Kalkhoven takes the stand.

by Lynne Huntting

Kevin Kalkhoven finally testified as a defendant in the ongoing JDSU insider trading civil case in Oakland District Court on Thursday, and was on the stand for most of the session.

One of four defendants, the co-owner of the Champ Car World Series, PKV Racing, Cosworth Engines and Pi Group was examined by his lead attorney, Michael Shepard and cross-examined by the plaintiff's Barbara Hart.

Kalkhoven is a former CEO of JDSU, and was a venture capitalist before being recruited by the same head-hunter who asked him to turn around several other companies. He would typically stay a couple of years at a firm as CEO before moving on, and admits that he enjoyed it.

Kalkhoven was asked to be CEO at Uniphase, an fibre-optics telecommunications company based near Silicon Valley, which wasn't doing as well as it could making gas lasers for such things as supermarket scanners, so he looked for other opportunities. When Kalkhoven started, the company was private. He took it public in 1994 and, as part of his employment, received stock options.

Uniphase started acquiring other companies which had technology, intellectual property, scientists and other experts and products. Some acquisitions failed but, whenever Uniphase was involved in an acquisition, the 'window' was closed to Kalkhoven for selling stock. Up to June 1998, Uniphase dealt mainly with active technology and, at that point, Kalkhoven began discussions with Dr Josef Strauss, CEO of JDS Fitel, which Kalkhoven characterised as having a reputation for making the best 'passives' in the business.

"We had the best actives, so we could make it one-stop shopping for large companies if we merged, and it would relieve some of the pressure Uniphase was experiencing in meeting the demand of its customers," he revealed.

Kalkhoven said Strauss would tell him if he felt there was a problem, and also said he didn't recollect hearing anything from Tony Muller regarding inventories. He maintains that JDSU's problem was that demand was exceeding supply. He said he was concerned with the entire company, which had 2000 products, and, as such, could expect problems. However, the company forecasts overall 'looked just fine' to Kalkhoven, who claimed that "I saw raised expectations, quarter to quarter".

Kalkhoven and others are alleged to have made false statements during JDSU teleconferences, with industry and financial analysts. The plaintiffs are challenging certain statements regarding the long haul aspects of the firm. As CEO, Kalkhoven said he and other defendants sat down to prepare for the quarterly conference calls, where he said very detailed information was shared with the analysts. It was important that the information was accurate, but Kalkhoven said that, while the calls were specific to his firm, the analysts follow the whole industry.

During all his time at JDSU, Kalkhoven said he worked hard, and was with the company for eight years, retiring in May 2000 at the age of 56, leaving the firm in the 'good hands' of Strauss, Charles Abbe, and Robert Muller, all co-defendants in the current case. Since his retirement, Kalkhoven said he'd been 'relaxing a bit, engaged in the motorsports business, doing philanthropic work and investing as a venture capitalist', none of which, he said, 'required the amount of time he spent at JDSU - even all combined together'.

Kalkhoven formed his own venture capital firm, KPLJ LLC, with two former JDSU employees, including Dan Pettitt, who later went on to take financial interests in both PKV Racing and, this season, RuSPORT, as well as in the Champ Car World Series. Kalkhoven, as well as having his team and series involvement, has also been instrumental in guiding the career of Katherine Legge, whom he placed at Dale Coyne Racing for 2007 after a debut year at PKV.

Kalkhoven signed a consultancy contract with JDSU when he retired, which compensated him $400,000 pro rata per month plus health benefits. He also signed a routine non-compete clause. He was still subject to the company trading windows, but denied that he received inside or adverse information about JDSU after he retired. He thought JDSU 'had stellar promise', but exercised $158 million in JDSU stock options between 31 July and 31 August 2000, another $198 million in September the same year, $105 million in the October and eight million in November. Just prior to the JDSU teleconference on 25 January 2001, Kalkhoven sold an additional $55 million. The figure of $558,500 million was mentioned in court as the total stock sales. The net proceeds of the stock sales were invested in and allocated to KPLJ or diverted for philanthropic work.

Kalkhoven said his financial advisors had been telling him for some time to divest in order not to keep all of his eggs in one JDSU basket. He says he chose to sell about 50 per cent of his stock as it 'sounded like a good number', albeit less than his advisors had wanted him to sell. He kept more than three million shares.

Kalkhoven held up during the lengthy session, not losing his composure and patiently and politely answering some questions more than once. At one point, he got up and drew a diagram to the jury to describe a modulator and explain why several 2.5 gig modulators could work as well as a ten gig modulator, using terms that even a layman could understand. After his testimony, he was excused and he left the courtroom.

The final witness of the day, JDSU employee Charles Neagoy, will complete his testimony on Friday, but there could be two other witnesses before each side rests. Judge Claudia Wilkins met with key attorneys from both sides after court had closed to go over jury instructions, and is looking forward to giving details to the nine jurors on Friday afternoon.