock as Series RP
Preferred Stock, which is reserved for issuance under the
Companys stockholder rights plan described below. As of
April 30, 2005 and 2004, no shares of the Companys
Preferred Stock were issued and outstanding.
Stockholder Rights Plan
In September 2002, Finisars board of directors adopted a
stockholder rights plan. Under the rights plan, stockholders
received one share purchase right for each share of Finisar
common stock held. The rights, which will initially trade with
the common stock, effectively allow Finisar stockholders to
acquire Finisar common stock at a discount from the then current
market value when a person or group acquires 20% or more of
Finisars common stock without prior board approval. When
the rights become exercisable, Finisar stockholders, other than
the acquirer, become entitled to exercise the rights, at an
exercise price of $14.00 per right, for the purchase of
one-thousandth of a share of Finisar Series RP Preferred
Stock or, in lieu of the purchase of Series RP Preferred
Stock, Finisar common stock having a market value of twice the
exercise price of the rights. Alternatively, when the rights
become exercisable, the board of directors may authorize the
issuance of one share of Finisar common stock in exchange for
each right that is then exercisable. In addition, in the event
of certain business combinations, the rights permit the purchase
of the common stock of an acquirer at a 50% discount. Rights
held by the acquirer will become null and void in each case.
Prior to a person or group acquiring 20%, the rights can be
redeemed for $0.001 each by action of the board of directors.
The rights plan contains an exception to the 20% ownership
threshold for Finisars founder, Chairman of the Board and
Chief Technical Officer, Frank H. Levinson. Under the terms of
the rights plan, Dr. Levinson and certain related persons
and trusts are permitted to acquire additional shares of Finisar
common stock up to an aggregate amount of 30% of Finisars
outstanding common stock, without prior Board approval.
|
|
|
1999 Employee Stock Purchase Plan |
Finisars 1999 Employee Stock Purchase Plan was adopted by
the board of directors and approved by the stockholders in
September 1999. A total of 750,000 shares of common stock
were reserved for issuance under the plan, cumulatively
increased by 750,000 shares on May 1, 2001 and each
May 1 thereafter through May 1, 2010. Employees,
including officers and employee directors, are eligible to
participate in the plan if they are employed by Finisar for more
than 20 hours per week and more than five months in any
calendar year. The plan is implemented during sequential
12-month offering periods, generally commencing on or about
December 1 of each year. In addition, a six-month offering
period will generally commence on June 1 of each year.
The employee stock purchase plan permits eligible employees to
purchase Finisar common stock through payroll deductions, which
may not exceed 20% of the employees total compensation.
Stock may be purchased under the plan at a price equal to 85% of
the fair market value of Finisar common stock on either the
first or the last day of the offering period, whichever is lower.
F-35
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
As discussed in Note 1 and as permitted under
SFAS No. 123, Finisar has elected to follow APB
Opinion No. 25 and related interpretations in accounting
for stock-based awards to employees.
During fiscal 1989 and 1999, Finisar adopted the 1989 and 1999
Stock Option Plans (the Plans). Under the Plans,
options to purchase common stock may be granted at an exercise
price of not less than 85% of the fair value of a share of
common stock on the date of grant (110% of the fair value in
certain instances) as determined by the board of directors.
Options generally vest over five years and have a maximum term
of 10 years. All options granted under the Plans are
immediately exercisable. As of April 30, 2005 and 2004,
zero shares and 265,998 shares, respectively, were subject
to repurchase.
Finisars 1999 Stock Option Plan was amended by the board
of directors and approved by the stockholders in September 1999.
The amendment increased the aggregate maximum number of shares
that may be issued under the Plan on May 1, 2001 and each
May 1 thereafter by a number of shares equal to 5% of the
number of shares of Finisars common stock issued and
outstanding as of the immediately preceding April 30,
subject to certain restrictions on the aggregate maximum number
of shares that may be issued pursuant to incentive stock options.
In connection with the acquisitions of Sensors Unlimited and
Demeter, the Company agreed to limit the number of options that
could be granted under the Companys 1999 stock option
plan. The Company also agreed to suspend the automatic annual
increase in shares reserved for issuance under the 1999 stock
option plan until the number of shares of its common stock
authorized for issuance has been increased. Because of the limit
to the number of options that could be granted under the 1999
stock option plan, options to purchase Finisar preferred stock
were issued in conjunction with the assumption of all options
outstanding upon the acquisition of Shomiti, Medusa and
Transwave. These options on preferred stock were automatically
convertible to options to purchase Finisar common stock on a
one-for-three basis at such time as sufficient common stock was
authorized for issuance. Following the stockholders
approval of the increase in the number of shares of common stock
authorized to be issued on June 19, 2001, the limit on the
number of options that could be granted under the 1999 stock
option plan and the suspension of the automatic annual increase
in shares reserved for issuance were lifted, and the options for
Finisar preferred stock were converted to options for Finisar
common stock. In aggregate the Company authorized, after
conversion of options for preferred stock, the issuance of
options to purchase 1,848,239 shares of Finisar common
stock in connection with the assumption of all options upon the
acquisitions of Sensors Unlimited, Demeter, Shomiti, Medusa and
Transwave. The new options that were issued carry forward the
same vesting schedules as the underlying options assumed, which
generally vest over four years.
F-36
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
A summary of activity under the Plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Available | |
|
|
|
|
for Grant | |
|
Options Outstanding | |
|
|
| |
|
| |
|
|
Number of | |
|
|
|
Weighted-Average | |
Options for Common Stock |
|
Shares | |
|
Number of Shares | |
|
Price per Share | |
|
Exercise Price | |
|
|
| |
|
| |
|
| |
|
| |
Balance at April 30, 2002
|
|
|
8,663,198 |
|
|
|
26,606,594 |
|
|
$ |
0.0170-$32.500 |
|
|
$ |
7.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in authorized shares
|
|
|
9,819,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
(23,833,800 |
) |
|
|
23,833,800 |
|
|
$ |
0.4900-$01.7300 |
|
|
$ |
1.38 |
|
Options exercised
|
|
|
|
|
|
|
(220,265 |
) |
|
$ |
0.0200-$04.0100 |
|
|
$ |
0.64 |
|
Options canceled
|
|
|
24,005,956 |
|
|
|
(24,005,956 |
) |
|
$ |
0.0500-$32.5000 |
|
|
$ |
8.28 |
|
Shares repurchased
|
|
|
342,597 |
|
|
|
|
|
|
$ |
0.4400-$01.0000 |
|
|
$ |
0.64 |
|
Options expired
|
|
|
(803,562 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2003
|
|
|
18,193,407 |
|
|
|
26,214,173 |
|
|
$ |
0.0433-$22.5000 |
|
|
$ |
3.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in authorized shares
|
|
|
7,500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
(25,028,803 |
) |
|
|
25,028,803 |
|
|
$ |
1.7900-$03.2600 |
|
|
$ |
1.95 |
|
Options exercised
|
|
|
|
|
|
|
(3,468,165 |
) |
|
$ |
0.0430-$04.0001 |
|
|
$ |
1.39 |
|
Options canceled
|
|
|
4,201,787 |
|
|
|
(4,201,787 |
) |
|
$ |
0.1600-$22.1250 |
|
|
$ |
3.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2004
|
|
|
4,866,391 |
|
|
|
43,573,024 |
|
|
$ |
0.0433-$22.5000 |
|
|
$ |
2.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in authorized shares
|
|
|
11,142,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
(14,797,398 |
) |
|
|
14,797,398 |
|
|
$ |
1.1300-$01.9200 |
|
|
$ |
1.31 |
|
Options exercised
|
|
|
|
|
|
|
(1,662,577 |
) |
|
$ |
0.0433-$01.8000 |
|
|
$ |
0.87 |
|
Options canceled
|
|
|
7,911,103 |
|
|
|
(7,911,103 |
) |
|
$ |
0.1600-$22.1250 |
|
|
$ |
2.55 |
|
Shares repurchased
|
|
|
30,000 |
|
|
|
|
|
|
$ |
0.4700-$0.4700 |
|
|
$ |
0.47 |
|
Options expired
|
|
|
(12,940 |
) |
|
|
|
|
|
$ |
0.1600-$4.0200 |
|
|
$ |
1.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2005
|
|
|
9,139,672 |
|
|
|
48,796,742 |
|
|
$ |
0.0433-$22.500 |
|
|
$ |
2.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-37
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The following table summarizes information about options
outstanding at April 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable | |
|
|
|
|
| |
|
|
|
|
|
|
Weighted-Average | |
|
|
|
|
|
|
|
|
Remaining | |
|
Weighted-Average | |
Exercise Price for Common Stock |
|
Number Outstanding | |
|
Number Exercisable | |
|
Contractual Life | |
|
Exercise Price | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
(In years) | |
|
|
$0.043 - $1.13
|
|
|
5,104,221 |
|
|
|
2,287,806 |
|
|
|
7.19 |
|
|
$ |
0.70 |
|
$1.15 - $1.15
|
|
|
7,309,533 |
|
|
|
1,259,495 |
|
|
|
9.30 |
|
|
$ |
1.15 |
|
$1.18 - $1.50
|
|
|
8,706,337 |
|
|
|
3,422,473 |
|
|
|
7.90 |
|
|
$ |
1.46 |
|
$1.73 - $1.73
|
|
|
2,260,000 |
|
|
|
864,000 |
|
|
|
7.10 |
|
|
$ |
1.73 |
|
$1.79 - $1.79
|
|
|
6,851,638 |
|
|
|
2,446,680 |
|
|
|
8.32 |
|
|
$ |
1.79 |
|
$1.80 - $1.80
|
|
|
7,285,096 |
|
|
|
5,003,420 |
|
|
|
8.14 |
|
|
$ |
1.80 |
|
$1.92 - $2.80
|
|
|
5,194,911 |
|
|
|
932,411 |
|
|
|
8.82 |
|
|
$ |
2.19 |
|
$2.92 - $12.63
|
|
|
4,999,601 |
|
|
|
2,960,005 |
|
|
|
6.64 |
|
|
$ |
4.92 |
|
$19.11 - $22.13
|
|
|
1,082,405 |
|
|
|
846,464 |
|
|
|
5.22 |
|
|
$ |
21.71 |
|
$22.50 - $22.50
|
|
|
3,000 |
|
|
|
2,400 |
|
|
|
5.16 |
|
|
$ |
22.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,796,742 |
|
|
|
20,025,154 |
|
|
|
8.00 |
|
|
$ |
2.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average fair value of options granted for common
stock was $0.92 during fiscal 2005 and $1.06 during fiscal 2004.
