UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark One)
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 2, 2005
OR
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-30684
BOOKHAM, INC.
Delaware
(State or other jurisdiction of
incorporation or organization)
20-1303994
(I.R.S. Employer
Identification No.)
2584 Junction Avenue
San Jose, California
(Address of principal executive offices)
95134
(Zip Code)
408-919-1500
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date. As of May 4, 2005, there were 33,805,437 shares of common stock outstanding.
BOOKHAM, INC.
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BOOKHAM, INC.
The accompanying notes are an integral component of these condensed consolidated financial
statements.
3
BOOKHAM, INC.
The accompanying notes are an integral component of these condensed consolidated financial
statements.
4
BOOKHAM, INC.
The accompanying notes are an integral component of these condensed consolidated financial
statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business
References to the Company or Bookham mean Bookham, Inc. and its subsidiaries and refers to
Bookhams consolidated business activities since September 10, 2004 and Bookham Technology plcs
consolidated business activities prior to September 10, 2004.
Bookham is a Delaware corporation and was incorporated on June 29, 2004. On September 10, 2004,
pursuant to a scheme of arrangement under U.K. law, Bookham became the publicly traded parent
company of the Bookham Technology plc group of companies, including Bookham Technology plc, a
public limited company incorporated under the laws of England and Wales whose stock was previously
traded on the London Stock Exchange and the NASDAQ National Market. The Companys common stock is
traded on the NASDAQ National Market under the symbol BKHM. This Form 10-Q includes financial
information for the three and nine month periods ended April 2,
2005 and compares these results with
the three and nine month periods ended April 4, 2004 for the statement of operations, compares the
nine months ended April 2, 2005 to the nine months ended April 4, 2004 for the statement of cash
flows and compares the balance sheet at April 2, 2005 to the balance sheet at July 3, 2004.
Note 2. Basis of Preparation
The accompanying unaudited condensed consolidated financial statements as of April 2, 2005, and for
the three and nine months ended April 2, 2005 and April 4, 2004, have been prepared in accordance
with generally accepted accounting principles in the United States (GAAP) for interim financial
statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated
under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and include the
accounts of Bookham, Inc. and all of its subsidiaries. Information and footnote disclosures
normally included in annual financial statements prepared in accordance with accounting principles
generally accepted in the United States have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the unaudited condensed consolidated financial
statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a
fair presentation of the consolidated financial position at April 2, 2005, and the consolidated
operating results for the three and nine months ended April 2, 2005 and April 4, 2004, and cash
flows for the nine months ended April 2, 2005 and April 4, 2004. The consolidated results of
operations for the three and nine months ended April 2, 2005 are not necessarily indicative of
results that may be expected for any other interim period or for the full fiscal year ending July
2, 2005.
Management makes estimates and assumptions that affect the amounts reported in the unaudited
condensed consolidated financial statements and footnotes. Actual results could differ materially
from those estimates. Management believes that some of the more critical accounting estimates and
related assumptions that affect the Companys financial condition and results of operations are in
the areas of revenue recognition, legal contingencies, receivables,
inventories, business restructuring and goodwill and other intangible assets. Estimates and assumptions are
periodically reviewed and the effects of any material revisions are reflected in the period that
they are determined to be necessary.
The condensed consolidated balance sheet at July 3, 2004 has been derived from the audited
condensed consolidated financial statements at that date, but does not include all of the
information and footnotes required by accounting principles generally accepted in the United States
for complete financial statements. Certain comparative amounts have been reclassified to conform to
current period presentations.
These unaudited condensed consolidated financial statements should be read in conjunction with the
Companys audited financial statements and notes included in the Companys Transition Report on
Form 10-K/A for the transition period from January 1, 2004 to July 3, 2004.
The financial statements have been
prepared on a going concern basis. The Company has
incurred losses and negative cash flows
from operations since its inception.
As of April 2, 2005 the
Company had working capital of
$82.8 million, and an accumulated deficit of
$828.0 million. For the nine months
ended April 2, 2005, the Company used
$92.7 million of cash in operating activities and
had a net loss of $129.6 million. The
Companys ability to meet obligations in the
ordinary course of business is dependent on its
ability to establish profitable operations and
raise additional financing. Management believes
it will be able to secure additional sources
of financing in the next twelve months through
the sale of assets, issuance of additional equity securities
and through borrowings secured by certain properties
which the Company owns. Management also
intends to delay or reduce expenditures in
the event additional financial resources are
not available on terms acceptable to
the Company. The Companys inability to secure
the necessary financing would have a material
adverse affect on the Companys financial condition
and results of operations. The financial statements
do not include any adjustments to reflect the
possible future effects on the recoverability and
classification of assets or the amounts and
classification of assets and liabilities that may
result from the outcome of this uncertainty.
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The condensed consolidated balance sheet of the Company as of July 3, 2004 and the related
consolidated statements of operations for the three and nine months ended April 2, 2004 and cash
flows for the nine months ended April 4, 2004 contained in this Quarterly Report on Form 10-Q have
been prepared in conformity with US GAAP, or derived from audited consolidated financial statements
that had been prepared in conformity with US GAAP and have been translated from pounds sterling into
US Dollars using the exchange rates set forth below. Translation differences are recorded in
other comprehensive income.
Note 3. Stock-based Compensation
The Company accounts for employee stock options using the intrinsic value method in accordance with
Accounting Principles Board Opinion (APB) No. 25,
Accounting for Stock Issued to Employees,
and
has adopted the disclosure-only alternative of Statement of Financial Accounting Standards (SFAS)
No. 123,
Accounting for Stock-Based Compensation,
as amended by SFAS No. 148,
Accounting for
Stock-Based CompensationTransition and Disclosure
. Under the intrinsic value method, the Company
has only recorded stock-based employee compensation resulting from stock options granted at below
fair market value. Stock-based compensation expense reflected in the
as reported net loss
includes expenses for restricted stock awards and option modifications and the amortization of
certain acquisition related deferred compensation expense. No tax benefits were attributed to the
stock-based employee compensation expense during the periods presented because valuation allowances
were maintained on substantially all of the Companys net deferred tax assets.
The following table illustrates the pro forma effect on net loss and loss per share if the Company
had applied the fair value recognition provisions of SFAS No. 123, as amended by SFAS No. 148, to
stock-based employee compensation data:
On February 9, 2005, the Company awarded restricted stock grants totaling 249,859 common shares to
the Chief Executive Officer and the Chief Financial Officer (the Participants) under the
Companys 2004 Stock Incentive Plan in exchange for a significant portion of their outstanding stock options
as of that date. Pursuant to the terms of the award, the shares shall vest in their entirety and
become free from transfer restrictions on the one year anniversary of the grant date provided that
(A) the Participant has been continuously employed by the Company during the period, (B) on or
before the anniversary, the Company has filed on a timely basis any report required pursuant to
Item 308 of Regulation S-K and (C) on the anniversary date the Company does not have any material
weakness that has not been remedied to the satisfaction of the Audit Committee of the Companys
board of directors. In the event the
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Participants
employment with the Company is terminated for any reason other than his death, his disability or a
change of control of Bookham, all of the shares will be forfeited and the Participant shall have
no further rights with respect to the shares. The Company recorded deferred compensation of
approximately $750,000 representing the fair market value of the restricted shares on the date of
the grant. The deferred compensation will be amortized over the term of the agreement as a charge
to compensation expense, however, because there are performance metrics which prevent the shares
from being vested over the term of the agreement, the grants will be fair valued at each
reporting period and deferred compensation will be adjusted accordingly. The Company recorded an expense of $98,000
in the third quarter of fiscal 2005.
On September 22, 2004, options to purchase 1,730,950 shares of common stock of the Company were
granted to employees under the Companys 2004 Stock Incentive Plan at an exercise price of $6.73
per share. 50% of the options vest in accordance with the following performance
based schedule: (i) as to 50% of these shares upon the
Company achieving cash flow break-even (as defined as the point at which the Company generates
earnings before interest, taxes, depreciation and amortization (excluding one-time items) that are
greater than zero in any fiscal quarter prior to the termination of the option) and (ii) as to
50% of these shares upon the Company achieving profitability
(as defined as the point at which the Company generates a profit before interest and taxes
(excluding one-time items) that is greater than zero in any fiscal quarter prior to the termination
of the option). In the event that either or both of the above-listed portions do not vest in full
on or prior to September 22, 2009, such portion of the option shall become immediately vested.
50% of the options have a time based vesting schedule as follows: the options will
vest (i) as to 25% of these shares on the first
anniversary of the grant date and (ii) as to an additional
2.083% of these shares
at the end of each successive month period following the first anniversary of the grant date until
the fourth anniversary of the grant date.
In December 2004, the
FASB issued SFAS No. 123R
which requires companies to recognize in their statement of operations all share-based payments to employees, including grants of employee stock
options, based on their fair values. Accounting for share-based
compensation transactions using the intrinsic method supplemented by
pro forma disclosures will no longer be permissible. The new
pronouncement will be effective for public entities no later than the
beginning of the first fiscal year beginning after June 15,
2005. The Company will adopt the new pronouncement on July 3,
2005. The Company has not yet completed its analysis of the impact of
adopting SFAS No. 123R and is therefore currently unable to quantify
the effect it will have on its financial statements. However, the adoption of this
new pronouncement will have a significant impact on the results of
operations and net loss per share of the Company.
Note 4. Restructuring
In recent years, the Company has implemented a number of major restructuring plans as a result of
the ongoing downturn in the optical components industry and to realize cost reduction benefits
arising from the integration of acquired companies.
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The Company has two restructuring plans in place. The first restructuring plan was comprised of
several activities prior to and following the Companys acquisition of New Focus on March 8, 2004
(the Acquisition Restructuring Plan). This plan chiefly comprised closing the Companys Ottawa
facility and the transferring of its fabrication production into the Companys Caswell facility,
adding certain restructuring liabilities arising from the acquisition of New Focus in March 2004,
and implementing other general cost reductions across the Company. This program is substantially
complete except for the payment of certain severance and retention obligations and the continuing payments
associated with the ongoing leases of non-occupied facilities.
The second plan (the 2004 Restructuring Plan), which was announced in May 2004, sought to reduce
overhead by $10 million to $12 million per quarter on a cumulative value basis. In December 2004,
the Company announced additional general overhead reduction measures designed to increase the
quarterly overhead reduction to $16 million to $20 million per quarter. The Company anticipates
the total cost of implementing these reductions to be in the range of
$24 million to $30 million all of which the Company expects
will require the expenditure of cash.
The key component of the 2004 Restructuring Plan is the transfer of the majority of the assembly
and test operations from the Companys facility in Paignton, UK to the Companys facility in
Shenzhen, China to take advantage of the substantially reduced cost base in China. The Shenzhen
facility was acquired as part of the Companys acquisition of New Focus and the Company is actively
staffing the facility and transferring production of the first product lines into the new facility.
In addition, the 2004 Restructuring Plan calls for the discontinuation of the Companys GaAs
fabrication product line as well as other general cost reductions throughout the Company. As a
result of the Company changing its domicile from the United Kingdom to the United States, during the
second quarter of fiscal 2005, the Company closed its headquarters office in Abingdon, UK and
transferred its headquarters to San Jose, California and relocated its UK Corporate staff to its
facility in Caswell, UK. The Company expects these programs to reduce its overhead expenses in the
coming quarters but, due to the complexity and time involved to transfer some product lines to
China and the need to keep UK operations open to meet current product demand, a portion of the anticipated savings is expected to take 12 to 15 months to achieve.
Included in each restructuring plan were costs related to severance pay, the write-down of the
carrying value of equipment used by terminated product lines, office closures and the termination
of certain office leases. Facility closing charges are recognized under the restructuring programs
for the expected remaining future cash outlays associated with
remaining lease liabilities, lease
termination payments and expected restoration costs in connection with plans to reduce the number
of leased facilities. The remaining liability is expected to be paid over the remaining lease
terms and is reflected net of expected sublease income. Additional charges may be required in the
future if the expected sublease income is not realized. In the three months ended April 2, 2005,
$3.7 million of restructuring charges were in the Companys
Optics segment and $0.1 million were in
the Companys Research and Defense segment (see Note 12 for additional segment information). All
restructuring charges were incurred within the Companys Optics segment in the previous quarters.
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The following tables summarize the activity on the restructuring plans for the three and nine
months ended April 2, 2005 (in thousands):
* The Other caption primarily
represents the effects of exchange rate fluctuations during the
periods.
Note 5. Net Loss Per Share
Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings Per Share,
requires dual presentation of basic and diluted earnings per share on
the face of the income statement. Basic EPS is computed using only
the weighted average number of common shares outstanding for the
period, while diluted EPS is computed assuming conversion of all
potentially dilutive securities, such as options, convertible debt and warrants.
Because the Company incurred
net losses for the three and nine months ended April 2, 2005, the
effect of dilutive securities (in-the-money stock options and
warrants) totaling 3,000 equivalent shares and 145,505 equivalent shares, respectively, has been excluded from the
calculation of diluted net loss per share because they would have been anti-dilutive. Because the Company
incurred net losses for the three and nine months ended April 4, 2004, the effect of dilutive
securities totaling 723,508 and 25,634 equivalent shares, respectively, has been excluded
from the calculation of diluted net loss per share because they would
have been anti-dilutive. The Company also
excluded from the calculation of diluted net loss per share
approximately 4.6 million of potentially
issuable shares related to the convertible debt. For additional information see Note 14.
The following table sets forth the computation of basic and diluted net loss per share:
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Note 6. Comprehensive Loss
For the three and nine months ended April 2, 2005 and April 4, 2004, the Companys comprehensive
loss is comprised of its net loss, unrealized gains on the Companys hedging instruments, foreign
currency translation adjustments and unrealized holding losses on short-term investments. Foreign
currency translation adjustments are generally not adjusted for income taxes, as they relate to
indefinite investments in non-US subsidiaries.
The components of comprehensive loss are as follows:
Note 7. Short-term Investments
Short-term investments are comprised of instruments with original maturity dates greater than three
months, which mature within one year of the balance sheet date, and
are approximately $7.0 million of current assets as of April 2, 2005 and July 3, 2004.
Note 8. Inventories
Inventories are as follows:
In the quarter ended
April 2, 2005, the Company recognized profits of
$1.8 million on inventories carried at zero value which was sold during the quarter. For the nine month period ending April 2,
2005, the Company recognized profits of $9.0 million on inventory carried at zero value. As of
April 2, 2005, the Company has $31.1 million of inventories, based on its original cost carried at
zero value. These inventories were originally purchased as part of the acquisition
of Nortel Network Optical Components business (NNOC) in November 2002.