In November 2002, the Companys board of directors approved
a voluntary stock option exchange program for eligible option
holders. Under the program, eligible holders of the
Companys options who elected to participate had the
opportunity to tender for cancellation outstanding options in
exchange for new options to be granted on a future date at least
six months and one day after the date of cancellation. Members
of the Companys board of directors were not eligible to
participate in the program. The option exchange program
terminated on December 17, 2002. As of that date, holders
of options to purchase an aggregate of 11,816,890 shares of
common stock tendered their shares for cancellation.
On June 19, 2003, new options to purchase an aggregate of
11,144,690 shares of common stock were granted at an
exercise price of $1.80 per share, the closing price for
the Companys common stock on that date. Each new option
preserves the vesting schedule and the vesting commencement date
of the option it replaced. The Company did not record any
accounting charges as a result of this stock option exchange
program.
|
|
|
Restricted Shares Issued for Promissory Notes |
Certain employees have exercised options to purchase shares of
common stock in exchange for promissory notes. The shares are
restricted and are subject to a right of repurchase at the
original exercise price in favor of the Company. This repurchase
right lapses in accordance with the original vesting schedule of
the option, which is generally five years. During 2005, all of
these outstanding promissory notes were repaid to the Company.
|
|
|
Deferred Stock Compensation |
In connection with the grant of certain stock options to
employees, Finisar recorded deferred stock compensation prior to
the Companys initial public offering, representing the
difference between the deemed value of the Companys common
stock for accounting purposes and the option exercise price of
these options
F-38
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
at the date of grant. During fiscal 2001 and fiscal 2002, the
Company recorded additional deferred compensation related to the
assumptions of stock options associated with companies acquired
during those years Deferred stock compensation is initially
recorded as a reduction of stockholders equity. Graded
amortization is recorded to expense over the five year vesting
period. The amortization expense relates to options awarded to
employees in all operating expense categories. The following
table summarizes additions and adjustments to deferred stock
compensation and amortization of deferred stock compensation to
expense by fiscal year. As of April 30, 2005, all deferred
stock compensation generated had been fully amortized.
|
|
|
|
|
|
|
|
|
|
|
Deferred Stock | |
|
|
|
|
Compensation | |
|
Amortization | |
|
|
Generated | |
|
Expense | |
|
|
| |
|
| |
Fiscal year ended April 30, 1999
|
|
$ |
2,403 |
|
|
$ |
427 |
|
Fiscal year ended April 30, 2000
|
|
|
12,959 |
|
|
|
5,530 |
|
Fiscal year ended April 30, 2001
|
|
|
21,217 |
|
|
|
13,543 |
|
Fiscal year ended April 30, 2002
|
|
|
1,065 |
|
|
|
11,963 |
|
Fiscal year ended April 30, 2003
|
|
|
(6,855 |
) |
|
|
(1,719 |
) |
Fiscal year ended April 30, 2004
|
|
|
(988 |
) |
|
|
(105 |
) |
Fiscal year ended April 30, 2005
|
|
|
|
|
|
|
162 |
|
|
|
|
|
|
|
|
Total
|
|
$ |
29,801 |
|
|
$ |
29,801 |
|
|
|
|
|
|
|
|
|
|
15. |
Employee Benefit Plan |
The company maintains a defined contribution retirement plan
under the provision of Section 401(k) of the Internal
Revenue Code which covers all eligible employees. Employees are
eligible to participate in the plan on the first day of the
month immediately following twelve months of service with
Finisar.
Under the plan, each participant may contribute up to 20% of his
or her pre-tax gross compensation up to a statutory limit, which
was $14,000 for calendar year 2005. All amounts contributed by
participants and earnings on participant contributions are fully
vested at all times. Finisar may contribute an amount equal to
one-half of the first 6% of each participants
contribution. The Companys expenses related to this plan
were $906,000, $881,000 and $836,000 for fiscal years ended
April 30, 2005, 2004, and 2003, respectively.
F-39
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The expense (benefit) for income taxes consists of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
April 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
State
|
|
|
(64 |
) |
|
|
319 |
|
|
|
229 |
|
|
Foreign
|
|
|
(712 |
) |
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(776 |
) |
|
|
334 |
|
|
|
229 |
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1,500 |
|
|
|
|
|
|
|
|
|
|
State
|
|
|
132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$ |
856 |
|
|
$ |
334 |
|
|
$ |
229 |
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes consists of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
U.S.
|
|
$ |
(105,735 |
) |
|
$ |
(95,376 |
) |
|
$ |
(149,322 |
) |
Foreign
|
|
|
(7,516 |
) |
|
|
(18,123 |
) |
|
|
(9,622 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(113,251 |
) |
|
$ |
(113,499 |
) |
|
$ |
(158,944 |
) |
|
|
|
|
|
|
|
|
|
|
A reconciliation of the income tax provision (benefit) at the
federal statutory rate to the income tax provision (benefit) at
the effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Expected income tax provision (benefit) at U.S. federal
statutory rate
|
|
|
(35.00 |
)% |
|
|
(35.00 |
)% |
|
|
(35.00 |
)% |
Deferred compensation
|
|
|
0.05 |
|
|
|
(0.03 |
) |
|
|
(0.03 |
) |
Tax exempt interest
|
|
|
4.47 |
|
|
|
0.00 |
|
|
|
(0.26 |
) |
Valuation allowance
|
|
|
29.65 |
|
|
|
29.49 |
|
|
|
7.22 |
|
Non-deductible amortization
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
1.20 |
|
Foreign loss no tax benefit
|
|
|
2.19 |
|
|
|
5.48 |
|
|
|
0.87 |
|
Impairment of goodwill
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
25.98 |
|
Other
|
|
|
(0.60 |
) |
|
|
0.35 |
|
|
|
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.76 |
% |
|
|
0.29 |
% |
|
|
0.04 |
% |
|
|
|
|
|
|
|
|
|
|
F-40
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The components of deferred taxes consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory reserve
|
|
$ |
4,898 |
|
|
$ |
7,150 |
|
|
$ |
12,436 |
|
|
Accruals and reserves
|
|
|
8,232 |
|
|
|
13,260 |
|
|
|
4,888 |
|
|
Tax credits
|
|
|
17,123 |
|
|
|
6,611 |
|
|
|
5,327 |
|
|
Net operating loss carryforwards
|
|
|
139,410 |
|
|
|
115,486 |
|
|
|
101,276 |
|
|
Gain/loss on investments under equity or cost method
|
|
|
11,085 |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,999 |
|
|
|
|
|
|
|
|
|
|
Purchase accounting for intangible assets
|
|
|
2,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
186,029 |
|
|
|
142,507 |
|
|
|
123,927 |
|
Valuation allowance
|
|
|
(186,029 |
) |
|
|
(128,230 |
) |
|
|
(100,150 |
) |
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
|
|
|
|
14,277 |
|
|
|
23,777 |
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired intangibles
|
|
|
(1,632 |
) |
|
|
(10,909 |
) |
|
|
(20,127 |
) |
|
Tax depreciation over book depreciation
|
|
|
|
|
|
|
(3,368 |
) |
|
|
(3,650 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(1,632 |
) |
|
|
(14,277 |
) |
|
|
(23,777 |
) |
|
|
|
|
|
|
|
|
|
|
Total net deferred tax assets (liabilities)
|
|
$ |
(1,632 |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
The Companys valuation allowance increased from the prior
year by approximately $57.8 million, $28.1 million,
and $73.1 million in fiscal 2005, 2004 and 2003,
respectively.
Approximately $10.3 million of the valuation allowance at
April 30, 2005 is attributable to stock option deductions,
the benefit of which will be credited to additional
paid-in-capital when realized. Approximately $6.7 million
of the valuation allowance at April 30, 2005 is
attributable to stock option deductions that, when realized,
will first reduce unamortized goodwill, next other non-current
intangible assets of acquired subsidiaries, and then income tax
expense.
A deferred tax liability has been established to reflect tax
amortization of goodwill for which no financial statement
amortization has occurred under generally accepted accounting
principles, as promulgated by SFAS 142.
At April 30, 2005, the Company had federal, state and
foreign net operating loss carryforwards of approximately
$384.7 million, $141.4 million and $1.7 million,
respectively, and federal and state tax credit carryforwards of
approximately $9.8 million, and $7.3 million,
respectively. The net operating loss and tax credit
carryforwards will expire at various dates beginning in 2010, if
not utilized. Utilization of the Companys net operating
loss and tax credit carryforwards may be subject to a
substantial annual limitation due to the ownership change
limitations set forth in Internal Revenue Code Section 382
and similar state provisions. Such an annual limitation could
result in the expiration of the net operating loss and tax
credit carryforwards before utilization.
The Companys manufacturing operations in Malaysia and
China operate under various tax holidays which expire in whole
or in part in fiscal 2006 through 2011. Certain of the tax
holidays may be extended if specific conditions are met. These
tax holidays have had no effect on the Companys net loss
and net loss per share in fiscal 2003, 2004 or 2005 due to
operating losses sustained in each of these fiscal years.
F-41
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
17. |
Segments and Geographic Information |
The Company designs, develops, manufactures and markets optical
subsystems, components and test and monitoring systems for
high-speed data communications. The Company views its business
as having two principal operating segments, consisting of
optical subsystems and components and network test and
monitoring systems.
Optical subsystems consist primarily of transceivers sold to
manufacturers of storage and networking equipment for storage
area networks (SANs) and local area networks (LANs), and
metropolitan access networks (MAN) applications. Optical
subsystems also include multiplexers, de-multiplexers and
optical add/drop modules for use in MAN applications. Optical
components consist primarily of packaged lasers and
photo-detectors which are incorporated in transceivers,
primarily for LAN and SAN applications. Network test and
monitoring systems include products designed to test the
reliability and performance of equipment for a variety of
protocols including Fibre Channel, Gigabit Ethernet, 10 Gigabit
Ethernet, iSCSI, SAS and SATA. These test and monitoring systems
are sold to both manufacturers and end-users of the equipment.
Both of the Companys operating segments and its corporate
sales function report to the President and Chief Executive
Officer. Where appropriate, the Company charges specific costs
to these segments where they can be identified and allocates
certain manufacturing costs, research and development, sales and
marketing and general and administrative costs to these
operating segments, primarily on the basis of manpower levels or
a percentage of sales. The Company does not allocate income
taxes, non-operating income, acquisition related costs, stock
compensation, interest income and interest expense to its
operating segments. The accounting policies of the segments are
the same as those described in the summary of significant
accounting policies. There are no intersegment sales.
F-42
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Information about reportable segment revenues and income are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Optical subsystems and components
|
|
$ |
241,582 |
|
|
$ |
160,025 |
|
|
$ |
136,846 |
|
|
Network test and monitoring systems
|
|
|
39,241 |
|
|
|
25,593 |
|
|
|
29,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$ |
280,823 |
|
|
$ |
185,618 |
|
|
$ |
166,482 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Optical subsystems and components
|
|
$ |
28,157 |
|
|
$ |
30,116 |
|
|
$ |
23,462 |
|
|
Network test and monitoring systems
|
|
|
935 |
|
|
|
400 |
|
|
|
551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization expense
|
|
$ |
29,092 |
|
|
$ |
30,516 |
|
|
$ |
24,013 |
|
|
|
|
|
|
|
|
|
|
|
Operating loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Optical subsystems and components
|
|
$ |
(34,417 |
) |
|
$ |
(54,250 |
) |
|
$ |
(56,494 |
) |
|
Network test and monitoring systems
|
|
|
(6,347 |
) |
|
|
(2,711 |
) |
|
|
(3,253 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating loss
|
|
|
(40,764 |
) |
|
|
(56,961 |
) |
|
|
(59,747 |
) |
Unallocated amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of acquired developed technology
|
|
|
(22,268 |
) |
|
|
(19,239 |
) |
|
|
(21,983 |
) |
|
Amortization of deferred stock compensation
|
|
|
(162 |
) |
|
|
105 |
|
|
|
1,719 |
|
|
In-process research and development
|
|
|
(1,558 |
) |
|
|
(6,180 |
) |
|
|
|
|
|
Amortization of other intangibles
|
|
|
(1,104 |
) |
|
|
(572 |
) |
|
|
(758 |
) |
|
Impairment of assets
|
|
|
(18,798 |
) |
|
|
|
|
|
|
|
|
|
Impairment of goodwill and intangible assets
|
|
|
(3,656 |
) |
|
|
|
|
|
|
(10,586 |
) |
|
Restructuring costs
|
|
|
(287 |
) |
|
|
(382 |
) |
|
|
(9,378 |
) |
|
Other acquisition costs
|
|
|
|
|
|
|
(222 |
) |
|
|
(198 |
) |
|
Interest income (expense), net
|
|
|
(12,072 |
) |
|
|
(25,701 |
) |
|
|
(6,699 |
) |
|
Other non-operating income (expense), net
|
|
|
(12,582 |
) |
|
|
(4,347 |
) |
|
|
(51,314 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total unallocated amounts
|
|
|
(72,487 |
) |
|
|
(56,538 |
) |
|
|
(99,197 |
) |
|
|
|
|
|
|
|
|
|
|
Loss before income tax and cumulative effect of accounting change
|
|
$ |
(113,251 |
) |
|
$ |
(113,499 |
) |
|
$ |
(158,944 |
) |
|
|
|
|
|
|
|
|
|
|
The following is a summary of total assets by segment (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
April 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Optical subsystems and components
|
|
$ |
345,365 |
|
|
$ |
302,128 |
|
Network test and monitoring systems
|
|
|
71,535 |
|
|
|
50,261 |
|
Other assets
|
|
|
72,085 |
|
|
|
142,316 |
|
|
|
|
|
|
|
|
|
|
$ |
488,985 |
|
|
$ |
494,705 |
|
|
|
|
|
|
|
|
Cash, short-term and restricted investments are the primary
components of other assets in the above table.
F-43
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The following is a summary of operations within geographic areas
based on the location of the entity purchasing the
Companys products (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Revenues from sales to unaffiliated customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
184,829 |
|
|
$ |
136,504 |
|
|
$ |
123,080 |
|
Rest of the world
|
|
|
95,994 |
|
|
|
49,114 |
|
|
|
43,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
280,823 |
|
|
$ |
185,618 |
|
|
$ |
166,482 |
|
|
|
|
|
|
|
|
|
|
|
Revenues generated in the U.S. are all from sales to
customers located in the United States.
The following is a summary of long-lived assets within
geographic areas based on the location of the assets (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
April 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Long-lived assets
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
258,345 |
|
|
$ |
230,225 |
|
|
Malaysia
|
|
|
23,415 |
|
|
|
21,668 |
|
|
Rest of the world
|
|
|
2,139 |
|
|
|
2,871 |
|
|
|
|
|
|
|
|
|
|
$ |
283,899 |
|
|
$ |
254,764 |
|
|
|
|
|
|
|
|
The following is a summary of capital expenditure by reportable
segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended | |
|
|
April 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Optical subsystems and components
|
|
$ |
20,551 |
|
|
$ |
13,219 |
|
Network test and monitoring systems
|
|
|
651 |
|
|
|
269 |
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$ |
21,202 |
|
|
$ |
13,488 |
|
|
|
|
|
|
|
|
A securities class action lawsuit was filed on November 30,
2001 in the United States District Court for the Southern
District of New York, purportedly on behalf of all persons who
purchased the Companys common stock from November 17,
1999 through December 6, 2000. The complaint named as
defendants Finisar, Jerry S. Rawls, its President and Chief
Executive Officer, Frank H. Levinson, its Chairman of the Board
and Chief Technical Officer, Stephen K. Workman, its Senior Vice
President and Chief Financial Officer, and an investment banking
firm that served as an underwriter for its initial public
offering in November 1999 and a secondary offering in April
2000. The complaint, as subsequently amended, alleges violations
of Sections 11 and 15 of the Securities Act of 1933 and
Sections 10(b) and 20(b) of the Securities Exchange Act of
1934, on the grounds that the prospectuses incorporated in the
registration statements for the offerings failed to disclose,
among other things, that (i) the underwriter had solicited
and received excessive and undisclosed commissions from certain
investors in exchange for which the underwriter allocated to
those investors material portions of the shares of its stock
sold in the offerings and (ii) the underwriter had entered
into agreements with customers whereby the underwriter agreed to
allocate shares of its stock sold in the offerings to those
customers in exchange for which the customers agreed to purchase
additional shares of its stock in the aftermarket at
pre-determined prices. No specific damages are claimed. Similar
allegations have
F-44
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
been made in lawsuits relating to more than 300 other initial
public offerings conducted in 1999 and 2000, which were
consolidated for pretrial purposes. In October 2002, all claims
against the individual defendants were dismissed without
prejudice. On February 19, 2003, the Court denied its
motion to dismiss the complaint. In July 2004, the Company and
the individual defendants accepted a settlement proposal made to
all of the issuer defendants. Under the terms of the settlement,
the plaintiffs will dismiss and release all claims against
participating defendants in exchange for a contingent payment
guaranty by the insurance companies collectively responsible for
insuring the issuers in all related cases, and the assignment or
surrender to the plaintiffs of certain claims the issuer
defendants may have against the underwriters. Under the
guaranty, the insurers will be required to pay the amount, if
any, by which $1 billion exceeds the aggregate amount
ultimately collected by the plaintiffs from the underwriter
defendants in all the cases. If the plaintiffs fail to recover
$1 billion and payment is required under the guaranty, the
Company would be responsible to pay its pro rata portion of the
shortfall, up to the amount of the self-insured retention under
its insurance policy, which may be up to $2 million. The
timing and amount of payments that the Company could be required
to make under the proposed settlement will depend on several
factors, principally the timing and amount of any payment that
the insurers may be required to make pursuant to the
$1 billion guaranty. On February 15, 2005, the Court
issued an order providing preliminary approval of the proposed
settlement except insofar as the settlement would have cut off
contractual indemnification claims that underwriters may have
against securities issuers, such as the Company. On
April 13, 2005, the Court held a further conference to
determine the final form, substance and program of class notice
and set a hearing for January 9, 2006 to consider final
approval of the settlement. If the settlement is not approved by
the Court, the Company intends to defend the lawsuit vigorously.
Because of the inherent uncertainty of litigation, however, we
cannot predict its outcome. If, as a result of this dispute, we
are required to pay significant monetary damages, its business
would be substantially harmed.
On April 4, 2005, the Company filed an action in the United
States District Court, against the DirecTV Group, Inc.; DirecTV
Holdings, LLC; DirecTV Enterprises, LLC; DirecTV Operations,
LLC; DirecTV, Inc.; and Hughes Network Systems, Inc.
(collectively DirecTV). The lawsuit alleges that
DirecTV willfully infringes our U.S. Patent
No. 5,404,505 by making, using, selling, offering to sell
and/or importing systems and/or methods that embody one or more
of the claims of our patent. On May 13, 2005, DirecTV
answered the Complaint. DirecTVs counterclaim seeks a
declaration of non-infringement, patent invalidity and patent
unenforceability. The presiding judge held an initial case
management conference on July 13, 2005 setting discovery
schedules and dates for motion practice. The trial is scheduled
for June 6, 2006.
|
|
19. |
Loss On Sale of Assets of Sensors Unlimited, Inc. |
In October 2000, the Company acquired Sensors Unlimited, Inc. At
the time of the acquisition, Sensors Unlimited had developed
optical subsystems used for industrial spectroscopy and military
applications as well as an optical performance monitor for
telecommunication WDM applications. Following the acquisition,
the Company redirected the research and development efforts of
Sensors Unlimited to develop key components to be incorporated
in its optical receivers used for data communications
applications including positive intrinsic negative receivers
(PINs) and avalanche photodiodes (APDs).
On October 6, 2002, the Company entered into an agreement
to sell certain assets and transfer certain liabilities of
Sensors Unlimited to a new company organized by a management
group led by Dr. Greg Olsen, then an officer and director
of Finisar and a former majority owner of Sensors Unlimited. The
Company retained ownership of the intellectual property
developed at Sensors Unlimited and licensed certain technology
needed by the acquirer to develop, manufacture and sell products
used primarily for industrial spectroscopy and military
applications. Because Finisar will no longer utilize certain
intangible assets purchased in the original acquisition and
because the Sensors Unlimited trade name was transferred to the
acquirer, the Company wrote off these assets in conjunction with
the sale. The sale was completed on October 15, 2002, at
which time Dr. Olsen resigned as an officer and director of
Finisar. The Company also
F-45
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
released from escrow the remaining deferred consideration of
3,160,413 shares of common stock originally placed in
escrow as part of the acquisition of Sensors Unlimited.