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Note 9. Goodwill and Other Acquired Intangible Assets
The following table summarizes the changes in the carrying value of goodwill and other acquired
intangible assets from July 3, 2004 to April 2, 2005 (in
thousands):
Pursuant to SFAS 142,
Goodwill and Other Intangible Assets
goodwill is no longer amortized over a
definitive useful life but is instead tested annually for impairment,
during the Company's fiscal fourth quarter, or
more often if an event or circumstance indicates that impairment has occurred.
SFAS No. 142 requires that the first phase of testing goodwill for impairment be based on a
business units fair value, which is generally best determined through market prices. Due to the
absence of market prices for our businesses, and as permitted by SFAS
No. 142, the Company has elected to
base its testing on discounted future expected cash flows. Although the discount rates and other
input variables may differ, the model we use in this process is the
same model the Company used to evaluate
the fair value of acquisition candidates and the fairness of offers
to purchase businesses that the Company is considering for
divestiture. The forecasted cash flows used are derived from the annual
long-range planning process that the Company performs. In this process, each business unit is required to
develop reasonable sales, earnings and cash flow forecasts for the next three to seven years based
on current and forecasted economic conditions. For purposes of testing for impairment, the cash
flow forecasts are adjusted as needed to reflect information that becomes available concerning
changes in business levels and general economic trends. The discount rates used are generally based
on the Company's weighted average cost of capital and are then judgmentally adjusted for plan risk (the
risk that a business will fail to achieve its forecasted results) and country risk (the risk that
economic or political instability in the non-U.S. countries in which
the Company operates will cause a
business units projections to be inaccurate). Finally, a growth factor beyond the three to seven
year period for which cash flows are planned is selected based on expectations of future economic
conditions. Virtually all of the assumptions used are susceptible to change due to global and
regional economic conditions as well as competitive factors in the
industries in which the Company operates.
In recent years, many of the Company's cash flow forecasts have not been achieved due in large part to the
unexpected length and depth of the downturn in the industry. Unanticipated changes in discount
rates from one year to the next can also have a significant effect on the results of the
calculations. While the Company believes the estimates and assumptions used are reasonable in these
circumstances, various economic factors could cause the results of
the Company's testing to vary
significantly.
As discussed above, SFAS 142 provides
guidance for companies who have experienced a triggering
event, or an event or circumstance indicating that a possible impairment of a business units
goodwill may have occurred. During the third quarter of fiscal 2005 the Company determined that due to the
continued decline in its stock price, and therefore market capitalization, combined with continued
net losses and a history of not meeting revenue and profitability
targets, the Company had potential indicators of impairment
relating to the goodwill which resulted from the purchase price allocations from the
Ignis, Onetta, and New Focus business combinations (see Note 13).
The Company has performed preliminary
impairment calculations of the business units fair value in
accordance with SFAS 142.
Based on initial valuations performed to date a preliminary goodwill impairment charge of
$98.1 million was recorded in the third quarter
ended April 2, 2005. In the fourth quarter of fiscal 2005, the
Company will complete a comprehensive evaluation of all its
long-lived assets under SFAS 142 and will record additional
impairment charges if necessary.
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Note 10. Accrued expenses and other liabilities
Accrued expenses and other liabilities are as follows:
Note 11. Commitments and Contingencies
Guarantees
The Company has the following financial guarantees:
In connection with the sale by New Focus,
Inc., a subsidiary of the Company acquired in March 2004, of its passive component line to Finisar,
Inc. in 2002, New Focus agreed to indemnify Finisar for claims related to the intellectual property
sold to Finisar. These indemnification obligations expire in May 2009 and have no maximum liability. In
connection with the sale by New Focus of its tunable laser technology to Intel Corporation in 2002,
New Focus has indemnified Intel against losses for certain intellectual property claims. These
indemnification obligations expire in May 2008 and have a maximum liability of $7.0 million. The
Company does not expect to pay out any amounts in respect of these indemnification obligations and
therefore no accrual has been recorded.
In connection with the sale by the Company
of its subsidiary JCA Technology, Inc. (JCA) to Endwave Corporation in July 2004, the Company
agreed to indemnify Endwave Corporation against losses arising from breach of any representation or
warranty of the Company contained in the purchase agreement and for certain claims arising from
non-compliance with environmental laws that occurred prior to the closing date. This
indemnification expires on July 21, 2005 and has a $2.5 million maximum liability. The Company does
not expect to pay out any amounts in respect of this indemnification and therefore no accrual has
been recorded.
The Company also has indemnification
clauses in various contracts that it enters into in the normal course of business, such as
indemnification by the Company of customers in respect of liabilities they may incur in the event
the Companys products infringe the intellectual property rights of third parties. The Company has
not historically paid out any amounts related to such indemnification and does not expect to in the
future, therefore no accrual has been recorded for such indemnification clauses.
Provision for product warranties
The Company accrues for the estimated costs to provide warranty services at the time revenue is
recognized. The Companys estimate of costs to service its warranty obligations is based on
historical experience and expectation of future conditions. To the extent the Company experiences
increased warranty claim activity or increased costs associated with servicing those claims, the
Companys warranty costs will increase, resulting in increases in cost of net revenues.
Litigation
On June 26, 2001, a punitive securities class action captioned Lanter v. New Focus, Inc. et al.,
Civil Action No. 01-CV-5822,
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was filed against New Focus, Inc. and several of its officers and directors, or the Individual
Defendants, in the United States District Court for the Southern District of New York. Also named
as defendants were Credit Suisse First Boston Corporation, Chase Securities, Inc., U.S. Bancorp
Piper Jaffray, Inc. and CIBC World Markets Corp., or the Underwriter Defendants, the underwriters
in New Focuss initial public offering. Three subsequent lawsuits were filed containing
substantially similar allegations. These complaints have been consolidated. On April 19, 2002,
plaintiffs filed an Amended Class Action Complaint, described below, naming as defendants the
Individual Defendants and the Underwriter Defendants.
On November 7, 2001, a Class Action Complaint was filed against Bookham Technology plc and others
in the United States District Court for the Southern District of New York. On April 19, 2002,
plaintiffs filed an Amended Complaint. The Amended Complaint names as defendants Bookham Technology
plc, Goldman, Sachs & Co. and FleetBoston Robertson Stephens, Inc., two of the underwriters of
Bookham Technology plcs initial public offering in April 2000, and Andrew G. Rickman, Stephen J.
Cockrell and David Simpson, each of whom was an officer and/or director at the time of the initial
public offering.
The Amended Complaints assert claims under certain provisions of the securities laws of the United
States. They allege, among other things, that the prospectuses for Bookham Technology plcs and New
Focuss initial public offerings were materially false and misleading in describing the
compensation to be earned by the underwriters in connection with the offerings, and in not
disclosing certain alleged arrangements among the underwriters and initial purchasers of ordinary
shares, in the case of Bookham Technology plc, or common stock, in the case of New Focus, from the
underwriters. The Amended Complaints seek unspecified damages (or in the alternative rescission for
those class members who no longer hold ordinary shares, in the case of Bookham Technology plc or
common stock, in the case of New Focus), costs, attorneys fees, experts fees, interest and other
expenses. In October 2002, the individual defendants were dismissed, without prejudice, from the
action. In July 2002, all defendants filed Motions to Dismiss the Amended Complaints. The motion
was denied as to Bookham Technology plc and New Focus in February 2003. Special committees of the
board of directors authorized the companies to negotiate a settlement of pending claims
substantially consistent with a memorandum of understanding negotiated among class plaintiffs, all
issuer defendants and their insurers.
Plaintiffs and most of the issuer defendants and their insurers have entered into a stipulation of
settlement for the claims against the issuer defendants, including the Company.
Under the stipulation of settlement, the plaintiff will
dismiss and release all claims against participating defendants in exchange for a payment guaranty
by the insurance companies collectively responsible for insuring the issuers in the related cases,
and the assignment or surrender to the plaintiffs of certain claims the issuer defendants may have
against the underwriters. On February 15, 2005, the Court issued an Opinion and Order preliminarily
approving the settlement providing that the defendants and plaintiffs agree to a modification
narrowing the scope of the bar order set forth in the original
settlement agreement. The Company believes
that both Bookham Technology, plc and New Focus have meritorious defenses to the claims made in the Amended
Complaints and therefore believes that such claims will not have a
material effect on its
financial position, results of operations or cash flows.
On February 13, 2002, Howard Yue, the former sole shareholder of Globe Y Technology, Inc., a
company acquired by New Focus in February 2001, filed a lawsuit against New Focus and several of
its officers and directors in Santa Clara County Superior Court. The lawsuit is captioned Howard
Yue v. New Focus, Inc. et al, Case No. CV808031, and asserts claims stemming from New Focuss
acquisition of Globe Y. Technology, Inc. The plaintiff has amended his complaint several times
following the Courts dismissal of his earlier complaints. Currently, the plaintiffs fifth amended
complaint alleges the following causes of action against New Focus: violation of §25400 and §25500
of the California Corporations Code; violation of §§1709-1710 of the California Civil Code;
violation of §25402 of the California Corporations Code; violation of §17200 and §17500 of the
California Business & Professions Code; fraud and deceit by concealment; fraud and deceit by active
concealment; fraud and deceit based upon non-disclosure of material facts; negligent
misrepresentation; and breach of contract and the duty of good faith and fair dealing. The
complaint seeks unspecified economic, punitive, and exemplary damages, prejudgment interest, costs,
and equitable and general relief. In November 2004 New Focus filed answers to the plaintiffs
fifth amended complaint denying the plaintiffs allegations and asserting various defenses.
In addition, in October 2003, New Focus filed a cross-complaint against Mr. Yue seeking damages in
connection with Mr. Yues conduct during the acquisition of Globe Y. Technology, Inc., by New
Focus. In February 2004, New Focus filed a corrected amended cross-complaint against Mr. Yue. In
May 2004, Mr. Yue filed an answer to New Focuss corrected amended cross-complaint denying New
Focuss allegations and asserting various defenses. In December 2004, plaintiff and defendants
filed a motion for summary judgment and/or summary adjudication with respect to the corrected
amended cross-complaint and certain causes of action in the fifth amended complaint. On April 26,
2005, the Court denied both plaintiffs and defendants motions. The trial date had been continued
to an unspecified future date. The Company intends to conduct a vigorous defense of this lawsuit.
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Note 12. Segments of an Enterprise and Related Information
The Company is currently organized and operates as two operating segments: Optics and Research and
Defense. The Optics segment designs, develops, manufactures, markets and sells optical solutions
for telecommunications and industrial applications. The Research and Defense segment designs,
manufactures, markets and sells photonic and microwave solutions. The Company evaluates the
performance of its segments and allocates resources based on consolidated revenues and overall
profitability.
Segment information for the three and nine months ended April 2, 2005 and April 4,
2004 is as follows:
Note 13. Significant Business Combinations
As part of the acquisition of the business of Cierra Photonics, Inc. (Cierra) in July 2003, the
Company entered into a purchase agreement which provides for the payment of contingent
consideration. Under the terms of the agreement if the Cierra business exceeded a revenue
threshold of $5.0 million in the 12-month period prior to October 1, 2004, Cierra, now CP Santa
Rosa Enterprises Corporation, would be entitled to receive 0.29 ordinary shares of Bookham
Technology for every $1 of revenue over the $5.0 million threshold. During the 12 month period
ended October 1, 2004, the Cierra business generated revenue of $6.3 million, which triggered the
obligation to issue 388,100 Bookham Technology plc ordinary shares (or 38,810 shares of common
stock of Bookham) valued at $252,000 to CP Santa Rosa Enterprises Corporation. The Company
adjusted its purchase price allocation to core and current technology, property and equipment and
patent portfolio accordingly.
On March 8, 2004, the Company acquired New Focus. The Company established provisional purchase
price allocations for New Focus during the six months ended July 3, 2004. These allocations were
provisional as they required quantification of certain liabilities or recognition of assets whose
outcome was not certain due to ongoing negotiations. Amended and provisional values of the net
assets acquired and explanations for related changes are as follows:
The following table summarizes the components of the tangible assets (liabilities) acquired (in millions):
In connection with the acquisition of New Focus, during the six months ended July 3, 2004, the
Company recorded the fair value of the assets of JCA. JCA was sold on July 21, 2004 for $5.9
million. In accordance with SFAS No. 141
Business Combinations
, an adjustment was made in the
financial statements during the six months ended January 1, 2005 to remove the provisional value of
the disposed assets and include the actual sales proceeds. This resulted in a reduction in the
intangible assets acquired of $4.5 million and net tangible assets acquired of $0.1 million.
15
An adjustment was also made in the financial statements during the six months ended January 1, 2005
to amend the provisional values of certain property related items. These adjustments occurred as a
result of a reassessment of capital expenditure refunds due from the lessor of certain of the
Companys leased properties, offset by a reappraisal of the expected future sub-let income from
vacant properties. This resulted in an increase of net tangible assets acquired on acquisition of
New Focus of $0.4 million. The provisional value of certain tax net refunds relating to New Focus
were also reassessed and increased by $0.9 million
As a result of the Companys acquisition of New Focus, the Company acquired a loan note receivable
from a former officer and board member of New Focus. The loan note arose as follows: On July 12,
2001, New Focus extended to Kenneth E. Westrick and Kirsten Westrick, his wife, two secured full
recourse short-term loans in the aggregate of $8.0 million. Mr. Westrick was New Focus president
and chief executive officer and a member of the New Focus board of directors at the time the
agreements for the loans were executed. The principal amount of approximately $2.1 million on the
first note, plus the accrued interest on this note, was paid by the scheduled maturity date of June
30, 2002. The second note in the principal amount of approximately $5.9 million had an interest
rate of 9.99% compounded annually and was secured by a second deed of trust on certain real
property held by Mr. Westrick. Mr. Westrick resigned as New Focus president and chief executive
officer and as a member of the New Focus board of directors effective October 10, 2001. In
connection with his resignation, Mr. Westrick and New Focus entered into a separation and release
agreement that extended the due date of the $5.9 million note from June 30, 2002 to June 30, 2004.
Principal and accrued interest on the $5.9 million note receivable totaled $6.4 million through the
end of the second quarter of 2002. On December 27, 2004, the Company and New Focus entered an
agreement with Kenneth Westrick and Kirsten Westrick pursuant to which the Company and New Focus
released Kenneth and Kirsten Westrick from all liabilities and debts to the Company and New Focus,
including the promissory note in aggregate principal amount of $5.9 million for a cash payment of
$1.2 million. At the time of settlement, the $5.9 million note had a book value of $1,755,000. Upon
settlement of the loan during the quarter ended January 1, 2005, the Company recorded a $550,000
difference between the book value and the amount of the settlement as a purchase price adjustment.