The Company received $6.1 million in cash and a 19% equity
interest in the acquiring company. For accounting purposes, no
value has been placed on the 19% equity interest. The Company
recorded a loss of $36.8 million in other income
(expense) as a result of this transaction as follows (in
thousands):
|
|
|
|
|
|
|
Amount | |
|
|
| |
Proceeds from sale
|
|
$ |
6,100 |
|
Net book value of tangible assets at time of sale
|
|
|
(12,852 |
) |
Net book value of purchased developed technology
|
|
|
(25,967 |
) |
Net book value of Sensors Unlimited tradename
|
|
|
(2,358 |
) |
Performance shares released from escrow
|
|
|
(1,637 |
) |
Other costs of the transaction
|
|
|
(125 |
) |
|
|
|
|
Loss on sale
|
|
$ |
(36,839 |
) |
|
|
|
|
|
|
20. |
Restructuring and Assets Impairments |
During fiscal 2003, the Company initiated actions to reduce its
cost structure due to sustained negative economic conditions
that had impacted its operations and resulted in lower than
anticipated revenues. In May and October 2002, the Company
reduced its workforce in the United States. The restructuring
actions in fiscal 2003 resulted in a reduction in the
U.S. workforce of approximately 255 employees, or 36% of
the Companys U.S. workforce measured as of the
beginning of fiscal 2003, and affected all areas of the
Companys U.S. operations. During fiscal 2003, the
Company sold its Sensors Unlimited subsidiary, closed its
Hayward facility, and began the process of closing the
facilities occupied by its Demeter subsidiary, all of which were
a part of the Companys optical subsystems and components
reporting unit. All key functions were absorbed by the
Companys remaining facilities in the United States. As
facilities in the United States were consolidated, related
leasehold improvement and equipment were written off. As a
result of these restructuring activities, a charge of
$9.4 million was incurred in fiscal 2003. The restructuring
charge included approximately $5.4 million for the
write-off of leasehold improvements and equipment in the vacated
buildings, approximately $1.8 million of severance-related
charges, approximately $1.5 million of excess committed
facilities payments and approximately $700,000 of miscellaneous
costs required to effect the closures.
During the first quarter of fiscal 2004, the Company completed
the closure of its Demeter subsidiary. In addition, the Company
began the process of closing its German operations and a
reduction in the German workforce of approximately 10 employees
in research and development in the optical subsystems and
components reporting segment. As a result of these restructuring
activities, a charge of $2.2 million was incurred in the
first quarter of fiscal 2004. The restructuring charge included
$800,000 of severance-related charges, approximately $600,000 of
fees associated with the early termination of the Companys
facilities lease in Germany, approximately $450,000 for
remaining payments for excess leased equipment and approximately
$300,000 of miscellaneous costs incurred to effect the closures.
During the second quarter of fiscal 2004, the Company completed
the closure of its German facility. The intellectual property,
technical know-how and certain assets related to the German
operations were consolidated with the Companys operations
in Sunnyvale, California, during the second quarter. The Company
incurred an additional $317,000 of net restructuring expenses in
the second quarter. This amount included an additional $273,000
of restructuring expenses related to the closure of German
operations, consisting of $373,000 for legal and exit fees
associated with the closure, additional severance-related
payments and the write-off of abandoned assets, partially offset
by lower than anticipated fees associated with the termination
of the German facilities lease of $100,000. The expenses related
to the closure of the German facility were
F-46
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
partially offset by an $85,000 reduction in restructuring
expenses associated with the closure of the Demeter subsidiary
offset by additional severance-related expenses.
During the third quarter of fiscal 2004, the Company realized a
benefit of $1.2 million related to restructuring expenses
due to lower than anticipated fees and the consequent reversal
of an associated accrual from the termination of a purchasing
agreement related to the closure of the Demeter subsidiary.
During the fourth quarter of fiscal 2004, the Company realized a
benefit of $791,000 related to restructuring expenses due to
lower than anticipated lease and facility clean-up costs related
to the closure of the Demeter facility.
The Company recorded a restructuring charge of $287,000 in
fiscal 2005 to adjust the operating lease liability for our
Hayward facility that was closed in fiscal 2003.
As of April 30, 2005, $509,000 of committed facilities
payments related to restructuring activities, net of anticipated
sublease income, remains accrued, is expected to be fully
utilized by the end of fiscal 2006, and is broken down as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facilities | |
|
Severance | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
Hayward | |
|
Demeter | |
|
Germany | |
|
Total | |
|
Hayward | |
|
Demeter | |
|
Germany | |
|
Total | |
|
Hayward | |
|
Demeter | |
|
Germany | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Fiscal 2003 actions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charges
|
|
$ |
3,056 |
|
|
$ |
4,492 |
|
|
$ |
|
|
|
$ |
7,548 |
|
|
$ |
1,174 |
|
|
$ |
656 |
|
|
$ |
|
|
|
$ |
1,830 |
|
|
$ |
4,230 |
|
|
$ |
5,148 |
|
|
$ |
|
|
|
$ |
9,378 |
|
Reversal of charge
|
|
|
|
|
|
|
(1,199 |
) |
|
|
|
|
|
|
(1,199 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
0 |
|
|
|
(1,199 |
) |
|
|
|
|
|
|
(1,199 |
) |
Cash payments
|
|
|
(1,316 |
) |
|
|
(1,087 |
) |
|
|
|
|
|
|
(2,403 |
) |
|
|
(1,174 |
) |
|
|
(656 |
) |
|
|
|
|
|
|
(1,830 |
) |
|
|
(2,490 |
) |
|
|
(1,743 |
) |
|
|
|
|
|
|
(4,233 |
) |
Non-cash charges
|
|
|
(1,351 |
) |
|
|
(2,373 |
) |
|
|
|
|
|
|
(3,724 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
(1,351 |
) |
|
|
(2,373 |
) |
|
|
|
|
|
|
(3,724 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2005
|
|
|
389 |
|
|
|
(167 |
) |
|
|
|
|
|
|
222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
389 |
|
|
|
(167 |
) |
|
|
|
|
|
|
222 |
|
Fiscal 2004 actions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charges
|
|
|
|
|
|
|
546 |
|
|
|
849 |
|
|
|
1,395 |
|
|
|
|
|
|
|
701 |
|
|
|
276 |
|
|
|
977 |
|
|
|
0 |
|
|
|
1,247 |
|
|
|
1,125 |
|
|
|
2,372 |
|
Reversal of charge
|
|
|
|
|
|
|
(791 |
) |
|
|
|
|
|
|
(791 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
0 |
|
|
|
(791 |
) |
|
|
|
|
|
|
(791 |
) |
Cash payments
|
|
|
(167 |
) |
|
|
412 |
|
|
|
(849 |
) |
|
|
(604 |
) |
|
|
|
|
|
|
(701 |
) |
|
|
(276 |
) |
|
|
(977 |
) |
|
|
(167 |
) |
|
|
(289 |
) |
|
|
(1,125 |
) |
|
|
(1,581 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2005
|
|
|
(167 |
) |
|
|
167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(167 |
) |
|
|
167 |
|
|
|
|
|
|
|
|
|
Fiscal 2005 actions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charges
|
|
|
287 |
|
|
|
|
|
|
|
|
|
|
|
287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
287 |
|
|
|
|
|
|
|
|
|
|
|
287 |
|
Reversal of charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2005
|
|
|
287 |
|
|
|
|
|
|
|
|
|
|
|
287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
287 |
|
|
|
|
|
|
|
|
|
|
|
287 |
|
Total accrual balance at April 30, 2005
|
|
$ |
509 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
509 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
509 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The facilities consolidation charges were calculated using
estimates and were based upon the remaining future lease
commitments for vacated facilities from the date of facility
consolidation, net of estimated future sublease income. The
estimated costs of vacating these leased facilities were based
on market information and trend analyses, including information
obtained from third party real estate sources. The Company has
engaged brokers to locate tenants to sublease the Hayward
facility.
The Company generally offers a one-year limited warranty for all
of its products. The specific terms and conditions of these
warranties vary depending upon the product sold. The Company
estimates the costs that may be incurred under its basic limited
warranty and records a liability in the amount of such costs
based on
F-47
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
revenue recognized. Factors that affect the Companys
warranty liability include the number of units sold, historical
and anticipated rates of warranty claims and cost per claim. The
Company periodically assesses the adequacy of its recorded
warranty liabilities and adjusts the amounts as necessary.
Changes in the Companys warranty liability during the
period are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
April 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Beginning balance
|
|
$ |
984 |
|
|
$ |
867 |
|
Additions during the period based on product sold
|
|
|
3,265 |
|
|
|
928 |
|
Settlements
|
|
|
(237 |
) |
|
|
(696 |
) |
Changes in liability for pre-existing warranties, including
expirations
|
|
|
(1,049 |
) |
|
|
(115 |
) |
|
|
|
|
|
|
|
Ending balance
|
|
$ |
2,963 |
|
|
$ |
984 |
|
|
|
|
|
|
|
|
In March 1999, the Company granted Stephen K. Workman, its
Senior Vice President of Finance and Chief Financial Officer, an
option to purchase an aggregate of 200,000 shares of common
stock, with an exercise price of $1.31 per share.
Mr. Workman exercised this option in full in April 1999.
The exercise price was paid by Mr. Workman by delivery of a
promissory note in the principal amount of $252,000 bearing
interest at the rate of 6% per annum, which was
collateralized by shares of the Companys common stock
owned by Mr. Workman. This promissory note was paid in full
in May 2004.
Frank H. Levinson, the Companys Chairman of the Board and
Chief Technical Officer, is a member of the board of directors
of Fabrinet, Inc. In June 2000, the Company entered into a
volume supply agreement, at rates which the Company believes to
be market, with Fabrinet under which Fabrinet serves as a
contract manufacturer for the Company. In addition, Fabrinet
purchases certain products from the Company. During the fiscal
years ended April 30, 2005, 2004 and 2003, the Company
recorded purchases from Fabrinet of approximately
$52.3 million, $42.4 million and $40.0 million,
respectively, and Fabrinet purchased products from the Company
of approximately $24.0 million, $9.6 million and
$9.1 million, respectively. At April 30, 2005 and
2004, the Company owed Fabrinet approximately $2.0 million
and $1.8 million, respectively, and Fabrinet owed the
Company approximately $4.9 million and $4.2 million,
respectively.
In connection with the acquisition by certain funds affiliated
with VantagePoint Venture Partners of the 34 million shares
of the Companys common stock held by Infineon
Technologies AG that the Company had previously issued to
Infineon in connection with its acquisition of Infineons
optical transceiver product lines, the Company entered into an
agreement with VantagePoint under which the Company agreed to
use its reasonable best efforts to elect a nominee of
VantagePoint to the Companys board of directors, provided
that the nominee was reasonably acceptable to the boards
Nominating and Corporate Governance Committee as well as the
full board of directors. In June 2005, David C. Fries, a
Managing Director of VantagePoint, was elected to the board of
directors pursuant to that agreement. The Company also agreed to
file a registration statement to provide for the resale of the
shares held by VantagePoint and certain distributees of
VantagePoint.
|
|
23. |
Guarantees and Indemnifications |
In November 2002, the FASB issued Interpretation No. 45
Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others (FIN 45). FIN 45 requires that
upon issuance of a guarantee, the guarantor must recognize a
liability for the fair value of the obligations it assumes under
that guarantee. As permitted under Delaware law and in
accordance with the Companys Bylaws, the Company
indemnifies its officers and directors for certain events or
occurrences,
F-48
FINISAR CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
subject to certain limits, while the officer or director is or
was serving at the Companys request in such capacity. The
term of the indemnification period is for the officers or
directors lifetime. The Company may terminate the
indemnification agreements with its officers and directors upon
90 days written notice, but termination will not affect
claims for indemnification relating to events occurring prior to
the effective date of termination. The maximum amount of
potential future indemnification is unlimited; however, the
Company has a director and officer insurance policy that may
enable it to recover a portion of any future amounts paid.