The effect of this transaction increased goodwill recorded in connection with the New Focus
transaction by $550,000.
As part of the Companys acquisition of New Focus, the Company acquired an investment of 1,709,409
shares of Series C Preferred Stock of Oepic, Inc. The estimated value of the stock on the date of
acquisition was $350,000. During the quarter ended January 1, 2005, the Company was notified that
Oepic was being liquidated and consequently reduced the carrying value of the investment to zero.
The effect of this transaction increased goodwill recorded in connection with the New Focus
transaction by $350,000.
On June 10, 2004, the
Company acquired Onetta, Inc. for $25.0 million. The legal costs associated
with this acquisition have since been reassessed and reduced by $0.1 million. As a result, the
revised total consideration for this acquisition is
$24.9 million. In addition, the goodwill that
resulted from this acquisition has been reduced from
$21.2 million to $21.1 million as a result of this
reassessment. Net tangible asset acquired were
$3.8 million consisting of cash and cash equivalents of
$10.3 million, accounts receivable of $1.0 million,
inventories of $1.9 million, property, plant and equipment of
$0.8 million, accounts payable of $0.5 million, payroll
related accruals of $4.4 million, other accrued liabilities of
$3.7 million and long term liabilities of $1.6 million.
During the quarter ended April 2, 2005, the Company recorded a preliminary impairment charge of
$98.1 million relating to the goodwill which resulted from the Onetta, Ingis and New Focus
acquisitions. See Note 9 for additional information.
16
Note 14. Significant Related Party Transactions
Nortel Networks
Nortel Networks, a related party, has perfected security interests in much of the Companys assets
arising from the Notes and Supply Agreement discussed below. Specifically, Nortel retains an
interest in our accounts receivable specific to them, which amounted
to $15.5 million at April 2, 2005, certain intellectual property arising from the NNOC acquisition, carried at a net book
value of $17.0 million at April 2, 2005, and our property, plant and equipment. Additionally, Nortel has a right to
off-set their accounts receivables against the debt owed to Nortel should certain default events
occur. Nortel also retains a security interest in our Swindon land in U.K. which is currently
being held for resale in the amount of $14.4 million, however, under the terms of the May 2, 2005
Agreement, we are permitted to sell such land and retain 100% of the proceeds. Furthermore, Nortel
has as collateral, all of our inventory which is specific to them, which is difficult to quantify
at any given point due to the subjective nature of the term as well as the frequency of inventory
movements between the companies.
During the three and nine months ended April 2, 2005, the Company recognized revenue of $19.3
million and $59.2 million, respectively, and $19.9 million
and $74.2 million for the three and nine
months ended April 4, 2004, respectively, with Nortel Networks. As of April 2, 2005,
the Company had approximately $15.5 million in accounts
receivable from Nortel Networks and owes approximately $0.5 million in accounts payable to Nortel Networks.
At the time of the Companys acquisition of NNOC in November 2002, a subsidiary of the Company
issued a $30 million secured loan note due November 8, 2005 (the $30m Note) and a $20 million
unsecured loan note due November 8, 2007 (the Original $20m Note) to affiliates of Nortel. In
connection with the issuance of these notes, the Company and Nortel entered into security
agreements with respect to certain assets of the Company. In September 2004, the Original $20m
Note was exchanged for a $20 million note convertible into shares of the Companys common stock
(the New $20m Note).
On December 2, 2004, (i) the $30m Note was amended and restated to, among other things, extend the
final maturity date by one year from November 8, 2005 to November 8, 2006 and (ii) the New $20m
Note was amended and restated to, among other things, provide that it will not convert into the
Companys common stock (collectively, the Amended and Restated Notes). The Amended and Restated
Notes are each secured by the assets that secured the $30m Note, as well as certain additional
property, plant and equipment of the Company. The Amended and Restated Notes also contain certain
limitations, including restrictions on asset sales and a requirement that the Company maintain a
cash balance of at least $25 million.
On February 8, 2005, the Company, Bookham Technology plc, a wholly-owned subsidiary, and certain of
the Companys other subsidiaries entered into a Notes Amendment and Waiver Agreement with Nortel
Networks Corporation and Nortel Networks UK Limited, relating to the $25 million cash balance
covenant set forth in the Amended and Restated Notes. Under the waiver, the obligation to maintain
this cash balance is waived until August 8, 2006.
On February 8, 2005, the Company also entered into an addendum (the The First Addendum) to
the Optical Components Supply Agreement with Nortel Networks Limited dated November 8, 2002 (the
Supply Agreement). The First Addendum effects the following changes to the Supply Agreement.
17
Pursuant to the First Addendum, the Company is obligated to make prepayments under the $30 million
note, of which approximately $25.9 million principal amount is currently outstanding, and the $20
million note issued to Nortel Networks UK Limited on a pro rata basis in the following amounts upon
the occasion of any one of the events described below:
On March 28, 2005, the Company entered into a letter agreement with Nortel Networks pursuant to
which the Company and Nortel Networks agreed to enter into definitive documentation further
amending certain terms of the Supply Agreement, the Amended and Restated Notes and documentation
related to the Amended and Restated Notes, including the security agreements entered into in
connection with the Amended and Restated Notes.
On May 2, 2005, the Company and Nortel Networks concluded the definitive agreements formally
documenting the arrangements contemplated by the Letter Agreement. The terms of the definitive
agreements were effective April 1, 2005 and include, among other agreements including security
agreement, a further Addendum (the Second Addendum) to the Supply Agreement and a Second Notes
Amendment and Waiver Agreement between the Company and Nortel Networks relating to the Amended and
Restated Notes (the Notes Agreement).
The Second Addendum, which amends the terms and provisions of the First Addendum,
increases the prices and adjusts the payment terms of certain products shipped to Nortel Networks
under the Supply Agreement. The increased prices and adjusted payment terms will continue for one
year beginning April 1, 2005. Such prices and payment terms may terminate if an event of default
occurs and is continuing under the Amended and Restated Notes or if a change in control or
bankruptcy event occurs.
Pursuant the Second Addendum, Nortel Networks has confirmed the arrangements in the Letter
Agreement to issue non-cancellable purchase orders for last-time buys for certain products and other
non last-time buy products. The products are to be delivered to Nortel Networks Limited over the
next 12 months beginning on April 1, 2005. This resulted in the issuance of a non-cancellable
purchase order for such products valued at approximately $100 million with approximately $50
million of last-time buy products and $50 million for other non last-time buy products. A specific
delivery schedule was agreed for the last-time buy products, however, the delivery schedule and
composition of the non last-time buy products is subject to change as agreed between the
parties. The Addendum also formally confirms increases in the
18
prices and adjustments in the payment terms of certain products shipped to Nortel Networks under
the Supply Agreement. Pursuant to the Notes Agreement, Nortel Networks UK Limited waived through May 2, 2006 the terms of
the Notes requiring prepayment in the event the Company raises additional capital. This waiver
applies to net proceeds of up to $75 million in the aggregate, provided that the Company uses such
proceeds for working capital purposes in the ordinary course of business. The waiver will
terminate prior to May 2, 2006 if an event of default has occurred and is continuing under the
Amended and Restated Notes or if a change in control or bankruptcy event occurs.
The Notes Agreement further amended the Amended and Restated Notes to provide that an event of
default under the Supply Agreement constitutes an event of default under the Notes. An event of
default would occur under the Supply Agreement (and therefore the Amended and Restated Notes) upon:
Pursuant to the Notes Agreement, the Company and certain of its subsidiaries entered into security
agreements securing the obligations of the Company and its subsidiaries under the Amended and
Restated Notes. These obligations are secured by the assets already securing the obligations of the
Company and its subsidiaries under the Amended and Restated Notes as of December 2, 2004, as well
as by Nortel Networks specific inventory and accounts receivable under the Supply Agreement and
the Companys real property located in Swindon, United Kingdom. However, the Company is permitted
to sell the Swindon property provided that no event of default has occurred and is continuing under
the Amended and Restated Notes, and provided that the Company uses the proceeds of such sale for
working capital purposes in the ordinary course of business.
Note to Former
Officer
As a result of the Companys acquisition of New Focus, the Company acquired a loan note issued to a
former New Focus officer and board member in the principal amount of $5.9 million. The loan note
arose as follows: On July 12, 2001, New Focus extended to Kenneth E. Westrick and Kirsten Westrick,
his wife, two secured full recourse short-term loans in the aggregate of $8.0 million. Mr. Westrick
was New Focus president and chief executive officer and a member of the New Focus board of
directors at the time the loans were executed. The principal amount of approximately $2.1 million
on the first note, plus accrued interest, was paid by the scheduled maturity date of June 30, 2002.
The second note, in the principal amount of approximately $5.9 million, accrued interest at a rate
of 9.99% compounded annually and was secured by a second deed of trust on certain real property
held by Mr. Westrick. Mr. Westrick resigned as New Focus president and chief executive officer and
as a member of the New Focus board of directors effective October 10, 2001. In connection with his
resignation, Mr. Westrick and New Focus entered into a separation and release agreement that
extended the due date of the $5.9 million note from June 30, 2002 to June 30, 2004. Principal and
accrued interest on the $5.9 million note receivable totaled $6.4 million through the end of the
second quarter of 2002.
On December 27, 2004, the Company and New Focus entered into an agreement with Kenneth Westrick and
Kirsten Westrick pursuant to which the Company and New Focus released Kenneth and Kirsten Westrick
from all liabilities and debts to the Company and New Focus, including the promissory note in
aggregate principal amount of $5.9 million, in exchange for a cash payment of $1.2 million.
Note 15. Financing Activities
On December 20, 2004 the Company closed a private placement of $25.5 million of the Companys 7.0%
senior unsecured convertible debentures and warrants to purchase common stock. The Company intends
to use the net proceeds from the private placement for
19
general purposes and working capital. The debentures may be converted into shares of the Companys
common stock at the option of the holder prior to the maturity of the debentures on December 20,
2007. The conversion price of the debentures is $5.50, which represents a premium of approximately
16% over the closing price of the Companys common stock on December 20, 2004. The debentures also
may be converted into shares of common stock by the Company under certain circumstances. The
warrants provide holders with the right to purchase up to 2,001,963 shares of common stock and are
exercisable during the five year period ending December 20, 2009 at an exercise price of $6.00 per
share, which represents a premium of approximately 26% over the closing price of the Companys
common stock on December 20, 2004.
The valuation of the financial instruments described above involves judgments and estimates which
affect the carrying value of each instrument on the balance sheet and the periodic interest expense
recorded. In order to determine the valuation of these instruments the Company applied the
guidance in Emerging Issues Task Force, EITF Issue 98-5, Accounting for Convertible Securities
with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios and EITF Issue
00-27, Application of Issue 98-5 to Certain Convertible Instruments to value the debentures, the
accompanying warrants and the value of the convertibility element of the debentures. The Company
first determined the fair value of the warrants and their value relative to the debentures. The
Company chose to use the Black-Scholes model to determine the value of the warrants which requires
the determination of the Companys stocks volatility and the life of the instrument, among other
factors. The Company determined that its stocks historic volatility of 97% was representative of
its stocks future volatility and used the contractual term of five years for the life of the
instrument. The valuation independently derived from the Black-Scholes model for the warrants was
then compared to the face value of the debentures and a relative value of $5.3 million was assigned
to the warrants. The value of the conversion element of the debentures was determined based on the
difference between the relative value of the debentures of $4.35 per
share based on the $25.5 million principal amount convertible
into 4.6 million shares, compared to the fair
market value of $4.77 per share of the Companys common stock on the date on which the debentures
were entered into. The value of the conversion feature of the debentures based on the 4.6 million
shares of common stock which the debenture can be converted into was determined to be $2.0 million.
The value of the warrants and the conversion feature were recorded as a discount to the debt
liability on the balance sheet of April 2, 2005 and will be amortized to interest expense over the
life of the convertible debentures of three years. In addition, the Company capitalized $1.9
million related to issuance costs associated with the debentures and warrants, which will be
amortized as part of interest expense for the term of the debentures.
Note 16. Recent Accounting Pronouncements
In March 2005, the Financial Accounting Standards Board published FASB Interpretation No. 47,
Accounting for Conditional Asset Retirement Obligations (FIN 47), which will result in (a) more
consistent recognition of liabilities relating to asset retirement obligations, (b) more
information about expected future cash outflows associated with those obligation, and (c) more
information about investments in long-lived assets because additional asset retirement costs will
be recognized as part of the carrying amounts of the assets. FIN 47 clarifies that the term
conditional asset retirement obligation as used in SFAS No. 143, Accounting for Asset Retirement
Obligations, refers to a legal obligation to perform an asset retirement activity in which the
time and (or) method of settlement are conditional on a future event that may or may not be within
the control of the entity. The obligation to perform the asset retirement activity is unconditional
even though uncertainty exists about the timing and (or) method of settlement. Uncertainty about
the time and (or) method of settlement of a conditional asset retirement obligation should be
factored into the measurement of the liability when sufficient information exists. FIN 47 also
clarifies when an entity would have sufficient information to reasonably estimate the fair value of
an asset retirement obligation. FIN 47 is effective no later than the end of fiscal years ending
after December 15, 2005. Retrospective application of interim financial information is permitted
but is not required. Early adoption of this interpretation is encouraged. As FIN 47 was recently
issued, management has not determined whether the Company will adopt FIN 47 early or whether the
interpretation will have a significant adverse effect on the Companys financial position or
results of operations.
In December 2004, the
FASB issued SFAS No. 123R
which requires companies to recognize in their statement of operations all share-based payments to employees, including grants of employee stock
options, based on their fair values. Accounting for share-based
compensation transactions using the intrinsic method supplemented by
pro forma disclosures will no longer be permissible. The new
pronouncement will be effective for public entities no later than the
beginning of the first fiscal year beginning after June 15,
2005. The Company will adopt the new pronouncement on July 3,
2005. The Company has not yet completed its analysis of the impact of
adopting SFAS No. 123R and is therefore currently unable to quantify
the effect it will have on its financial statements. However, the adoption of this
new pronouncement will have a significant impact on the results of
operations and net loss per share of the Company.
20
In November 2004, the FASB issued SFAS No. 151 Inventory Costs, an Amendment of ARB No. 43 Chapter
4 (SFAS No. 151). SFAS No. 151 requires that items such as idle facility expense, excessive spoilage,
double freight, and rehandling be recognized as current-period charges rather than being included
in inventory regardless of whether the costs meet the criterion of abnormal as defined in ARB 43.
SFAS No. 151 is applicable for inventory costs incurred during fiscal years beginning after June 15,
2005. The Company will adopt this pronouncement on July 3, 2005 and does not expect the adoption will
have a material impact on the Companys financial condition or results of operations.
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an Amendment of
APB Opinion No. 29 (SFAS No. 153). SFAS No. 153 is based on the principle that exchanges of nonmonetary
assets should be measured based on the fair value of the assets
exchanged. This pronouncement amends
APB No. 29 to eliminate the exception for nonmonetary exchanges of similar productive
assets and replaces it with a general exception for exchanges of nonmonetary assets that do not
have commercial substance. 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. SFAS No. 153 is
effective for nonmonetary exchanges occurring in fiscal periods beginning after June 15, 2005. The
implementation of SFAS No. 153 is not expected to have a material impact on the Companys financial
condition or results of operations.
21
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report and the documents incorporated in it by reference contain forward-looking statements
about our plans, objectives, expectations and intentions. You can identify these statements by
words such as expect, anticipate, intend, plan, believe, seek, estimate, may,
will and continue or similar words and
expressions. You should read statements that contain these words
carefully. They discuss our future expectations, contain projections of our future results of
operations or our financial condition or state other forward-looking information, and may involve
known and unknown risks over which we have limited or no control. You should not place undue reliance on
forward-looking statements. We cannot guarantee any future results, levels of activity, performance
or achievements. Moreover, we assume no obligation to update forward-looking statements or update
the reasons actual results could differ materially from those anticipated in forward-looking
statements, except as required by law. The factors discussed in the sections captioned
Managements Discussion and Analysis of Financial Condition and Results of Operations and
Certain Factors that May Affect Future Results in this report identify important factors that may
cause our actual results to differ materially from the expectations we
describe in our forward-looking statements.
Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
We design, manufacture and market optical components that generate, detect, route, amplify and
manipulate light signals with primary application in communications networks. We also develop
photonics and microwave solutions for diversified markets such as research, semiconductor capital
equipment and the military.
We principally sell our optical component products to optical systems vendors as well as to
customers in the data communications, military, space, industrial and manufacturing industries.
Our products typically have a long sales cycle. The period of time between our initial contact with
a customer to the receipt of an actual purchase order is frequently six months to a year or more.
In addition, many customers perform, and require us to perform, extensive process and product
evaluation and testing of components before entering into purchase arrangements.
Recent Developments
Effective September 10, 2004, we changed our corporate domicile from the United Kingdom to the
United States and our functional currency from pounds sterling to U.S. dollars. Our consolidated
financial statements are stated in U.S. dollars as opposed to pounds sterling, which was the
currency we used to present our financial statements prior to
September 10, 2004. In addition, in connection with
the change in domicile, we changed our fiscal year end from December 31 to the Saturday closest to
June 30. Our financial statements for this quarter have been prepared as of
April 2, 2005 and for the three and nine
months ended April 2, 2005, and will be prepared annually for fifty-two/fifty-three week cycles
going forward.
On February 8, 2005, we entered into an addendum to the Optical Components Supply Agreement with
Nortel Networks Limited, or the Supply Agreement. We initially entered into this Supply Agreement
in November 2002. Also on
February 8, 2005, we entered into a
First Notes Amendment and Waiver Agreement with
Nortel Networks Corporation and Nortel Networks
UK Limited relating to the promissory notes
issued to Nortel Networks UK Limited in connection with our
acquisition of the optical components division of Nortel.
On March 28, 2005, we entered into
a letter agreement with Nortel Networks pursuant to which
we agreed with Nortel Networks to enter into definitive
documentation further amending certain terms of
the Supply Agreement, the promissory notes issued to
Nortel Networks UK Limited and documentation related to
these notes, including the security agreements entered into
in connection with these notes.
On May 2, 2005, we and Nortel Networks entered
into the definitive agreements formally documenting the
arrangements contemplated by the letter
agreement dated March 28, 2005. The terms of the
definitive agreements were effective April 1, 2005 and
include, among other agreements including security
agreements, a Second Addendum to the Supply Agreement
and a Second Notes Amendment and Waiver Agreement relating
to the promissory notes issued to Nortel Networks UK Limited.
See Note 14 to our unaudited condensed consolidated financial statements included in this Quarterly
Report on Form 10-Q for additional information regarding these agreements with Nortel Networks.
Critical Accounting Policies
The preparation of our unaudited condensed
consolidated financial statements requires management to make
significant assumptions and judgements that affect the reported
amounts reflected in the financial statements. Actual results could differ materially from the estimated amounts. We
believe that some of the more critical estimates and related assumptions that affect our financial
condition and results of operations are in the areas of revenue recognition, legal contingencies,
receivables, inventories, business
restructuring, goodwill and intangible assets. We discuss our
critical accounting estimates with our Audit Committee of the Board of Directors. For
22
more information on critical accounting estimates, refer to Managements Discussion and Analysis of
Financial Condition and Results of Operations included in our Transition Report on Form 10-K/A for the
transition period from January 1, 2004 to July 3, 2004.
We identified other critical accounting policies in our Transition Report on Form 10-K/A for the
transition period from January 1, 2004 to July 3, 2004 related to revenue recognition and sales
returns, accounting for acquisitions and goodwill, impairment of goodwill and intangibles, and
accounting for acquired in-process research and development. It is important that the discussion
of our operating results that follows be read in conjunction with the critical accounting policies
discussed in our Transition Report on Form 10-K/A, as filed with the SEC on October 5, 2004.
No accounting policies were adopted during the nine months ended April 2, 2005 that had a material
effect on our financial condition and results of operations.
In connection with our offering on December 20, 2004 we issued $25.5 million of convertible
debentures accompanied by warrants to purchase 2.0 million shares of our common stock. The
valuation of these financial instruments involves judgment which affects the carrying value of each
instrument on the balance sheet and the periodic interest expense recorded. In order to determine
the valuation of these instruments we applied the guidance in Emerging Issues Task Force (EITF)
Issue 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios and EITF Issue 00-27, Application of Issue 98-5 to
Certain Convertible Instruments to value the debentures, the accompanying warrants and the value
of the convertibility element of the debentures. We first determined the fair value of the
warrants and their value relative to the debentures. We chose to use the Black-Scholes model to
determine the value of the warrants which requires, among other
things, the determination of our stocks volatility.
The historical volatility rate was calculated by measuring the volatility of our stock since we
became a public company in April 2000, which approximates the life of the warrants. Had we used a
different period to measure the historical volatility, the value assigned as discount to the debt
would have been affected. We used the following assumptions in the Black-Scholes model: 97%
historical volatility rate; 2.89% risk free interest rate; and a five year life. Changing the
assumptions would have changed the amount assigned by us to the discount of the debt liability by
affecting both the warrant value and the value of the convertibility element of the debentures and
may have a significant effect in the interest expense set forth in our financial statements
included in this Quarterly Report on Form 10-Q. The discount assigned is amortized as part of
interest expense over the term of the debentures.
Pursuant to SFAS 142,
Goodwill and Other Intangible Assets
goodwill is no longer amortized over a
definitive useful life but is instead tested annually for impairment, during our fourth quarter, or
more often if an event or circumstance indicates that impairment has occurred.
SFAS No. 142 requires that the first phase of testing goodwill for impairment be based on a
business units fair value, which is generally determined through market prices. Due to the
absence of market prices for our businesses, and as permitted by SFAS No. 142, we have elected to
base our testing on discounted future expected cash flows. Although the discount rates and other
input variables may differ, the model we use in this process is the same model we use to evaluate
the fair value of acquisition candidates and the fairness of offers to purchase businesses that we
are considering for divestiture. The forecasted cash flows we use are derived from the annual
long-range planning process that we perform and present to our board. In this process, each
business unit is required to develop reasonable sales, earnings and cash flow forecasts for the
next three to seven years based on current and forecasted economic conditions. For purposes of
testing for impairment, the cash flow forecasts are adjusted as needed to reflect information that
becomes available concerning changes in business levels and general economic trends. The discount
rates used are generally based on our weighted average cost of capital and are then judgmentally
adjusted for plan risk (the risk that a business will fail to achieve its forecasted results) and
country risk (the risk that economic or political instability in the countries in which
we operate will cause a business units projections to be inaccurate). Finally, a growth factor
beyond the three to seven year period for which cash flows are planned is selected based on
expectations of future economic conditions. Virtually all of the assumptions used are susceptible
to change due to global and regional economic conditions as well as competitive factors in the
industries in which we operate. In recent years, many of our cash flow forecasts have not been
achieved due in large part to the unexpected length and depth of the downturn in our industry.
Unanticipated changes in discount rates from one year to the next can also have a significant
effect on the results of the calculations. While we believe the estimates and assumptions we use
are reasonable in these circumstances, various economic factors could cause the results of our goodwill
testing to vary significantly.
SFAS 142 provides guidance for companies who have experienced a triggering
event, or an event or circumstance indicating that a possible impairment of a business units
goodwill may have occurred. During the third quarter of fiscal 2005 we determined that due to the
continued decline in our stock price, and therefore market capitalization, combined with continued
net losses and a history of not meeting revenue and profitability targets, we could potentially
have an impairment on the goodwill which resulted from the purchase price allocations in connection with our acquisition of
Ignis, Onetta, and New Focus (see Note 13). We have begun preliminary
calculations of each business units fair value in accordance with SFAS 142 rather than waiting for
our annual impairment review in the fourth quarter as required under SFAS 142. The initial steps of
this process have revealed that the future cash flows expected to be generated by the three
business
23
units would continue to be lower than the amounts originally anticipated further indicating an
impairment and, accordingly, we have moved to step two of SFAS 142 which essentially requires the
business unit to be fair valued as of the date of the triggering event and adjusting goodwill
appropriately. Initial calculations required under step two have indicated a preliminary goodwill
impairment charge of $98.1 million that was recorded in the
third quarter ended April 2, 2005. In the fourth quarter of
fiscal 2005, we will complete a comprehensive evaluation of all our
long-lived assets under SFAS 142 and will record additional impairment charges if necessary.
For more information on critical accounting estimates, refer to Managements Discussion and
Analysis of Financial Condition and Results of Operations included in our Transition Report on Form
10-K/A for the transition period from January 1, 2004 to July 3, 2004.
Recent Accounting Pronouncements
In March 2005, the Financial Accounting Standards Board (FASB) published FASB Interpretation No.
47, Accounting for Conditional Asset Retirement
Obligations, or FIN 47, which we expect will result in (a)
more consistent recognition of liabilities relating to asset retirement obligations, (b) more
information about expected future cash outflows associated with those obligations, and (c) more
information about investments in long-lived assets because additional asset retirement costs will
be recognized as part of the carrying amounts of the assets. FIN 47 clarifies that the term
conditional asset retirement obligation as used in SFAS No. 143, Accounting for Asset Retirement
Obligations, refers to a legal obligation to perform an asset retirement activity in which the
time and (or) method of settlement are conditional on a future event that may or may not be within
the control of the entity. The obligation to perform the asset retirement activity is unconditional
even though uncertainty exists about the timing and (or) method of settlement. Uncertainty about
the time and (or) method of settlement of a conditional asset retirement obligation should be
factored into the measurement of the liability when sufficient information exists. FIN 47 also
clarifies when an entity would have sufficient information to reasonably estimate the fair value of
an asset retirement obligation. FIN 47 is effective no later than the end of fiscal years ending
after December 15, 2005. Retrospective application of interim financial information is permitted
but is not required. Early adoption of FIN 47 is encouraged. As FIN 47 was recently
issued, we have not determined whether we will adopt FIN 47 early or whether the interpretation
will have a significant adverse effect on our financial position or results of operations.
In December 2004, the
FASB issued SFAS No. 123R
which requires companies to recognize in their statement of operations all share-based payments to employees, including grants of employee stock
options, based on their fair values. Accounting for share-based
compensation transactions using the intrinsic method supplemented by
pro forma disclosures will no longer be permissible. The new
pronouncement will be effective for public entities no later than the
beginning of the first fiscal year beginning after June 15,
2005. We will adopt the new pronouncement on July 3,
2005. We have not yet completed our analysis of the impact of
adopting SFAS No. 123R and are therefore currently unable to quantify
the effect it will have on our financial statements. However, the adoption of this
new pronouncement will have a significant impact on our results of
operations and net loss per share.
In November 2004, the FASB issued SFAS No. 151 Inventory Costs, an Amendment of ARB No. 43 Chapter
4, or SFAS 151. SFAS 151 requires that items such as idle facility expense, excessive spoilage,
double freight, and rehandling be recognized as current-period charges rather than being included
in inventory regardless of whether the costs meet the criterion of abnormal as defined in ARB 43.
SFAS 151 is applicable for inventory costs incurred during fiscal years beginning after June 15,
2005. We will adopt this pronouncement on July 3, 2005 and we do not expect the adoption will
have a material impact on our financial condition or results of operation.
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an Amendment of
APB Opinion No. 29, or SFAS 153. SFAS 153 is based on the principle that exchanges of nonmonetary
assets should be measured based on the fair value of the assets
exchanged. This pronouncement amends
APB No. 29 to eliminate the exception for nonmonetary exchanges of similar productive
assets and replaces it with a general exception for exchanges of nonmonetary assets that do not
have commercial substance. 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.
24
SFAS 153 is effective for nonmonetary exchanges occurring in fiscal periods beginning after June
15, 2005 and we will adopt this standard on July 3, 2005. The adoption of SFAS 153 is not
expected to have a material impact on our financial condition or results of operations.
RESULTS OF OPERATIONS
Revenues
Revenues for the three months and nine month periods ended April 2, 2005 increased by 22% and
17%, respectively, compared to the comparative periods in 2004. The increase in revenues were primarily attributable
to the sales of products and services by New Focus, which we acquired on March 8, 2004,
and Onetta which we acquired on June 10, 2004. These acquired businesses generated a total of approximately
$7.9 million and $24.1 million in revenue for the three months and nine months ended April 2, 2005,
respectively, compared to a total revenue of $3.8 million for both of the three month and nine
month periods ended April 4, 2004.
In the three and nine month periods ended April 2, 2005, we sold $19.3 million and $59.2 million,
respectively, of products and services to Nortel Networks Limited, compared with $19.9 million and
$74.2 million, respectively, for the three and nine month periods ended April 4, 2004. Revenues
from sales to Nortel Networks Limited decreased due to a decline in
overall demand from Nortel.