The Company enters into indemnification obligations under its
agreements with other companies in its ordinary course of
business, including agreements with customers, business
partners, and insurers. Under these provisions the Company
generally indemnifies and holds harmless the indemnified party
for losses suffered or incurred by the indemnified party as a
result of the Companys activities or the use of the
Companys products. These indemnification provisions
generally survive termination of the underlying agreement. In
some cases, the maximum potential amount of future payments the
Company could be required to make under these indemnification
provisions is unlimited.
The Company believes the fair value of these indemnification
agreements is minimal. Accordingly, the Company has not recorded
any liabilities for these agreements as of April 30, 2005.
To date, the Company has not incurred material costs to defend
lawsuits or settle claims related to these indemnification
agreements.
On May 12, 2005, the Company completed the acquisition of
InterSAN, Inc., a privately held company located in Scotts
Valley, California. Under the terms of the acquisition
agreement, the holders of InterSANs securities will be
entitled to receive up to 7,132,186 shares of Finisar
common stock having a value of approximately $8.8 million.
Approximately 10% of the shares of Finisar common stock that
would otherwise be distributed to the holders of InterSANs
securities at the closing of the acquisition were deposited into
an escrow account for 12 months following the closing for
the purpose of providing a fund against which the Company may
assert claims for damages, if any, based on breaches of the
representations and warranties made by InterSAN in the
agreement. The issuance of such shares was not registered under
the Securities Act in reliance on the exemption from
registration provided by Section 3(a)(10) of the Securities
Act. The results of operations of InterSAN (beginning with the
closing date of the acquisition) and the estimated fair value of
assets acquired will be included in the Companys
consolidated financial statements beginning in the first quarter
of fiscal 2006 ending July 31, 2005.
At the Companys annual meeting of stockholders held on
May 6, 2005, the stockholders approved an amendment of the
Companys certificate of incorporation to increase the
number of authorized shares of the Companys common stock
from 500,000,000 to 750,000,000. At the meeting, the
stockholders also approved amendments of the Companys 1999
Employee Stock Purchase Plan to increase the number of shares of
common stock authorized for issuance under the plan from
3,750,000 to 13,750,000, to increase the automatic annual
increase in the number of shares of common stock reserved for
issuance under the plan from 750,000 to 1,000,000 and to adopt
the International Stock Purchase Plan within the authorized
limits of the current Employee Stock Purchase Plan.
F-49
FINISAR CORPORATION
FINANCIAL INFORMATION BY QUARTER (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
| |
|
|
April 30, | |
|
Jan. 31, | |
|
Oct. 31, | |
|
July 31, | |
|
April 30, | |
|
Jan. 31, | |
|
Oct. 31, | |
|
July 31, | |
|
|
2005 | |
|
2005 | |
|
2004 | |
|
2004 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Optical subsystems and components
|
|
$ |
64,503 |
|
|
$ |
63,417 |
|
|
$ |
59,912 |
|
|
$ |
53,750 |
|
|
$ |
48,664 |
|
|
$ |
40,741 |
|
|
$ |
36,432 |
|
|
$ |
34,188 |
|
|
Network test and monitoring systems
|
|
|
10,356 |
|
|
|
9,665 |
|
|
|
11,093 |
|
|
|
8,127 |
|
|
|
8,331 |
|
|
|
5,675 |
|
|
|
6,344 |
|
|
|
5,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
74,859 |
|
|
|
73,082 |
|
|
|
71,005 |
|
|
|
61,877 |
|
|
|
56,995 |
|
|
|
46,416 |
|
|
|
42,776 |
|
|
|
39,431 |
|
Cost of revenues
|
|
|
59,410 |
|
|
|
51,018 |
|
|
|
49,499 |
|
|
|
45,704 |
|
|
|
42,304 |
|
|
|
32,778 |
|
|
|
32,041 |
|
|
|
36,462 |
|
Impairment of acquired developed technology
|
|
|
|
|
|
|
|
|
|
|
3,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of acquired developed technology
|
|
|
5,240 |
|
|
|
5,376 |
|
|
|
6,086 |
|
|
|
5,566 |
|
|
|
5,271 |
|
|
|
4,656 |
|
|
|
4,656 |
|
|
|
4,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
10,209 |
|
|
|
16,688 |
|
|
|
11,764 |
|
|
|
10,607 |
|
|
|
9,420 |
|
|
|
8,982 |
|
|
|
6,079 |
|
|
|
(1,687 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
15,146 |
|
|
|
14,535 |
|
|
|
17,043 |
|
|
|
16,075 |
|
|
|
14,734 |
|
|
|
12,849 |
|
|
|
13,695 |
|
|
|
20,915 |
|
|
Sales and marketing
|
|
|
7,883 |
|
|
|
7,179 |
|
|
|
7,570 |
|
|
|
7,151 |
|
|
|
6,301 |
|
|
|
4,905 |
|
|
|
4,557 |
|
|
|
4,300 |
|
|
General and administrative
|
|
|
8,221 |
|
|
|
5,476 |
|
|
|
4,995 |
|
|
|
4,682 |
|
|
|
3,912 |
|
|
|
4,517 |
|
|
|
4,356 |
|
|
|
3,953 |
|
|
Amortization of (benefit from) deferred stock compensation
|
|
|
20 |
|
|
|
21 |
|
|
|
24 |
|
|
|
97 |
|
|
|
133 |
|
|
|
115 |
|
|
|
(49 |
) |
|
|
(304 |
) |
|
Acquired in-process research and development
|
|
|
1,240 |
|
|
|
|
|
|
|
318 |
|
|
|
|
|
|
|
6,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of purchased intangibles
|
|
|
621 |
|
|
|
170 |
|
|
|
170 |
|
|
|
143 |
|
|
|
143 |
|
|
|
143 |
|
|
|
143 |
|
|
|
143 |
|
|
Impairment of tangible assets
|
|
|
|
|
|
|
18,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring costs
|
|
|
287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(791 |
) |
|
|
(1,199 |
) |
|
|
187 |
|
|
|
2,185 |
|
|
Other acquisition costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17 |
) |
|
|
45 |
|
|
|
149 |
|
|
|
45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
33,418 |
|
|
|
46,179 |
|
|
|
30,120 |
|
|
|
28,148 |
|
|
|
30,595 |
|
|
|
21,375 |
|
|
|
23,038 |
|
|
|
31,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(23,209 |
) |
|
|
(29,491 |
) |
|
|
(18,356 |
) |
|
|
(17,541 |
) |
|
|
(21,175 |
) |
|
|
(12,393 |
) |
|
|
(16,959 |
) |
|
|
(32,924 |
) |
Interest income (expense), net
|
|
|
(2,998 |
) |
|
|
(3,311 |
) |
|
|
(2,992 |
) |
|
|
(2,771 |
) |
|
|
(2,632 |
) |
|
|
(2,535 |
) |
|
|
(15,026 |
) |
|
|
(5,508 |
) |
Other income (expense), net
|
|
|
(10,828 |
) |
|
|
(158 |
) |
|
|
192 |
|
|
|
(1,788 |
) |
|
|
(640 |
) |
|
|
(572 |
) |
|
|
(555 |
) |
|
|
(2,580 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(37,035 |
) |
|
|
(32,960 |
) |
|
|
(21,156 |
) |
|
|
(22,100 |
) |
|
|
(24,447 |
) |
|
|
(15,500 |
) |
|
|
(32,540 |
) |
|
|
(41,012 |
) |
Provision for income taxes
|
|
|
800 |
|
|
|
|
|
|
|
37 |
|
|
|
19 |
|
|
|
45 |
|
|
|
43 |
|
|
|
33 |
|
|
|
213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(37,835 |
) |
|
$ |
(32,960 |
) |
|
$ |
(21,193 |
) |
|
$ |
(22,119 |
) |
|
$ |
(24,492 |
) |
|
$ |
(15,543 |
) |
|
$ |
(32,573 |
) |
|
$ |
(41,225 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
|
(0.15 |
) |
|
|
(0.15 |
) |
|
|
(0.09 |
) |
|
|
(0.10 |
) |
|
|
(0.11 |
) |
|
|
(0.07 |
) |
|
|
(0.15 |
) |
|
|
(0.20 |
) |
Shares used in computing net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
258,850 |
|
|
|
224,170 |
|
|
|
223,380 |
|
|
|
222,929 |
|
|
|
221,052 |
|
|
|
219,900 |
|
|
|
215,826 |
|
|
|
206,744 |
|
F-50
FINISAR CORPORATION
SCHEDULE II VALUATION AND QUALIFYING
ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions | |
|
|
|
|
|
|
Balance at | |
|
Charged to | |
|
|
|
Balance at | |
|
|
Beginning | |
|
Costs and | |
|
Deductions | |
|
End of | |
|
|
of Period | |
|
Expenses | |
|
Write-Offs | |
|
Period | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Allowance for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended April 30, 2005
|
|
$ |
1,669 |
|
|
$ |
(234 |
) |
|
$ |
57 |
|
|
$ |
1,378 |
|
|
Year ended April 30, 2004
|
|
|
1,487 |
|
|
|
547 |
|
|
|
365 |
|
|
|
1,669 |
|
|
Year ended April 30, 2003
|
|
|
1,885 |
|
|
|
(278 |
) |
|
|
120 |
|
|
|
1,487 |
|
S-1
$150,000,000
21/2% Convertible
Subordinated Notes due 2010
PROSPECTUS
August , 2005
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
|
|
Item 13. |
Other Expenses of Issuance and Distribution. |
The following table sets forth the fees and expenses in
connection with the issuance and distribution of the securities
being registered hereunder. Except for the SEC registration fee,
all amounts are estimates.
|
|
|
|
|
SEC registration fee
|
|
$ |
12,135 |
|
Accounting fees and expenses
|
|
|
40,000 |
|
Legal fees and expenses
|
|
|
40,000 |
|
Blue sky fees and expenses (including counsel fees)
|
|
|
10,000 |
|
Printing and engraving expenses
|
|
|
15,000 |
|
Transfer agents and registrars fees and expenses
|
|
|
10,000 |
|
Miscellaneous expenses, including Listing Fees
|
|
|
2,865 |
|
|
|
|
|
Total
|
|
$ |
130,000 |
|
|
|
|
|
|
|
Item 14. |
Indemnification of Directors and Officers. |
Section 145 of the Delaware General Corporation Law
(DGCL) permits indemnification of officers,
directors and other corporate agents under certain circumstances
and subject to certain limitations. The Registrants
Certificate of Incorporation and Bylaws provide that the
Registrant shall indemnify its directors, officers, employees
and agents to the full extent permitted by the DGCL, including
in circumstances in which indemnification is otherwise
discretionary under such law. In addition, with the approval of
the Board of Directors and the stockholders, the Registrant has
entered into separate indemnification agreements with its
directors, officers and certain employees which require the
Registrant, among other things, to indemnify them against
certain liabilities which may arise by reason of their status or
service (other than liabilities arising from willful misconduct
of a culpable nature) and to obtain directors and
officers insurance, if available on reasonable terms.