Pursuant to the terms of the Second Addendum to the Supply Agreement, Nortel
Networks Limited has issued non-cancellable purchase orders for certain of our products. These
products are to be delivered to Nortel Networks Limited over the next twelve months and, based on
the revised pricing levels, we estimate the value of these products to be approximately $100 million. We expect these orders will
lead to a significant increase in revenues for the next few quarters.
Revenues from the sale of products and services to Marconi Communications were $3.1 million and
$5.3 million, respectively, for the three and nine month periods ended April 2, 2005. For the three
and nine month periods ended April 4, 2004, revenues were
$4.9 million and $13.8 million,
respectively. Marconi revenues were substantially less than the prior year as a consequence of the
expiration of a supply agreement with Marconi Communications in June 2004.
The decline in revenue from Nortel Networks Limited and Marconi Communications was offset by
revenues from other customers, which increased 70% and 138% for the three and nine month
periods ended April 2, 2005, as we expanded our customer base through the sale of new products and services and
products we acquired as part of our acquisitions during 2004. We expect revenues from sources
other than Nortel Networks Limited and Marconi Communications will continue to increase in
future quarters.
We are currently organized and operate in two operating segments: Optics and Research and Defense.
The Optics segment designs, develops, manufactures and sells optical solutions for
telecommunications and industrial applications. The Research and Defense segment designs,
manufactures, markets and sells photonic and microwave solutions.
In the quarter ended
April 2, 2005, the Research and Defense segment contributed $4.0 million in
revenues compared to $2.7 million in the quarter ended April 4, 2004. As this segment principally
comprises the former New Focus business, which we acquired in March 2004, the increase in revenue
is primarily attributed to only one month of Research and Defense revenues being included in our
April 4, 2004 quarterly results compared to three months included in the results for the quarter ended April
2, 2005. Revenues from the Optics segment were $45.9 million for the three months ended April 2,
2005, and $38.2 million for the three months ended April 4, 2004. This
increase was principally due to our acquisition of Onetta in June 2004.
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Cost of Revenues
Our cost of revenues consists
of the costs associated with manufacturing our products and delivering
services, and includes the purchase of raw materials, labor and related overhead and the costs
associated with under-utilized production facilities and resources. Charges for inventory
obsolescence, the cost of product returns and warranty costs are also included in cost of revenues.
Costs and expenses of manufacturing resources, which relate to the development of new products,
are included in research and development.
For the three and nine months ending April 2, 2005, cost of revenues increased compared to the
prior year due to additional costs from acquired businesses, primarily New Focus and Onetta, the
impact of foreign exchange rate movements and additional costs of the facility in Shenzhen, China
that was acquired as a part of the New Focus acquisition.
During the three and nine months ending April 2, 2005, a large proportion of our costs were
denominated in UK pounds sterling and to a lesser degree other currencies whose value has
continued to increase against the US dollar. The substantial decline in the US dollar relative to
the pound sterling has resulted in higher costs as measured in US dollars in the three and nine months periods
ended April 2, 2005 relative to the comparable periods in the prior year. The average US dollar
exchange rate has moved from $1.83 per pound sterling for the three month period ended April 4,
2004 to $1.90 per pound sterling for the three month period ended April 2, 2005, which represents a
4% decline in the US dollar relative to the pound sterling. The average US dollar exchange rate
has moved from $1.72 per pound sterling for the nine month period ended April 4, 2004 to $1.86 per
pound sterling for the nine month period ended April 2, 2005, which represents an 8% decline in the
US dollar relative to the pound sterling.
During the quarter ended
April 2, 2005, we continued to transfer assembly and testing operations to our
facility in Shenzhen, China. We are transferring most of our assembly and test operations based
in Paignton, UK to Shenzhen, China where we expect to take advantage of the lower costs of production. During the
quarter, some duplicate spending occurred with respect to our assembly and test operations, as we
continued to invest in the start-up of the Shenzhen facility, while at the same time maintaining
our assembly and product testing facility located in Paignton. We anticipate substantial cost
savings from the transfer of the operations to China will be realized in future quarters when the
transfer is complete.
26
Gross Profit (Loss)
In the three month period ended April 2, 2005 we generated a gross profit compared to a gross
loss for the comparable period of the prior year. The change from a gross loss to a gross profit
and the change in gross margin between periods was principally due to the increase in revenues for
the periods and, to a lesser extent, the early effects of the revised
pricing and terms agreed upon with Nortel. These increases were partially offset by the additional costs of transferring certain
operations to the Shenzhen factory. Over the next several quarters we expect the additional
revenues generated from the Second Addendum to the Nortel Supply Agreement and the associated
increased pricing to improve our gross margin. We expect other factors, such as the successful
transfer of production from the Paignton facility to Shenzhen, to enable us to realize significant
cost savings and to positively impact gross margins. While we anticipate the majority of products being
transferred to Shenzhen will be qualified by the end of June 2005, enabling the transfer of volume
production in stages over the following six to 12 months, we do
not expect to realize the full cost savings of the transfer of
production to Shenzhen until we discontinue production in
Paignton. We anticipate production in Paignton will continue into the
third quarter of fiscal 2006 as we complete production of last-time
buy products primarily for Nortel.
In the nine month period
ended April 2, 2005, we incurred a gross loss as compared to a gross profit
for the comparable period of the prior year. The change from a gross
profit to a gross loss and the
change in gross margin between periods was principally the result of the investment in transferring
certain operations to Shenzhen while simultaneously maintaining existing production facilities and
the impact of the declining dollar between periods.
For the three and nine months ended April 2, 2005, we recognized profits of $1.8 million and $9.0
million, respectively, on the sale of inventory carried on our books
at zero value. As of April 2, 2005 we had $31.1 million of
inventory based on its original cost carried at zero value. We
currently believe we will sell $6 million to $8 million of the zero
valued inventory in the next twelve months. This inventory
was originally acquired in connection with our purchase of the optical components business of
Nortel Networks Limited in November 2002. No such profits were recognized in the comparable
periods ended April 4, 2004. While the sale of zero value inventory generates higher variable
margins than most of our newer products, we incur additional costs to complete the manufacturing of
these products
Research and Development Expenses
For the three month period
ended April 2, 2005, as compared to the three month period ended April 4, 2004, research and development
expenses decreased by 14%, largely as an outcome of the 2004
Restructuring Plan, that resulted in
the consolidation of research and development programs and the closure of certain facilities.
For the nine month period
ended April 2, 2005, as compared to the nine month period ended April 4, 2004, research and development
expenses were relatively unchanged. While we made significant reductions in research and
development expenses during the quarter ended April 2, 2005 in
accordance with our 2004 Restructuring Plan, the decreases were
offset by increased spending as a result of the addition of New Focus in the first calendar
quarter of 2004 as well as the weakness in the US dollar relative to the UK pound sterling and
other currencies in which we operate.
27
Selling, General and Administrative Expenses
For the three month period ended April 2, 2005, compared with the three month period ended April 4,
2004, selling, general and administrative expenses and increased by $0.5 million, or 4%. For the
nine month period ended April 2, 2005, compared with the nine month period ended April 4, 2004,
selling, general and administrative expenses increased by $17.1 million, or 60%. The increases
were primarily due to the addition of New Focus and Onetta businesses combined with the decline in
the US dollar relative to the UK pound sterling, and to a lesser
extent, the expense associated with transferring administrative
operations of the newly
established US headquarters in San Jose, California, and the transfer of certain
test and manufacturing operations to our Shenzhen facility. We expect to reduce selling,
general and administrative expenses as a result of the 2004
Restructuring Plan, but the benefits
will be somewhat offset by some short-term increases in
administrative expenses as a result of the additional costs involved
to ensure compliance with Section 404 of the Sarbanes Oxley Act
Amortization of Other Intangible Assets
Amortization of other intangible assets increased $0.1 million from $2.8 million
to $2.9 million in the three months ended April 4, 2004 as
compared to the three months ended April 2, 2005. Amortization expense
increased $1.8 million from $6.5 million to $8.3 million between the nine months ended April 4,
2004 compared to the nine months ended April 2, 2005, as a result of the acquisitions of New Focus and Ignis.
Restructuring
As a consequence of the
continued downturn in our target markets in which we operate, we have
implemented substantial restructuring plans. Prior to 2004, we had a major
restructuring program, the Acquisition Restructuring Plan, the main element of which was the
closure of the wafer fabrication facility in Ottawa, Canada and the transfer of the associated
wafer manufacturing to Caswell, UK. This transfer was successfully completed in August 2003.
In March 2004, we acquired New Focus, which owned an empty facility in Shenzhen, China. In May
2004, we announced the 2004 Restructuring Plan with the aim to reduce
overhead expenses
approximately 25%. The key component of the 2004 Restructuring Plan is to transfer the majority of
the assembly and test operations from the Paignton, UK facility to the Shenzhen, China facility,
in order to take advantage of the lower labor rates and associated
manufacturing expenses in China.
Also, as part of the 2004
Restructuring Plan, in September 2004 we announced our intention
to close our headquarters in Abingdon, UK and to transfer the main
corporate functions such as group accounting, treasury and tax to the new US headquarters in San Jose. The
ongoing UK corporate office functions were transferred to our site in Caswell, UK.
In December 2004, we announced additional general cost reduction measures designed to
increase the cost reduction, achieved by the 2004 Restructuring Plan, to within a range of $16
million to $20 million per quarter. We anticipate the total cost of implementing these
reductions to be in the range of $24 million to $30 million
all of which will require the expenditure of cash.
In the three and nine month period ended April 2, 2005, we incurred restructuring charges of $3.8
million and $16.0 million, respectively, in connection with the 2004 Restructuring Plan.
The full cost savings of the 2004 Restructuring Plan is anticipated to take another twelve to
fifteen months to achieve. This is approximately six months later than the original plan
mainly due to higher than originally planned revenue of last-time buy commitments for discontinued
products from customers and particularly from Nortel related to the revision of our supply
agreement with them and their commitment to purchase $50 million of last-time buy product over the
next twelve months. We anticipate that the revenue and margins from this last-time buy commitment
with Nortel will more than offset the delayed cost reductions from the 2004 Restructuring Plan.
In the future, we may embark on additional restructuring programs in order to address our cost
structure and to respond to market conditions.
Other Income (Expense), Net
Other expense was $0.5 million for the three months ended April 2, 2005 compared with other expense
of $1.5 million for the three months ended April 4, 2004. The decrease of $1.0 million primarily
resulted from interest income/expense decrease of $3.9 million primarily from cash balances
decreasing and additional interest related to the convertible notes issued in December 2004. These
decreases were offset by an increase in gain/loss in foreign exchange by $4.9 million, arising
principally from the movement in the US dollar relative to the pound sterling.
Other expense was $0.8 million for the nine month period ended April 2, 2005 compared with $2.3
million for the nine month period ended April 4, 2004. The decrease of $1.5 million was mainly
due a decrease in interest income, offset by a decrease in foreign exchange loss.
LIQUIDITY AND CAPITAL RESOURCES
Overview
We finance our operations through a mixture of stockholders funds, loan notes, finance leases and
working capital. The following table summarizes our capital resources (in thousands):
Operating Activities
29
Net cash used in operating
activities for the nine months ended April 2, 2005 was $92.7 million
compared to $79.4 million for the nine months ended April 4, 2004. For the nine months ended April
2, 2005 net cash used in operating activities primarily resulted from
the loss from operations of
$208.9 million, offset by non-cash accounting charges of $98.1 million for goodwill impairment and
$23.9 million for depreciation, amortization and fixed asset
impairments. Net cash used in operating activities for the nine
months ended April 4, 2004 was $79.4 million,
primarily resulting from loss from operations of $89.2 million offset by net non-cash accounting
charges of $3.3 million including $17.7 million for depreciation,
amortization and fixed asset impairment and the non-cash expense to
write-off in process research and development of $5.9 million primarily related to
the acquisition of New Focus combined
with non cash credits for the gain on sale of equipment of
$8.2 million and the
foreign exchange impact on the loan notes due to Nortel of
$8.4 million. Working capital was a $6.4 million use of
cash for the nine months ended April 2, 2005 primarily a result
of increased accounts receivable of $7.1 million primarily as a
result of higher revenue between periods, a reduction of
$5.1 million in accrued expenses and other liabilities primarily
from the payment of restructuring costs partially offset by higher
accounts payable of $3.4 million. For
the comparable nine months ended April 4, 2004 we generated
$6.4 million in cash from working capital
primarily from a reduction in inventory, prepaid and other current
assets, and an increase in accrued expenses and other liabilities offset by a reduction in accounts payable.
Investing Activities
Net cash used in investing activities for the nine months ended April 2, 2005 was $6.1
million, primarily resulting from purchases of property and equipment
of $12.5 million, related to transferring our assembly and test
operations to Shenzhen China offset by
proceeds from disposal of subsidiaries, net of costs, of
$5.7 million, proceeds from the sale of property and equipment of
$1.3 million and $1.2 million of proceeds received in connection with
the settlement of the Westrick loan note.
Net cash provided by
investing activities for the nine months ending April 4, 2004 was $93.1
million primarily resulting from the cash received in connection with
our acquisitions of $91.5 million (principally
the New Focus acquisition), proceeds from the sale of property and
equipment of $10.8 million
offset by purchase of property and equipment of $9.3 million.
Financing Activities
Net cash provided by
financing activities for the nine months ended April 2, 2005 was
$14.9 million
primarily resulting from the proceeds of issuance of convertible notes and warrants
to purchase common stock, net of issuance costs, of $24.2 million offset by repayment of
capital lease obligations of $5.1 million relating primarily to obligations
assumed as part of the Onetta acquisition and repayment of loans
notes due to Nortel of $4.2 million.
Net cash provided by
financing activities for the nine months ending April 4, 2004
was $2.8 million, primarily resulting from the issuance of common stock.
At the time of our acquisition of NNOC in November 2002, our wholly-owned subsidiary, Bookham
Technology plc, issued a $30 million secured loan note due November 8, 2005 and a $20 million
unsecured loan note due November 8, 2007 to affiliates of Nortel. In September 2004, the $20
million unsecured loan note was exchanged for a $20 million note convertible into shares of our
common stock.
On December 2, 2004, (i) the $30 million secured loan note was amended and restated to, among other
things, extend the final maturity date by one year from November 8, 2005 to November 8, 2006 and
(ii) the $20 million note was further amended and restated to, among other things, provide that it
will not convert into shares of our common stock. These notes, as amended and restated on December
2, 2004 and further amended on May 2, 2005, are each secured by the assets that secured the $30
million secured note issued in November 2002 as well as certain additional property, plant and
equipment and Nortel Networks specific accounts receivables and inventory under our Supply Agreement
with Nortel. The amended and restated notes also contain certain
covenants, including
restrictions on assets sales and a requirement that we maintain a cash balance of at least $25
million, however, compliance with that covenant has been waived through August 8, 2006.
On December 20, 2004 we closed a private placement of $25.5 million of our 7.0% senior unsecured
convertible debentures and warrants to purchase common stock which
resulted in net proceeds of $21.5 million. We paid Nortel
$4.2 million of the proceeds paying a portion of the
$30 million loan note owed as part of the acquisition of NNOC.
We intend to use the net proceeds
from the private placement for general corporate purposes, including, among other things, payment
of outstanding indebtedness, working capital to support new growth and to fund our operations
through our current restructuring. The debentures may be converted into shares of our common stock
at the option of the holder prior to the maturity of the debentures on December 20, 2007. The
initial conversion price of the debentures is $5.50, which represents a premium of approximately
16% over the closing price of our common stock on December 20, 2004. We may also convert debentures
into shares of common stock under certain circumstances. The warrants provide holders thereof the
right to purchase up to 2,001,963 shares
30
of common stock and are
exercisable during the five years from the date of grant at an initial exercise price of
$6.00 per share, which represents a premium of approximately 26% over the closing price of our
common stock on December 20, 2004. Upon closing, we repaid the $30 million Nortel note by an
amount of $4.2 million.
Sources of Cash
In the past five years, we
have funded our operations from several sources, including through
public offerings and acquisitions. As of April 2, 2005, we held $34.4 million in cash, cash
equivalents and short-term investments, which represents our source of cash that will fund
operations for the immediate future. We do not have any bank lending facilities, borrowings or
lines of credit, except for the secured notes in the current principal amount of $45.9 million we
issued to Nortel Networks UK Limited and the 7.0% Senior Unsecured Convertible Debentures we issued
in a private placement on December 20, 2004.
Future Cash Requirements
We believe that our existing cash
balances are adequate to fund our planned
operating activities through at least the first half
of fiscal 2006, but are not adequate to fund
our operations through all of fiscal 2006. We will need
to raise additional capital in the next nine months to fund
our operations and to strengthen our working capital balances,
which we intend to accomplish through the sale of assets, the issuance of
additional equity securities, or an increase in borrowings, which may be
secured by certain of our assets, or any combination thereof. Management also intends to delay or reduce expenditures in
the event additional financial resources are not available on terms
acceptable to us. However, there can be no assurances
that we will be able to raise additional funds or reduce operational
expenses. In the event we are unable to
raise sufficient additional capital to meet our requirements, we may not
be able to continue some or all of our current operations beyond the
first half of fiscal 2006.
Our future funding requirements
will depend on numerous factors including:
Future events and opportunities may require us to sell additional equity or debt securities. From
time to time, we have engaged in discussions with third parties concerning potential acquisitions
of product lines, technologies and businesses. We continue to consider potential acquisition
candidates. Any of these transactions could involve the issuance of a significant number of new
equity securities, debt, and/or cash consideration. We may also be required to raise additional
funds to complete any such acquisition, through either the issuance of equity securities or
borrowings. If we raise additional funds or acquire businesses or technologies through the issuance
of equity securities, our existing stockholders may experience significant dilution.
Risk ManagementForeign Currency Risk
We are exposed to fluctuations in foreign currency exchange rates and interest rates. As our
business has grown and become increasing multinational in scope, we have become increasingly
subject to fluctuations based upon changes in the exchange rates between the currencies in which we
collect revenues and pay expenses. Despite our change in domicile from the United Kingdom to the
United States, in the future we expect that a substantial portion of our revenues will be
denominated in US dollars, while the majority of our expenses will continue to be denominated in
pounds sterling until such time as our facility in Shenzhen, China is fully operational.
Fluctuations in the exchange rate between the US dollar and
pound sterling currencies and, to a lesser extent, other
currencies in which we collect revenues and pay expenses, could affect our operating results. We
engage in currency hedging transactions in an effort to cover any exposure to such fluctuations,
and we may be required to convert currencies to meet our obligations. Under certain circumstances,
hedging transactions can have an adverse effect on our financial condition. As of April 2, we held
3 foreign currency forward exchange contracts with a nominal value of $58.3 million. These contracts expire at various
dates from May 2005 to December 2005. In addition, the
promissory notes we issued in connection with the
acquisition of NNOC are denominated in US dollars.
31
Contractual Obligations
There have been no material changes to the contractual as at
July 3, 2004 disclosed in our Transition Report on Form 10-K/A filed with the
SEC on October 5, 2004, other than the agreements with Nortel Networks described in
Note 14 of our unaudited, condensed consolidated financial
statements included in the Quarterly Report on Form 10-Q.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The Private Securities Litigation Reform Act of 1995 contains certain safe harbors regarding
forward-looking statements. In that context, the discussion in this item and other portions of this
Quarterly Report on Form 10-Q contain forward-looking statements that involve certain degrees of
risk and uncertainty, including statements relating to our business, liquidity and capital
resources. Except for the historical information contained herein, the matters discussed in this
Quarterly Report on Form 10-Q are such forward-looking statements that involve risks and
uncertainties, including:
Our success will depend on the extent to which demand for optical components, modules and
subsystems improves
Projections of dramatic growth in demand for bandwidth between 1999 and 2001 led to
telecommunications carriers investing large amounts of capital in developing and expanding their
optical networks. When the projected growth did not materialize in 2001, telecommunications
companies ceased to expand their networks, and large portions of those networks proved superfluous
and currently remain unused. As a result, the demand by telecommunications carriers for optical
systems declined dramatically in 2001 and, in turn, the demand for components supplied by us and
other vendors to the systems providers also fell sharply. In addition, the lack of demand was
exacerbated by excess optical component inventory held by the leading optical systems vendors. This
lack of demand and continuous downturn in the optical components market persisted in 2002, 2003
and 2004. As a result of this extensive downturn in the industry we are unable to predict
whether and how long it will take before the excess capacity of
existing network systems are fully
utilized and demand for additional capacity is generated. Additionally, we are unable to determine
what and how much inventory optical systems vendors have left. Continuing unfavorable economic
conditions and reduced capital spending of a global nature has also affected demand for our
products. The continued uncertainties in the telecommunications industry and the global economy
make it difficult for us to anticipate revenue levels and therefore to make appropriate estimates
and plans relating to management of costs. The uncertain demand for optical components has had, and
will continue to have, a material adverse effect on our results of operations, and we are not able
to predict when or if our results of operations will improve.
We remain highly dependent on Nortel Networks Limited as a customer over the duration of our supply
agreement with Nortel Networks Limited
In November 2002, in connection with our acquisition of the optical amplifier and optical
transmitter and receiver business of Nortel Networks Corporation, we entered into a three-year,
non-exclusive supply agreement with Nortel Networks Limited, a wholly-owned subsidiary of Nortel
Networks Corporation. During the six quarter period between November 8, 2002, and March 31, 2004,
referred to as the Minimum Commitment Period, Nortel Networks Limited was obligated to purchase
from us a minimum of $120.0 million of products and related services regardless of market demand,
subject to our meeting certain customary performance criteria relating to quality and delivery,
among other things. In addition, Nortel Networks Limited is required to purchase a percentage of
its optical components requirements from us until November 2005. Pursuant to a letter agreement with
Nortel Networks Limited, Nortel Networks Limited has also issued to us non-cancellable purchase
orders for certain products with a value we estimate to be approximately $100 million, which
automatically expires on March 31, 2006, or earlier upon the occurrence of certain events including
an event of default under the notes or the supply agreement or a change in control.
The optical components businesses acquired from Nortel Networks Corporation were historically
dependent on their relationship with Nortel Networks Limited and, as a result, we expect to be
highly dependent on sales to Nortel Networks Limited, at least during the term of the supply
agreement. In addition, Nortel Networks Limited, including its affiliates, has been one of
Bookhams significant customers during the past three years with respect to sales of other Bookham
products. Prior to the acquisition, shipments of products to Nortel Networks Limited by the optical
components business from Nortel Network Corporation constituted approximately 73%, 52%, and 60%,
respectively,
32
of the total sales of these businesses in 2000, 2001 and the first half of 2002. In the six-month
period ended December 31, 2003, the six-month period ended July 3, 2004 and the nine-month period
ended April 2, 2005, the shipments of products to Nortel
Networks Limited by the Company constituted 58%, 46% and 43% of our total revenues,
respectively. If Nortel Networks Limiteds financial condition deteriorates because of the
continued severe slowdown in the telecommunications industry or due to changes in its own financial
position or other circumstances, Nortel Networks Limited may not perform, in full or in part, its
obligations under the supply agreement. We may not have a commercially practicable means to recover
any shortfall by Nortel Networks Limited of its minimum purchasing commitments. Under certain
circumstances, including a bankruptcy proceeding initiated by or against Nortel Networks
Corporation and/or Nortel Networks Limited, amounts owed to us by Nortel Networks Limited might not
be recoverable and the supply agreement may no longer be enforceable against Nortel Networks
Limited.
On May 2, Nortel Networks announced 2004 revenues of $2.6 billion with net earnings of $133
million and a cash balance of $3.7 billion. For the year ended December 31, 2003, Nortel Networks
Limited reported net earnings from continuing operations of $567 million. However, previously
Nortel Networks Limited reported a net loss from continuing operations of $2.3 billion and $3.0
billion in its fiscal years ended 2002 and 2001, respectively. In addition, Nortel Networks
Corporation, which owns all of Nortel Networks Limiteds common shares, has previously announced
workforce reductions and facilities closures and has recently delayed certain regulatory filings,
replaced its chief financial officer and the United States Securities and Exchange Commission has
announced a formal order of investigation in connection with Nortel Networks restatement of
previous financial results. If Nortel Networks Limited ceases to purchase a substantial amount of
products now that the Minimum Commitment Period has expired, our results of operations and business
prospects will be materially adversely affected.
33
We may encounter a reduction in revenues or in gross margin at the expiration of the second
addendum to the supply agreement with Nortel Networks Limited.
In connection with the second addendum to the supply agreement with Nortel Networks Limited, which
we entered into on May 2, 2005, and became effective as of April 1, 2005, Nortel Networks Limited
issued a non-cancelable purchase orders for last-time buys of certain products and other non
last-time buys products with a value which we estimate to be approximately $100 million. The
products are to be delivered to Nortel Networks Limited over the next 12 months. This purchase
order will automatically expire on March 31, 2006 or earlier if certain events occur, including if
an event of default occurs under the notes or the supply agreement or
if we experience a change of
control. The provisions of the second addendum to the supply agreement also included increases in
prices and adjustment in payment terms of certain of the products we ship to Nortel Networks
Limited. We anticipate that, at the conclusion of the term of the second addendum on March 31,
2006 or at an earlier date upon the occurrence of certain events, including an event of default
under the notes or the supply agreement or a change in control that Nortels demand for our products
will be reduced. Unless we are able to continue to increase penetration of other customers,
further diversify our customer base and achieve overall increased sales of our products, we will
experience reduced revenues as the purchases contemplated by the second addendum are completed. In
addition, unless we are able to fully implement appropriate cost reduction measures, our gross
margins will be adversely affected at the expiration of the term set forth in the second addendum,
when Nortel Network price levels will revert to their historic levels, absent further negotiation
or adjustment.
We may not be able to retain Nortel Networks Limited as a customer if they terminate the supply
agreement, or after the expiration of its term.
On February 8, 2005, we entered into a first addendum to the supply agreement with Nortel Networks
Limited, which required that we supply Nortel Networks Limited with a last-time buy for certain
discontinued products and increase our capacity for and produce certain designated critical
product-in feed components. This first addendum provides that, if we fail to achieve certain
designated delivery or performance requirements, we must make prepayments, on a pro rata basis, to
Nortel Networks UK Limited under the two promissory notes we initially issued in connection with
our acquisition of the optical components business of Nortel Networks Corporation. These
prepayments range in size from $500,000 to $2 million, depending upon the applicable deliverables,
up to a maximum of $8 million. Any requirement we make these prepayments could have an adverse
effect on our financial condition. In addition, if at any time we have a cash balance of less than
$25 million, we are required to grant a license to Nortel Networks Limited, and any designated
third party manufacturer or supplier, for the assembly, post-processing and test intellectual
property (but excluding wafer technology) of certain critical products. Furthermore, under the
second addendum to the supply agreement, the non-cancelable purchase order and price adjustments
will terminate on March 31, 2006 or earlier upon the occurrence of certain events, including an
event of default under the notes or the supply agreement or a change of control. The termination of
purchase order or price arrangements under the second addendum would have a material adverse impact
on our financial condition.
Our debt repayment obligations may affect our ability to operate our business
In connection with our acquisition of the optical components business from Nortel Networks
Corporation, we issued to Nortel Networks UK Limited secured interest-bearing notes. As of May 1,
2005, the aggregate principal amount outstanding under the notes was approximately $45.9 million.
The first note, with an aggregate principal amount outstanding of approximately $25.9 million,
bears interest at the rate of 7% per year, increasing 0.25% per quarter beginning three months
after issue until repayment, up to a maximum rate of 10% per year, and is payable in full no later
than November 8, 2006. As of May 1, 2005, the note bore interest at a rate of 9.5%. The second
note, in the aggregate principal amount of $20 million, bears interest at the rate of 4% per year,
and is payable in full no later than November 8, 2007. Both notes are secured by certain of our
and our subsidiaries assets. We are required to repay the notes, in full or in part, at earlier
times upon the occurrence of various events, including an equity or equity-linked financing by us.