These indemnification provisions may be sufficiently broad to
permit indemnification of the Registrants officers,
directors and other corporate agents for liabilities (including
reimbursement of expenses incurred) arising under the Securities
Act of 1933.
The Registrants Chief Executive Officer, Chairman of the
Board and Chief Technical Officer and Senior Vice
President Finance and Chief Financial Officer have
been named as defendants in the securities class action lawsuit
described under the caption Risk Factors We
are subject to pending legal proceedings in Part I of
the registration statement. These officers are likely to assert
a claim for indemnification in connection with that litigation.
Other than the securities class action litigation, there is no
pending litigation or proceeding involving a director, officer,
employee or other agent of the Registrant in which
indemnification is being sought nor is the Registrant aware of
any threatened litigation that may result in a claim for
indemnification by any director, officer, employee or other
agent of the Registrant.
The Registrant has obtained liability insurance for the benefit
of its directors and officers.
|
|
Item 15. |
Recent Sales of Unregistered Securities. |
Since August 1, 2002, we have issued and sold the
following unregistered securities:
|
|
(1) |
Investment in CyOptics, Inc. |
On April 29, 2005, we entered into a Series F
Preferred Stock Purchase Agreement (the Purchase
Agreement) with CyOptics, Inc. (CyOptics).
Pursuant to the Purchase Agreement, the Registrant issued a
convertible promissory note (the Note) in the
principal amount of $3,750,000 as consideration for the
II-1
Registrants purchase of 24,298,580 shares of CyOptics
Series F Preferred Stock. The terms of the Note provide for
four weekly conversions of equal portions of the outstanding
principal of the Note into shares of the Registrants
common stock, commencing upon the effectiveness of a
registration statement filed to cover the resales of such shares
by CyOptics. The number of shares to be issued upon each
conversion is determined by dividing the amount converted by the
average closing bid price of our common stock for either
(i) the four trading days immediately prior to the
conversion, or (ii) the trading day prior to the
conversion, as selected by the holder of the Note. A total of
3,594,607 shares of common stock were issued pursuant to
the conversion of the Note. The issuance of the Note and the
shares of the Companys common stock issuable upon
conversion thereof were not registered under the Securities Act
of 1933 (the Securities Act) in reliance on the
exemption from registration set forth in Section 4(2) of
the Securities Act.
|
|
(2) |
Acquisition of InterSAN, Inc. |
On May 12, 2005, we completed the acquisition of InterSAN,
Inc. (InterSAN), a privately held company located in
Scotts Valley, California, pursuant to an Agreement and Plan of
Reorganization dated March 2, 2005 (the
Agreement). Under the terms of the Agreement,
InterSAN merged with a wholly-owned subsidiary of Finisar and
the holders of InterSANs securities will be entitled to
receive up to 7,132,186 shares of Finisar common stock
having a value of approximately $8.8 million. Approximately
ten percent (10%) of the shares of Finisar common stock that
would otherwise be distributed to the holders of InterSANs
securities at the closing of the acquisition were deposited into
an escrow account for twelve (12) months following the
closing for the purpose of providing a fund against which
Finisar may assert claims for damages, if any, based on breaches
of the representations and warranties made by InterSAN in the
Agreement. The issuance of such shares was not registered under
the Securities Act in reliance on the exemption from
registration provided by Section 3(a)(10) of the Securities
Act.
|
|
(3) |
Acquisition of I-TECH CORP. |
On April 8, 2005, we completed the acquisition of I-TECH
CORP. (I-TECH), a privately-held network test and
monitoring company based in Eden Prairie, Minnesota. The
governing agreement provided for the merger of I-TECH with a
wholly-owned subsidiary of Finisar and the issuance by Finisar
to the sole holder of I-TECHs common stock promissory
notes having an aggregate principal amount of approximately
$12.1 million which are convertible into shares of Finisar
common stock over a period of one year following the closing of
the acquisition. Of the approximately $12.1 million in
promissory notes, $1 million in principal will be deposited
into an escrow account for twelve (12) months following the
closing to satisfy certain indemnification obligations of the
I-TECH stockholder. As of July 29, 2005,
9,834,541 shares of Finisar common stock have been issued
upon the conversion of the notes. Only the escrow note remains
outstanding, and the exact number of shares of Finisar common
stock to be issued pursuant to that note is dependent on the
trading price of Finisars common stock on the dates of
conversion of the note. The issuance of such notes and the
shares of common stock issuable upon conversion thereof was not
registered under the Securities Act in reliance on the exemption
from registration provided by Section 4(2) and
Regulation D promulgated under the Securities Act.
|
|
(4) |
Acquisition of Transceiver and Transponder Product Line from
Infineon Technologies AG |
On January 31, 2005, we completed the acquisition from
Infineon Technologies AG (Infineon) of certain
assets associated with the design, development and manufacture
of optical transceiver products from Infineons fiber
optics business unit, in exchange for the issuance of
34,000,000 shares of Finisar Common Stock. The issuance of
such shares was not registered under the Securities Act in
reliance on the exemption from registration provided by
Section 4(2) of the Securities Act.
|
|
(5) |
Acquisition of Assets of Data Transit Corp. |
On August 8, 2004, we completed the purchase of the assets
of Data Transit Corp., a privately-held manufacturer of protocol
analyzers and traffic generators based in San Jose,
California, for a promissory note in the principal amount of
approximately $16 million which is convertible into shares
of Finisar common
II-2
stock. As of July 29, 2005, 5,144,609 shares of
Finisar common stock have been issued to Data Transit Corp. upon
two conversion dates pursuant to the note. The issuance of the
note and the shares of common stock issuable upon conversion
thereof was not registered under the Securities Act in reliance
on the exemption from registration provided by Section 4(2)
of the Securities Act.
|
|
(6) |
21/2% Convertible
Subordinated Notes due 2010 |
On October 15, 2003, we completed a private sale of
$150 million principal amount of convertible subordinated
notes due 2010 to qualified institutional buyers. We received
$145.2 million in net proceeds from the sale of the notes.
We used a portion of the net proceeds of the offering to
purchase a portfolio of U.S. government securities that
will be pledged to secure the payment of the first eight
scheduled interest payments on the notes. Subject to market
conditions and its ability to complete privately negotiated
transactions with individual holders, we used a portion of the
net proceeds to repurchase a portion of its outstanding
51/4% convertible
subordinated notes due 2008. We have used the remaining net
proceeds of the offering for general corporate purposes,
including working capital. The notes will be convertible at the
option of the holder, at an initial price of $3.705 per
share, into an aggregate of approximately 35.1 million
shares of the Companys common stock, plus approximately
5.4 million additional shares if the initial
purchasers option is exercised in full. The notes will
bear interest at an annual rate of
21/2%,
payable semiannually. Holders of the notes will have the right
to require the Company to repurchase the notes on
October 15, 2007 or upon the occurrence of specified change
in control events. The Company may choose to pay the repurchase
price of such notes in cash, shares of the Companys common
stock or a combination thereof. The Company will have the right
to redeem the notes on or after October 15, 2007 if the
price of the Companys common stock exceeds a specified
threshold. The notes and the common stock issuable upon
conversion of the notes have not been registered and sold under
the Securities Act, or applicable state securities laws, and
were offered and sold only to qualified institutional buyers in
reliance on Rule 144A under the Securities Act.
|
|
(7) |
Acquisition of Genoa Corporation |
On April 3, 2003, we completed the acquisition of Genoa
Corporation (Genoa), a privately held company
located in Fremont, California, pursuant to an Agreement and
Plan of Reorganization dated April 1, 2003 (the
Merger Agreement). Under the terms of the Merger
Agreement, Genoa merged with an indirect wholly-owned subsidiary
of Finisar and the holders of Genoas securities received
approximately 6.3 million shares of Finisar common stock
and warrants exercisable for approximately 1 million shares
of Finisar common stock. The issuance of the shares of common
stock and the shares of common stock issuable upon exercise or
conversion of the warrants were not registered under the
Securities Act in reliance on the exemption from registration
provided by Section 4(2) of the Securities Act.
II-3
|
|
ITEM 16. |
Exhibits and Financial Statement Schedules. |
(a) Exhibits.
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description of Document |
|
|
|
|
2.8 |
|
|
Master Sale and Purchase Agreement by and between Infineon
Technologies A.G. and Finisar Corporation, dated
January 25, 2005(1) |
|
3.4 |
|
|
Amended and Restated Bylaws of Registrant(28) |
|
3.5 |
|
|
Restated Certificate of Incorporation of Registrant(2) |
|
3.6 |
|
|
Certificate of Amendment to Restated Certificate of
Incorporation of Registrant, filed with the Delaware Secretary
of State on June 19, 2001(3) |
|
3.8 |
|
|
Certificate of Elimination regarding the Registrants
Series A Preferred Stock(4) |
|
3.9 |
|
|
Certificate of Designation(5) |
|
3.10 |
|
|
Certificate of Amendment to Restated Certificate of
Incorporation of Registrant, filed with the Delaware Secretary
of State on May 11, 2005(6) |
|
3.11 |
|
|
Amended and Restated Certificate of Incorporation of
Registrant(28) |
|
4.1 |
|
|
Specimen certificate representing the common stock (2) |
|
4.2 |
|
|
Form of Rights Agreement between Finisar Corporation and
American Stock Transfer and Trust Company, as Rights Agent
(including as Exhibit A the form of Certificate of
Designation, Preferences and Rights of the Terms of the Series
RP Preferred Stock, as Exhibit B the form of Right
Certificate, and as Exhibit C the Summary of Terms
of Rights Agreement)(7) |
|
4.3 |
|
|
Indenture between Finisar Corporation and U.S. Bank Trust
National Association, a national banking association, dated
October 15, 2001(8) |
|
4.4 |
|
|
Indenture between Finisar Corporation and U.S. Bank Trust
National Association, a national banking association, dated
October 15, 2003(9) |
|
4.5 |
|
|
Asset Purchase Agreement among Finisar Corporation, Data Transit
Corp., Dale T. Smith and Janice H. Smith dated as of
August 4, 2004, as amended through December 10, 2004
(including as Exhibit A the form of 8% Installment
Promissory Note due August 5, 2005 and as Exhibit I
the form of Stock Resale Agreement)(10) |
|
4.6 |
|
|
Fourth Amendment to Asset Purchase Agreement among Finisar
Corporation, Data Transit Corp., Dale T. Smith and Janis H.