The notes also require us to maintain a cash balance of at least $25 million while the notes are
outstanding on or after August 8, 2006. If we are in default pursuant to the terms of the senior
unsecured convertible debentures we issued in December 2004 describe below, we would trigger a
default under the notes issued to Nortel Networks UK Limited, in which event all outstanding
principal and accrued interest would be immediately due and payable under such notes. On December
20, 2004, we issued senior unsecured convertible debentures in a private placement resulting in
gross proceeds of $25.5 million. These debentures bear interest at a rate of 7% per annum payable
on each March 31, June 30, September 30 and December 31, while such debentures are outstanding, and
on the maturity date. The debentures may be converted into shares of our common stock at the
option of the holder prior to the maturity of the debentures on December 20, 2007. The conversion
price of the debentures is $5.50. The debentures may also be converted into common stock by us
under certain circumstances. If we are in default pursuant to the terms of the notes we issued to
Nortel Networks UK Limited, we would also trigger an event of default under the debentures, in
which event all outstanding principal and interest would be immediately due and payable under the
debentures. Our business currently does not generate cash flow in an amount sufficient to enable
us to pay the principal of, or interest on, our indebtedness or to fund our other liquidity needs,
including working capital, capital expenditures, product development efforts, strategic
acquisitions, investments and alliances, and other general corporate
34
requirements. If we cannot fund our liquidity needs through alternative sources of capital such as
a financing, we will have to take actions such as reducing or delaying capital expenditures,
product development efforts, strategic acquisitions, investments and alliances, selling assets,
restructuring or refinancing our debt, or seeking additional equity or debt capital. We may not be
able to effect any of those remedies on commercially reasonable terms, or at all. If we incur
additional debt above current levels, the risks associated with our leverage, including the risk
that we will be unable to service our debt or generate enough cash flow to fund our liquidity
needs, could intensify.
We and our customers are each dependent upon a limited number of customers
Historically, we have generated most of our revenues from a limited number of customers. For
example, in each of the last two calendar years ending December 31, 2003 and December 31, 2004,
sales to our top five customers accounted for 83% and 68% of our revenues, respectively. Sales to
two of those customers, Nortel Networks Limited and Marconi Communications, respectively, accounted
for, 58% and 12% in 2003, 62% and 12% for the nine month period
ending April 4, 2004 and 43% and 4% for the nine month period
ended April 2, 2005. Our dependence on a limited number of customers is due to the fact
that the optical systems industry is dominated by a small number of large companies. That market is
currently consolidating, thereby reducing the number of potential customers in the industry. This
trend may further increase our dependence on a small number of customers. Similarly, our customers
depend on a small group of telecommunications carrier customers to purchase their products that
incorporate our optical components.
We expect to continue to generate a significant amount of our revenues from the supply agreement
with Nortel Networks Limited, which expires in November 2006. The supply agreement provides for
Nortel Networks Limited to purchase a percentage of its optical components requirements from us
until November 2005. If Nortel Networks Limiteds financial condition deteriorates because of the
continued severe slowdown in the telecommunications industry or due to changes in its own financial
position or other circumstances, Nortel Networks Limited may not perform, in full or in part, its
obligations under the supply agreement. We may not have a commercially practicable means to recover
any shortfall by Nortel Networks Limited of its purchase obligations. Nortel Networks Limited has
issued to us a non-cancellable purchase order for certain products with a value we estimate to be
approximately $100 million. This purchase order expires on March 31, 2006 or earlier upon the
occurrence of certain events including an event of default under the notes or supply agreement or
a change in control. Our supply agreement with Marconi Communications, which provided for Marconi
Communications to purchase $48.3 million of products and services from us, expired in June 2004. As
a result of the expiration of the agreement, the amount of revenues we receive from Marconi
Communications has declined. The loss of one or more of our customers, or any decrease in revenues
earned from Nortel Networks Limited or Marconi Communications, could materially adversely affect
our revenues and results of operations. In addition, many of our customers, and their
telecommunications carrier customers, have been affected by the downturn in the telecommunications
industry and are in poor financial condition. The condition of these companies may affect the
amount and type of orders they are able to place with us.
We may not realize the expected benefits from moving our corporate domicile from the United Kingdom
to the United States
On September 10, 2004, we completed a scheme of arrangement in which we effectively changed our
corporate domicile from the United Kingdom to Delaware. Changing our corporate domicile was
complex, time consuming and expensive. In addition, as a company domiciled in the United States, we
are subject to additional SEC rules and regulations. In order to realize any benefits from our
change in corporate domicile, we will need to achieve the timely, efficient and successful
execution of a number of events, including:
We may not succeed in addressing these risks or achieving any of the benefits we hope to receive
from the change in corporate domicile. Any failure to address these risks or to achieve expected
benefits could have a material adverse effect on the market price of our common stock.
35
We need to take specific steps to address compliance with Section 404 of the Sarbanes-Oxley Act of
2002, and there is no assurance we will do so on a timely basis
Compliance with new corporate governance and financial reporting standards, such as those of
the Sarbanes-Oxley Act of 2002, has in the past and will in the future continue to involve
substantial cost and investment of our managements time. We are currently evaluating and
documenting our internal control systems in order to allow management to report on, and our
independent auditors to attest to, our internal control over financial reporting, as required by
Section 404 of the Sarbanes-Oxley Act of 2002. Our management is currently undertaking a
comprehensive effort to prepare for the assessment required by Section 404 that will take effect
for our fiscal year ending July 2, 2005, and implementing changes to our financial processes and
controls, including more timely and complete documentation of judgments made during the financial
statement close process and improvements to information technology access and security controls, as
well as enhancing the capabilities of our financial and accounting staff regarding US GAAP in light
of our reincorporation as a US company. There can be no certainty that these steps, as well as our
actions to address the material weakness described below, can be successfully completed on a timely
basis. Any failure to comply with these new financial reporting standards could create a negative
public perception of our company and could adversely affect our business, operating results and
financial condition. This process has been extremely time-consuming and has involved substantial
effort on the part of management. We cannot assure you that this evaluation will not result in the
identification of significant control deficiencies or material weaknesses or that our auditors will
be able to attest to the effectiveness of our internal control over financial reporting.
We were informed by Ernst & Young LLP, our independent registered public accounting firm, of a
material weakness in our internal controls in connection with the preparation of our financial
statements for the three-month period ended October 2, 2004, as previously disclosed in our
Quarterly Report on 10-Q for that period. Ernst & Young LLP informed us and our audit committee
that we had incorrectly included certain foreign currency translation adjustments in our statement
of operations for such three month period rather than reflecting such adjustments as cumulative
translation adjustments within stockholders equity on our balance sheet for that period in
accordance with FAS 52,
Foreign Currency Translation.
As a result, our net loss for the three-month
period ended October 2, 2004 was $38.3 million, rather than $37.1 million as previously reported in
our earnings press release issued on October 26, 2004. Ernst & Young LLP advised us that this
condition is a material weakness in our internal control over financial reporting. We have reviewed
the appropriate application of FAS 52 with Ernst & Young LLP and are implementing
procedures designed to assure its proper allocation in the future.
In addition, the significant demands on our management and accounting personnel in recent months,
including those resulting from our transfer of our principal accounting functions from our offices
in the United Kingdom to those in the United States, which was recently undertaken as a result of
our reincorporation in the United States, led to increases in the time required to perform control
procedures and to develop and analyze information in connection with the closing of our books for
the quarter ended April 2, 2005. The increase in the time required to close our books caused
delays in finalizing our financial statements, which prevented the filing of our quarterly report
on Form 10-Q for the quarter ended April 2, 2005 by May 12, 2005, the filing deadline. Our
management concluded that the delays reflected a material weakness in our internal controls over
financial reporting.
As a result of our global operations, our business is subject to currency fluctuations that may
adversely affect our operating results
Due to our multi-national operations in Europe, North America and Asia, our business is subject
to fluctuations based upon changes in the exchange rates among the currencies in which we collect
revenues and pay expenses. In particular, despite our change in domicile, the majority of our
expenses continue to be denominated in U.K. pounds sterling, while a substantial portion of our
revenues are denominated in US dollars. Fluctuations in the exchange rate between these two
currencies and, to a lesser extent, other currencies in which we collect revenues and pay expenses,
affect our operating results. In recent periods, the value of the U.S. dollar has declined
significantly in comparison with the pound sterling and the euro. The average U.S. dollar exchange
rate has moved from $1.83 per pound sterling for the three month period ended April 4, 2004 to
$1.90 per pound sterling for the three month period ended April 2, 2005, which represents a 4%
decline in the strength of the U.S. dollar relative to the pound sterling. The average U.S. dollar
exchange rate has moved from $1.72 per pound sterling for the nine
month period ended April 4 2004, to $1.86 per pound sterling for the nine month period ended April 2, 2005, which represents an 8%
decline in the strength of the U.S. dollar relative to the pound sterling.
Continued weakness of the U.S. dollar versus the pound sterling will adversely affect our
margins and cash flow and make it more difficult for us to achieve improvements in our operating
results in the short term. We engage in currency hedging transactions in an effort to cover any
exposure to such fluctuations, and we may be required to convert currencies to meet our
obligations, however, under certain circumstances, hedging transactions can have an adverse effect
on our financial condition.
36
We have generated substantial losses to date and will generate substantial losses in the future
unless we achieve significant revenue growth
We incurred substantial net losses in 2001, 2002, 2003, the six-month period ended July 3, 2004 and
the nine-month period ended April 2, 2005. Historically, we have failed to achieve the revenues
required to achieve cash flow break-even. We may never generate sufficient revenues to achieve
profitability or meet our liabilities as they come due. Even if we do achieve profitability, we may
not sustain or increase profitability on a quarterly or annual basis in the future. Achieving
profitability depends, in part, on our ability to successfully implement the cost reduction
measures established by management, including the transfer of our test and manufacturing operations
to our Shenzhen facility. In order to meet the product demands from our customers, however, we
must currently maintain manufacturing capacity both in our UK and Chinese facilities, which defers
achievement of cost savings as a result of a transition of manufacturing activities to China. As a
result of this delay and our continued operating losses, which must be funded using our cash
resources, we anticipate that we will require additional financing in the next twelve months. To
date, we have been financed largely by our existing cash balances and our operating cash flows.
Despite our private placement of $25.5 million of our 7% senior unsecured convertible debentures
and warrants to purchase common stock in December 2004, our existing cash balances and any future
revenues may not be not sufficient to cover all future losses
We will need to raise funds from external sources and failure to raise such funds would adversely
impact our operations and financial condition
Our cash flows from operations are currently not sufficient to cover our operating expenses
and capital expenditure needs. While we believe that we have sufficient cash balances to meet our
anticipated working capital and capital expenditure requirements through the second quarter of
fiscal 2006, we will need to obtain further funding from third parties to finance our
operations and satisfy our debt repayment obligations. We may not be able to obtain funding from
external sources on terms acceptable to us, or at all. In connection with any such financing, we
may be required to issue additional equity at prices below the market value on the day of sale,
which would dilute the value of our common stock, or we may be required to issue additional debt.
If any financing consists, in total or partially, of debt, we may be required to use our available
assets to secure such loan, which may be seized in the event we default on such debt. If we are
unable to obtain external financing, or if the terms of such financing place unreasonable
restrictions on the operation of our business, our ability to continue operations will be
significantly adversely affected.
We expect to acquire businesses as part of our strategy, and we will need to integrate them
successfully
Acquisitions have historically been an important part of our business strategy and will form part
of our strategy in the future. For example, in 2002 Bookham Technology plc acquired the optical
components businesses of Marconi Optical Components Limited and Nortel Networks. In July 2003,
Bookham Technology plc acquired substantially all of the assets and certain liabilities of Cierra
Photonics. In October 2003, Bookham Technology plc acquired Ignis Optics. In March 2004, Bookham Technology plc acquired New
Focus. In June 2004, Bookham Technology
plc acquired Onetta. Any acquisition
transaction could involve the issuance of a significant number of new equity or debt securities
and/or the payment of substantial cash consideration. If we fund acquisitions in whole or in part
through the issuance of equity securities, our existing stockholders may experience substantial
dilution. We may also be required to make significant investment in acquired companies to
facilitate commercialization of their products or to support the integration of their operations
with ours. Any acquisition may also involve significant management time and attention, which could
cause disruption to our overall operations. Any acquisition resulting in entry into a new market,
such as our acquisition of Ignis Optics, a company in the data communications sector, and New
Focus, a company in the photonics and microwave sector, could present numerous challenges including
diversion of financial and managerial resources and creation of uncertainty among existing
customers. Moreover, if we are unable to integrate successfully any newly acquired business or
technologies, we may be unable to achieve our strategic goals and our business could suffer Any of
these problems could adversely affect our results of operations. In order to reduce overhead costs
in the quarter ended April 2, 2005, we closed
the operations of Onetta,
severing the majority of the employees, discontinued production of the majority of its products and
consolidated manufacturing of the other remaining products into other production facilities. We
currently intend to continue Ignis Optics, New Focus and Onetta as separate legal entities.
37
Fluctuations in operating results and a long sales cycle could adversely affect our revenues which
would affect the market price of our common stock
Our revenues and operating results are likely to fluctuate significantly in the future. The lack of
visibility as to future revenue sources from our newly integrated businesses, the timing of order
placement, size of orders and satisfaction of contractual customer acceptance criteria, as well as
order or shipment delays or deferrals, with respect to our products, may cause material
fluctuations in revenues. To date, our sales cycles have been lengthy. The period between initial
contact with a customer to the receipt of a purchase order has frequently been six months to a year
or more. In addition, most of our customers perform, and require us to perform, extensive process
and product evaluation and testing of components before purchase. This lengthy sales cycle may
cause our revenues and operating results to vary from period to period and it may be difficult to
predict the timing and amount of any variation.
Delays or deferrals in purchasing decisions may increase as we develop new or enhanced products for
new markets, including data communications, aerospace, industrial and military. Our current and
anticipated future dependence on a small number of customers increases the revenue impact of each
customers decision to delay or defer purchases from us. Our expense levels in the future will be
based, in large part, on our expectations regarding future revenue sources and, as a result, net
income for any quarterly period in which material orders fail to occur, are delayed, or deferred
could vary significantly.
Because of these and other factors, investors should not rely on quarter-to-quarter comparisons of
our results of operations as an indication of future performance. In future periods, results of
operations may differ from the estimates of public market analysts and investors. Such a
discrepancy could cause increased losses and the market price of our common stock to decline.
38
Our business will be adversely affected if we cannot manage the significant changes in the number
of our employees and the size of our operations
We experienced a significant increase in the number of our employees, the scope of our operations
and financial systems and the geographic area of our operations in 1999 and 2000. In 2001, however,
we experienced a significant reduction in the number of employees and scope of our operations
because of declining demand for our products. In addition, a number of our manufacturing facilities
were underutilized in light of reduced demand. In 2002, our employee numbers, scope of operations
and the geographic area of our operations again significantly expanded through acquisitions,
although the increase in our headcount was offset by employee reductions. As a result of the merger
with New Focus in March 2004, we acquired approximately 200 employees based at New Focuss
headquarters in San Jose, California. In addition, we acquired approximately 50 employees as a
result of the acquisition of Onetta. These significant changes in headcount have placed, and will
continue to place, a significant strain on management and other resources. We face challenges
inherent in efficiently managing an increased number of employees over large geographic distances,
including the need to implement appropriate systems, policies, benefits and compliance programs in
different jurisdictions.