Smith dated as of May 11, 2005 (including as Exhibit A
the form of Amended and Restated 8% Installment Promissory Note
due August 5, 2006)(11) |
|
4.7 |
|
|
Convertible Promissory Note dated April 29, 2005 issued by
Finisar Corporation to CyOptics, Inc., with a principal amount
of $3,750,000(12) |
|
5.1 |
|
|
Opinion of DLA Piper Rudnick Gray Cary US
llp
|
|
10.1 |
|
|
Form of Indemnity Agreement between Registrant and
Registrants directors and officers(2) |
|
10.2 |
|
|
1989 Stock Option Plan(5) |
|
10.3 |
|
|
1999 Stock Option Plan, as amended and restated effective
October 1, 2003(13) |
|
10.4 |
|
|
1999 Employee Stock Purchase Plan, as amended and restated
effective March 2, 2005(14) |
|
10.13 |
|
|
Building Lease for 1308 Moffett Park Drive, Sunnyvale, CA, dated
May 26, 1999 between Registrant and Aetna Life Insurance
Company(2) |
|
10.18 |
|
|
Collateral Pledge and Security Agreement among Finisar
Corporation, U.S. Bank Trust National Association and
U.S. Bank National Association, dated October 15,
2003(9) |
|
10.19 |
|
|
Registration Rights Agreement between Finisar Corporation and
the Initial Purchasers of Finisars
21/2% Convertible
Subordinated Notes due 2010, dated October 15, 2003(9) |
|
10.21.1 |
|
|
Executive Retention and Severance Plan(15) |
|
10.21.2 |
|
|
Amended and Restated Registration Rights Agreement between
Infineon Technologies AG and Finisar Corporation, dated
January 25, 2005(16) |
|
10.22 |
|
|
Transceiver Supply Agreement by and between Finisar Corporation
and Infineon Technologies Trutnov, sro, dated January 25,
2005(17) |
II-4
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description of Document |
|
|
|
|
10.23 |
|
|
Purchase Agreement by and between FSI International, Inc. and
Finisar Corporation, dated February 4, 2005(18) |
|
10.24 |
|
|
Assignment and Assumption of Purchase and Sale Agreement between
Finisar Corporation and Finistar (CA-TX) Limited Partnership,
dated February 4, 2005(19) |
|
10.25 |
|
|
Lease Agreement by and between Finistar (CA-TX) Limited
Partnership and Finisar Corporation, dated February 4,
2005(20) |
|
10.26 |
|
|
Agreement and Plan of Reorganization by and among Finisar
Corporation, Iolite Acquisition Corp. and InterSAN, Inc., dated
March 2, 2005(21) |
|
10.27 |
|
|
Agreement and Plan of Merger by and among Finisar Corporation,
I-Robot Acquisition Corp., I-TECH CORP. and Steven Bucher, dated
April 7, 2005(22) |
|
10.28 |
|
|
Convertible Promissory Note issued by Finisar Corporation to
Steven Bucher with a principal amount of $11,061,000, dated
April 8, 2005(23) |
|
10.29 |
|
|
Convertible Promissory Note issued by Finisar Corporation to
Steven Bucher with a principal amount of $1,000,000, dated
April 8, 2005(24) |
|
10.30 |
|
|
Form of Stock Option Agreement for options granted under the
1999 Stock Option Plan(25) |
|
10.31 |
|
|
Amendment to Convertible Promissory Note dated June 21,
2005 by and among Finisar Corporation and Steven Bucher(26) |
|
10.32 |
|
|
International Employee Stock Purchase Plan(27) |
|
12 |
|
|
Statements Regarding Computation of Ratios |
|
21 |
|
|
List of Subsidiaries of the Registrant(28) |
|
23.1 |
|
|
Consent of Ernst & Young LLP, Independent Registered
Public Accounting Firm |
|
23.2 |
|
|
Opinion of DLA Piper Rudnick Gray Cary US
llp (contained in
Exhibit 5.1) |
|
25* |
|
|
Statement of Eligibility of the Trustee on Form T-1 |
|
|
|
|
(1) |
Incorporated by reference to Exhibit 2.8 to
Registrants Current Report on Form 8-K filed
January 28, 2005. |
|
|
(2) |
Incorporated by reference to the same numbered exhibit to
Registrants Registration Statement on Form S-1/ A
filed October 19, 1999 (File No. 333-87017). |
|
|
(3) |
Incorporated by reference to the same numbered exhibit to
Registrants Annual Report on Form 10-K filed
July 18, 2001. |
|
|
(4) |
Incorporated by reference to Exhibit 3.8 to
Registrants Registration Statement on Form S-3 filed
December 18, 2001 (File No. 333-75380). |
|
|
(5) |
Incorporated by reference to Exhibit 99.2 to
Registrants Registration Statement on Form 8-A12G
filed on September 27, 2002. |
|
|
(6) |
Incorporated by reference to Exhibit 3.3 to
Registrants Registration Statement on Form S-3 filed
May 18, 2005 (File No. 333-125034). |
|
|
(7) |
Incorporated by reference to the same numbered exhibit to
Registrants Current Report on Form 8-K filed
September 27, 2002. |
|
|
(8) |
Incorporated by reference to the same numbered exhibit to
Registrants Quarterly Report on Form 10-Q for the
period ended October 31, 2001 filed December 12, 2001. |
|
|
(9) |
Incorporated by reference to the same numbered exhibit to
Registrants Quarterly Report on Form 10-Q for the
period ended October 31, 2003 filed December 10, 2003. |
|
|
(10) |
Incorporated by reference to Exhibit 4.5 to
Registrants Quarterly Report on Form 10-Q filed
December 10, 2004. |
II-5
|
|
(11) |
Incorporated by reference to Exhibit 4.2 to
Registrants Registration Statement on Form S-3 filed
May 13, 2005 (File No. 333-125979). |
|
(12) |
Incorporated by reference to Exhibit 4.7 to
Registrants Registration Statement on Form S-3 filed
May 18, 2005 (File No. 333-125034). |
|
(13) |
Incorporated by reference to Exhibit 99.3 to
Registrants Registration Statement on Form S-8 filed
May 23, 2005 (File No. 333-125147). |
|
(14) |
Incorporated by reference to Exhibit 99.1 to
Registrants Registration Statement on Form S-8 filed
May 23, 2005 (File No. 333-125147). |
|
(15) |
Incorporated by reference to the same numbered exhibit to
Registrants Annual Report on Form 10-K/ A filed
February 10, 2005. |
|
(16) |
Incorporated by reference to Exhibit 10.21 to
Registrants Current Report on Form 8-K filed
January 28, 2005. |
|
(17) |
Incorporated by reference to Exhibit 10.22 to
Registrants Current Report on Form 8-K filed
January 28, 2005. |
|
(18) |
Incorporated by reference to Exhibit 10.23 to
Registrants Current Report on Form 8-K filed
February 9, 2005. |
|
(19) |
Incorporated by reference to Exhibit 10.24 to
Registrants Current Report on Form 8-K filed
February 9, 2005. |
|
(20) |
Incorporated by reference to Exhibit 10.25 to
Registrants Current Report on Form 8-K filed
February 9, 2005. |
|
(21) |
Incorporated by reference to Exhibit 10.26 to
Registrants Current Report on Form 8-K filed
March 7, 2005. |
|
(22) |
Incorporated by reference to Exhibit 10.27 to
Registrants Current Report on Form 8-K filed
April 11, 2005. |
|
(23) |
Incorporated by reference to Exhibit 10.28 to
Registrants Current Report on Form 8-K filed
April 11, 2005. |
|
(24) |
Incorporated by reference to Exhibit 10.29 to
Registrants Current Report on Form 8-K filed
April 11, 2005. |
|
(25) |
Incorporated by reference to Exhibit 10.30 to
Registrants Current Report on Form 8-K filed
June 14, 2005. |
|
(26) |
Incorporated by reference to Exhibit 10.31 to
Registrants Current Report on Form 8-K filed
June 22, 2005. |
|
(27) |
Incorporated by reference to Exhibit 99.2 to
Registrants Registration Statement on Form S-8 filed
May 23, 2005 (File No. 333-125147). |
|
(28) |
Incorporated by reference to the same numbered exhibit to
Registrants Annual Report on Form 10-K filed
July 29, 2005. |
(b) Financial Statement Schedules.
The following financial statement schedule of Finisar is filed
as part of this Registration Statement and should be read in
conjunction with the financial statements and related notes.
|
|
|
|
|
Schedule |
|
Page | |
|
|
| |
II Valuation and Qualifying Accounts
|
|
|
S-1 |
|
Schedules not listed above have been omitted because the
information required to be set forth therein is not applicable
or is shown in the financial statements or notes thereto.
II-6
Insofar as indemnification by the Registrant for liabilities
arising under the Securities Act may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the provisions referenced in Item 14 of this Registration
Statement or otherwise, the Registrant has been advised that in
the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act, and is
therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
|
|
|
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement: |
|
|
|
(i) To include any prospectus required by
section 10(a)(3) of the Securities Act of 1933; |
|
|
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum
aggregate offering price set forth in the Calculation of
Registration Fee table in the effective registration
statement; and |
|
|
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement. |
|
|
|
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment 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) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering. |
|
|
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 the 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; and |
|
|
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of Prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be
the initial bona fide offering thereof. |
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on
Form S-1 and has duly caused this amendment to registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Sunnyvale, State of
California on August 2, 2005.
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Jerry S. Rawls |
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President and Chief Executive Officer |
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons
in the capacities and on the dates indicated:
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Name |
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Title |
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Date |
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/s/ Jerry S. Rawls*
Jerry
S. Rawls |
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Chief Executive Officer
(Principal Executive Officer) |
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August 2, 2005 |
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/s/ Frank H. Levinson*
Frank
H. Levinson |
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Chairman of the Board and
Chief Technical Officer |
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August 2, 2005 |
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/s/ Stephen K. Workman
Stephen
K. Workman |
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Senior Vice President, Finance,
Chief Financial Officer and
Secretary (Principal Financial and
Accounting Officer) |
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August 2, 2005 |
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/s/ Michael C. Child*
Michael
C. Child |
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Director |
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August 2, 2005 |
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/s/ Roger C. Ferguson*
Roger
C. Ferguson |
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Director |
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August 2, 2005 |
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David
C. Fries |
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Director |
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August , 2005 |
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/s/ Larry D. Mitchell*
Larry
D. Mitchell |
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Director |
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August 2, 2005 |
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*By: /s/ Stephen K. Workman
Stephen
K. Workman
Attorney-in-fact |
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II-8
EXHIBIT INDEX
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Exhibit |
|
|
Number |
|
Description of Document |
|
|
|
|
2 |
.8 |
|
Master Sale and Purchase Agreement by and between Infineon
Technologies A.G. and Finisar Corporation, dated
January 25, 2005(1) |
|
3 |
.4 |
|
Amended and Restated Bylaws of Registrant(28) |
|
3 |
.5 |
|
Restated Certificate of Incorporation of Registrant(2) |
|
3 |
.6 |
|
Certificate of Amendment to Restated Certificate of
Incorporation of Registrant, filed with the Delaware Secretary
of State on June 19, 2001(3) |
|
3 |
.8 |
|
Certificate of Elimination regarding the Registrants
Series A Preferred Stock(4) |
|
3 |
.9 |
|
Certificate of Designation(5) |
|
3 |
.10 |
|
Certificate of Amendment to Restated Certificate of
Incorporation of Registrant, filed with the Delaware Secretary
of State on May 11, 2005(6) |
|
3 |
.11 |
|
Amended and Restated Certificate of Incorporation of
Registrant(28) |
|
4 |
.1 |
|
Specimen certificate representing the common stock(2) |
|
4 |
.2 |
|
Form of Rights Agreement between Finisar Corporation and
American Stock Transfer and Trust Company, as Rights Agent
(including as Exhibit A the form of Certificate of
Designation, Preferences and Rights of the Terms of the Series
RP Preferred Stock, as Exhibit B the form of Right
Certificate, and as Exhibit C the Summary of Terms
of Rights Agreement)(7) |
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4 |
.3 |
|
Indenture between Finisar Corporation and U.S. Bank Trust
National Association, a national banking association, dated
October 15, 2001(8) |
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4 |
.4 |
|
Indenture between Finisar Corporation and U.S. Bank Trust
National Association, a national banking association, dated
October 15, 2003(9) |
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4 |
.5 |
|
Asset Purchase Agreement among Finisar Corporation, Data Transit
Corp., Dale T. Smith and Janice H. Smith dated as of
August 4, 2004, as amended through December 10, 2004
(including as Exhibit A the form of 8% Installment
Promissory Note due August 5, 2005 and as Exhibit I
the form of Stock Resale Agreement)(10) |
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4 |
.6 |
|
Fourth Amendment to Asset Purchase Agreement among Finisar
Corporation, Data Transit Corp., Dale T. Smith and Janis H.
Smith dated as of May 11, 2005 (including as Exhibit A
the form of Amended and Restated 8% Installment Promissory Note
due August 5, 2006)(11) |
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4 |
.7 |
|
Convertible Promissory Note dated April 29, 2005 issued by
Finisar Corporation to CyOptics, Inc., with a principal amount
of $3,750,000(12) |
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5 |
.1 |
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Opinion of DLA Piper Rudnick Gray Cary US
llp
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10 |
.1 |
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Form of Indemnity Agreement between Registrant and
Registrants directors and officers(2) |
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10 |
.2 |
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1989 Stock Option Plan(5) |
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10 |
.3 |
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1999 Stock Option Plan, as amended and restated effective
October 1, 2003(13) |
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10 |
.4 |
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1999 Employee Stock Purchase Plan, as amended and restated
effective March 2, 2005(14) |
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10 |
.13 |
|
Building Lease for 1308 Moffett Park Drive, Sunnyvale, CA,
dated May 26, 1999 between Registrant and Aetna Life
Insurance Company(2) |
|
10 |
.18 |
|
Collateral Pledge and Security Agreement among Finisar
Corporation, U.S. Bank Trust National Association and
U.S. Bank National Association, dated October 15,
2003(9) |
|
10 |
.19 |
|
Registration Rights Agreement between Finisar Corporation and
the Initial Purchasers of Finisars
21/2% Convertible
Subordinated Notes due 2010, dated October 15, 2003(9) |
|
10 |
.21.1 |
|
Executive Retention and Severance Plan(15) |
|
10 |
.21.2 |
|
Amended and Restated Registration Rights Agreement between
Infineon Technologies AG and Finisar Corporation, dated
January 25, 2005(16) |
|
10 |
.22 |
|
Transceiver Supply Agreement by and between Finisar Corporation
and Infineon Technologies Trutnov, sro, dated
January 25, 2005(17) |
|
10 |
.23 |
|
Purchase Agreement by and between FSI International, Inc.
and Finisar Corporation, dated February 4, 2005(18) |
|
10 |
.24 |
|
Assignment and Assumption of Purchase and Sale Agreement between
Finisar Corporation and Finistar (CA-TX) Limited
Partnership, dated February 4, 2005(19) |
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|
|
|
|
Exhibit |
|
|
Number |
|
Description of Document |
|
|
|
|
10 |
.25 |
|
Lease Agreement by and between Finistar (CA-TX) Limited
Partnership and Finisar Corporation, dated February 4,
2005(20) |
|
10 |
.26 |
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Agreement and Plan of Reorganization by and among Finisar
Corporation, Iolite Acquisition Corp. and InterSAN, Inc., dated
March 2, 2005(21) |
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10 |
.27 |
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Agreement and Plan of Merger by and among Finisar Corporation,
I-Robot Acquisition Corp., I-TECH CORP. and Steven Bucher, dated
April 7, 2005(22) |
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10 |
.28 |
|
Convertible Promissory Note issued by Finisar Corporation to
Steven Bucher with a principal amount of $11,061,000, dated
April 8, 2005(23) |
|
10 |
.29 |
|
Convertible Promissory Note issued by Finisar Corporation to
Steven Bucher with a principal amount of $1,000,000, dated
April 8, 2005(24) |
|
10 |
.30 |
|
Form of Stock Option Agreement for options granted under the
1999 Stock Option Plan(25) |
|
10 |
.31 |
|
Amendment to Convertible Promissory Note dated June 21,
2005 by and among Finisar Corporation and Steven Bucher(26) |
|
10 |
.32 |
|
International Employee Stock Purchase Plan(27) |
|
12 |
|
|
Statements Regarding Computation of Ratios |
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21 |
|
|
List of Subsidiaries of the Registrant(28) |
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23 |
.1 |
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Consent of Ernst & Young LLP, Independent Registered
Public Accounting Firm |
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23 |
.2 |
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Opinion of DLA Piper Rudnick Gray
Cary US llp
(contained in Exhibit 5.1) |
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25* |
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Statement of Eligibility of the Trustee on Form T-1 |
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(1) |
Incorporated by reference to Exhibit 2.8 to
Registrants Current Report on Form 8-K filed
January 28, 2005. |
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(2) |
Incorporated by reference to the same numbered exhibit to
Registrants Registration Statement on Form S-1/A
filed October 19, 1999 (File No. 333-87017). |
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|
(3) |
Incorporated by reference to the same numbered exhibit to
Registrants Annual Report on Form 10-K filed
July 18, 2001. |
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|
(4) |
Incorporated by reference to Exhibit 3.8 to
Registrants Registration Statement on Form S-3 filed
December 18, 2001 (File No. 333-75380). |
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(5) |
Incorporated by reference to Exhibit 99.2 to
Registrants Registration Statement on Form 8-A12G
filed on September 27, 2002. |
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(6) |
Incorporated by reference to Exhibit 3.3 to
Registrants Registration Statement on Form S-3 filed
May 18, 2005 (File No. 333-125034). |
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(7) |
Incorporated by reference to the same numbered exhibit to
Registrants Current Report on Form 8-K filed
September 27, 2002. |
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(8) |
Incorporated by reference to the same numbered exhibit to
Registrants Quarterly Report on Form 10-Q for the
period ended October 31, 2001 filed December 12, 2001. |
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(9) |
Incorporated by reference to the same numbered exhibit to
Registrants Quarterly Report on Form 10-Q for the
period ended October 31, 2003 filed December 10, 2003. |
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(10) |
Incorporated by reference to Exhibit 4.5 to
Registrants Quarterly Report on Form 10-Q filed
December 10, 2004. |
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(11) |
Incorporated by reference to Exhibit 4.2 to
Registrants Registration Statement on Form S-3 filed
May 13, 2005 (File No. 333-125979). |
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(12) |
Incorporated by reference to Exhibit 4.7 to
Registrants Registration Statement on Form S-3 filed
May 18, 2005 (File No. 333-125034). |
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(13) |
Incorporated by reference to Exhibit 99.3 to
Registrants Registration Statement on Form S-8 filed
May 23, 2005 (File No. 333-125147). |
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(14) |
Incorporated by reference to Exhibit 99.1 to
Registrants Registration Statement on Form S-8 filed
May 23, 2005 (File No. 333-125147). |
|
(15) |
Incorporated by reference to the same numbered exhibit to
Registrants Annual Report on Form 10-K/A filed
February 10, 2005. |
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(16) |
Incorporated by reference to Exhibit 10.21 to
Registrants Current Report on Form 8-K filed
January 28, 2005. |
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(17) |
Incorporated by reference to Exhibit 10.22 to
Registrants Current Report on Form 8-K filed
January 28, 2005. |
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(18) |
Incorporated by reference to Exhibit 10.23 to
Registrants Current Report on Form 8-K filed
February 9, 2005. |
|
(19) |
Incorporated by reference to Exhibit 10.24 to
Registrants Current Report on Form 8-K filed
February 9, 2005. |
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(20) |
Incorporated by reference to Exhibit 10.25 to
Registrants Current Report on Form 8-K filed
February 9, 2005. |
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(21) |
Incorporated by reference to Exhibit 10.26 to
Registrants Current Report on Form 8-K filed
March 7, 2005. |
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(22) |
Incorporated by reference to Exhibit 10.27 to
Registrants Current Report on Form 8-K filed
April 11, 2005. |
|
(23) |
Incorporated by reference to Exhibit 10.28 to
Registrants Current Report on Form 8-K filed
April 11, 2005. |
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(24) |
Incorporated by reference to Exhibit 10.29 to
Registrants Current Report on Form 8-K filed
April 11, 2005. |
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(25) |
Incorporated by reference to Exhibit 10.30 to
Registrants Current Report on Form 8-K filed
June 14, 2005. |
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(26) |
Incorporated by reference to Exhibit 10.31 to
Registrants Current Report on Form 8-K filed
June 22, 2005. |
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(27) |
Incorporated by reference to Exhibit 99.2 to
Registrants Registration Statement on Form S-8 filed
May 23, 2005 (File No. 333-125147). |
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(28) |
Incorporated by reference to the same numbered exhibit to
Registrants Annual Report on Form 10-K filed
July 29, 2005. |