There is a risk that, during such periods of growth or decline, management will not sufficiently
coordinate the roles of individuals to ensure that all areas receive appropriate focus and
attention. If we are unable to manage our headcount, manufacturing capacity and scope of operations
effectively, the cost and quality of our products may suffer, we may be unable to attract and
retain key personnel and we may be unable to market and develop new products. Further, the
inability to successfully manage the substantially larger and geographically more diverse
organization, or any significant delay in achieving successful management, could have a material
adverse effect on us and, as a result, on the market price of our common stock.
We generate a significant portion of our revenues internationally and therefore are subject to
additional risks associated with the extent of our international operations
Our revenues for the nine-month period ended April 2, 2005, the six-month period ended July 3,
2004, and the years ended December 31, 2003, 2002 and 2001 were
$37.2 million, $20.4 million, $13.5
million, $4.7 million and $2.9 million, respectively, in
the United States and $102.1 million,
$59.3 million, $132.7 million, $47.2 million and $28.7 million, respectively, outside the United
States.
We are subject to additional risks related to operating in foreign countries, including:
Any of these risks, or any other risks related to our foreign revenues, could materially adversely
affect our business, financial condition and results of operations.
If our customers do not qualify our manufacturing lines or the manufacturing lines of our
subcontractors for volume shipments, our operating results could suffer
Most of our customers do not purchase products, other than limited numbers of evaluation units,
prior to qualification of the manufacturing line for volume production. Our existing manufacturing
lines, as well as each new manufacturing line, must pass through varying levels of qualification
with our customers. Our customers may also require that we, and any subcontractors that we may use,
be registered under international quality standards, such as ISO 9001. Any relocation or
39
consolidation of our manufacturing lines from existing manufacturing facilities, such as our shift
of manufacturing capacity to Shenzhen, China, may need to undergo qualification by our customers
before commercial production on these lines can recommence. In addition, we have in the past, and
may in the future, encounter quality control issues as a result of relocating our manufacturing
lines or introducing new products to fill production. The qualification process, whether in
connection with new products or the relocation of manufacturing lines for current products,
determines whether the manufacturing line meets the quality, performance and reliability standards
of customers and organizations that set industry standards. We may experience delays in obtaining
customer qualification of our manufacturing lines and, as a consequence, our operating results and
customer relationships would be harmed.
Delays, disruptions or quality control problems in manufacturing could result in delays in product
shipments to customers and could adversely affect our business
We may experience delays, disruptions or quality control problems in our manufacturing operations
or the manufacturing operations of our subcontractors. As a result, we could incur additional costs
that would adversely affect gross margins, and product shipments to our customers could be delayed
beyond the shipment schedules requested by our customers, which would negatively affect our
revenues, competitive position and reputation. Furthermore, even if we are able to deliver products
to our customers on a timely basis, we may be unable to recognize revenues based on our revenue
recognition policies. For example, New Focus has experienced disruptions in the manufacture of some
of its products due to changes in its manufacturing processes, which resulted in reduced
manufacturing yields, delays in product shipment and deferral of revenue recognition. Any
manufacturing disruptions in the future, including disruptions as a result of the consolidation of
our facilities, could adversely affect our revenues, gross margins and results of operations. In
addition, we may experience manufacturing delays and reduced manufacturing yields upon introduction
of new products to our manufacturing lines or integration of acquired products. We have in the past
experienced lower-than-targeted product yields, which have resulted in delays of customer
shipments, lost revenues and reduced gross margins.
We could be adversely affected if we are unable to manage our manufacturing capacity to meet
fluctuating levels of demand for our products, this includes the uncertainty of transferring certain
operations to our facility in Shenzhen
A significant and steady decline in the demand for optical components beginning in 2001 resulted in
marked underutilization of our manufacturing capacity, and, in July 2002, we announced that we were
closing our manufacturing facilities in Swindon, U.K. and Maryland, US. In 2002, we acquired a
manufacturing facility in Caswell, U.K. as part of the acquisition of the optical components
business of Marconi Optical Components Limited, and in connection with our acquisition of the
optical components business from Nortel Network Corporation, we acquired four more manufacturing
facilities located in the United Kingdom, Canada and Switzerland. All of these facilities are
underutilized. In 2004, in connection with our acquisition of New Focus, we acquired two additional
manufacturing facilities. We have closed our Ottawa, Canada manufacturing facility and have
transferred its operations to our Caswell site, and we have closed our Abingdon, U.K. manufacturing
facility. In addition, we have announced a restructuring plan which includes moving a majority of
our assembly and test operations to our facility in Shenzhen, China. We are in the process of
transferring manufacturing operations previously undertaken at our Paignton U.K. facility and have
completed the closure of our former headquarters facility at Abingdon, U.K. Fluctuations in
customer demand, combined with the acquisition of these additional manufacturing facilities,
present challenges and will require us to evaluate manufacturing capacity and to assess and predict
demand appropriately in order to ensure availability and staffing of manufacturing facilities
sufficient to meet that demand. For example, in the quarter ended April 2, 2005, we experienced
increased customer demand for certain of our products that required that we operate our Paignton
facility at greater capacity than we had anticipated when we implemented our most recent
restructuring plan. This increased use of the Paignton facility to meet customer demands
constrained the planned transition of our manufacturing and test operations from our facility in
the UK to China. If we are unable to effectively and quickly carry out the transition to our
Shenzhen facility, our ability to obtain the benefits of our restructuring plans could be adversely
effected. In addition, the Failure to accurately evaluate manufacturing capacity generally and
assess product demand on a timely basis could have an adverse effect upon gross margins or have the
effect of increasing overall operating expenses. In addition the addition of capacity to meet increasing demand for
certain products requires cash investment, and the equipment often times have lead
times in excess of six months and requires experience to install the
equipment, qualify products on new equipment and to qualify the
production process. We
may therefore fail to meet customer demand for
these products or miss short-term demand.
We may incur significant restructuring charges that will adversely affect our results of operations
In light of our restructuring and cost reduction measures in 2002, 2003 and 2004 in response to
the depressed demand for optical components, and our consolidation activities, we have incurred
significant restructuring related charges. Such charges totaled
$3.8 million, $7.9 million, $4.3 million, a $0.6
million credit, $0 and a $0.2 million credit for the quarters
ended April 2, 2005, January 1, 2005, October 2, 2004,
July 3, 2004, April 4, 2004 and December 31, 2003, respectively. In 2004, we announced further
restructuring plans, which include moving the majority of our assembly and test operations from our
site in Paignton, U.K. to our facility in Shenzhen, China and closing our former headquarters
facility in Abingdon, U.K. We anticipate that these restructuring plans will be completed by
December 31, 2005 and we expect to incur total restructuring charges in the range of $24.0 million
to $30.0 million relating to this program over this time period. We may incur additional charges in
the
40
future. These charges, along with any other charges, have adversely affected, and will continue to
adversely affect, our results of operations for the periods in which such charges have been or will
be incurred.
We may have difficulty obtaining additional capital because of reduced funding of and lending
to companies in the optical components industry
The optical components sector of the telecommunications industry in which we operate has been
severely affected by the downturn in the global economy. As a result, companies in this sector have
experienced difficulty in raising capital, whether through equity or debt financing. Because the
share values of optical component suppliers have declined markedly during the downturn, we may
experience difficulty raising additional capital or may have to accept capital financing on less
than optimal terms.
Our future success will depend on our ability to manufacture and sell our products, some of which
have recently been commercially introduced and may not achieve commercial acceptance
In connection with our acquisitions from Nortel Networks Corporation and Marconi Optical Components
Limited, we added several new products to our product line, some of which have not yet successfully
completed a specific series of tests that demonstrate those products meet industry-wide standards
and are suitable for customer specific use. Until these tests are complete for a given product,
that product does not qualify for volume production. We cannot assure investors that these
products, or the proprietary technology upon which any of these products is based, will achieve
broad market acceptance.
In addition, a decline in demand for any of our product lines due to faults or quality problems,
the introduction of superior products by competitors, technological changes or other reasons could
undermine confidence in and demand for our products. This decline in demand could have a material
adverse effect on our customer relationships and business prospects.
We may encounter unexpected costs or delays in commencing manufacturing at the facility in
Shenzhen, China
We intend to take advantage of the comparatively low manufacturing costs in China by conducting
manufacturing activities at our facility in Shenzhen, China. Operations in China are subject to
greater political, legal and economic risks than our operations in other countries. In order to
commence activity at the facility, we must obtain required legal authorization, train and hire a
workforce and invest in activation of the facility. The legal system in China is undeveloped and
subject to change with little or no notice, and enforceability of existing laws and regulations is
uncertain. Requisite legal permits may not be obtained and costs or operational limitations may be
imposed in connection with obtaining and complying with such permits. The hiring and training of an
appropriate labor force requires an investment of our resources, and may take longer than
anticipated. We have been advised that power may be rationed in the location of our Shenzhen
facility, and were power rationing to be implemented, it could either have an adverse impact on our
ability to complete manufacturing commitments on a timely basis or, alternatively, requires
significant investment in generating capacity and to sustain uninterrupted operations at the
facility. In addition, the success of our restructuring efforts is contingent, in part, on our
ability to transfer certain manufacturing and test functions from our facilities in the UK to
China, which would be hindered by a potential power rationing. We may also encounter delays or
dislocation in the transfer of product lines to Shenzhen, China, or quality issues as we ramp up
manufacturing activities. We may also be required to expend greater amounts than we currently
anticipate in connection with the reactivation of the facility. Any one of these factors, or a
combination of them, could result in the incurrence of unanticipated costs, with the potential to
materially and adversely affect our business.
Our results of operations may suffer if we do not effectively manage our inventory and we may incur
inventory-related charges
To achieve commercial success with our product lines, we need to manage our inventory of component
parts and finished goods effectively to meet changing customer requirements. The ability to
accurately forecast customers product needs in the current economic environment is very difficult.
Some of our products and supplies have in the past, and may in the future, become obsolete while in
inventory due to rapidly changing customer specifications or a decrease in customer demand. If we
are not able to manage our inventory effectively, we may need to write-down the value of some of
our existing inventory or write-off unsaleable or obsolete inventory, which would adversely affect
our results of operations. We have from time to time incurred significant inventory-related
charges. Any such charges we incur in future periods could significantly adversely affect our
results of operations.
Our products are complex, may take longer to develop than originally anticipated and are highly
dependent on the needs of our customers design and development programs
Many of our new products must be tailored to customer specifications. As a result, we are
constantly developing new products and using new technologies in those products. These products
often take 12 to 18 months to develop because of their complexity and because customer
specifications sometimes change during the development cycle. We fund a significant majority of the
design work, but have in the past received small contributions from customers, which we credit
against research and development expenditure. In the event that a customer cancelled or modified a
design project before we began large-scale manufacture of the product and received revenue from the
customer, we would not be able to recover those expenses and our results of operations would be
adversely affected. It is difficult to predict with any certainty, particularly in the present
economic climate, the frequency with which customers will cancel or modify their projects, or the
effect that any cancellation or modification would have on our results of operations. The complex
production processes for our
41
products require careful and constant maintenance of fine tolerances that can be disrupted by
unknown or unforeseen causes. Our products may also contain defects when first introduced or as new
versions are released. We could also incur significant unanticipated costs in attempting to
complete the development of new products or to fix defective products. In addition, the need to
contain research and development costs may have an adverse effect on our development of new
products and enhancement of existing product offerings.
We have substantially redefined our business, making it difficult to evaluate our business based upon our historical financial results
From 1997 through 2000, our principal product
line was based upon our proprietary silicon-based integrated
optical circuitry, or ASOC, platform. In 2001 and 2002, as market
demand for optical components continued to decline and some companies began
to exit the industry, we redefined our business away from our
product line of ASOC-based, passive, fully-integrated components
towards providing a range of active optical components. As a result, in
2002 and 2003, we discontinued development of our ASOC-based products and
shifted our strategic focus to becoming a supplier of optical components for
the telecommunications market through the acquisition of companies or product
lines. In the past three years, our acquisitions have included New Focus and
the optical components businesses of Marconi Communications and Nortel Networks. This
shift in our business model has substantially redefined our business plan and
expanded our market focus and has resulted in large changes in
our revenues and expenses as we acquire and integrate companies and product
lines. As a result of our past acquisitions and our continued plan to
acquire and integrate additional companies or product lines that we believe can be exploited
in the current market environment, and, if necessary, to divest
companies or product lines that do not fit within our redefined business, our
financial results for any period or changes in our results across periods
may continue to dramatically change. Our historical financial results, therefore, should
not be relied upon to accurately predict our future operating results, thereby
making the evaluation of our business more difficult.
We may experience low manufacturing yields
Manufacturing yields depend on a number of factors, including the volume of production due to
customer demand and the nature and extent of changes in specifications required by customers for
which we perform design-in work. Higher volumes due to demand for a fixed, rather than continually
changing, design generally result in higher manufacturing yields, whereas lower volume production
generally results in lower yields. In addition, lower yields may result, and have in the past
resulted, from commercial shipments of products prior to full manufacturing qualification to the
applicable specifications. Changes in manufacturing processes required as a result of changes in
product specifications, changing customer needs and the introduction of new product lines have
historically caused, and may in the future cause, significantly reduced manufacturing yields,
resulting in low or negative margins on those products. Moreover, an increase in the rejection rate
of products during the quality control process either pre, during or post manufacture results in
lower yields and margins. Finally, manufacturing yields and margins can also be lower if we receive
or inadvertently use defective or contaminated materials from our suppliers.
We may be faced with product liability claims
Despite quality assurance measures, there remains a risk that defects may occur in our products.
The occurrence of any defects in our products could give rise to liability for damages caused by
such defects and for consequential damages. They could, moreover, impair the markets acceptance of
our products. Both could have a material adverse effect on our business and financial condition. In
addition, we may assume product warranty liabilities related to companies we acquire which could
have a material adverse effect on our business and financial condition. In order to mitigate the
risk of liability for damages, we carry product liability insurance with a $26.0 million aggregate
annual limit and errors and omissions insurance with a $5.0 million annual limit. We cannot assure
investors that this insurance could adequately cover our costs arising from defects in our products
or otherwise.
Our intellectual property rights may not be adequately protected
Our future success will depend, in large part, upon our intellectual property rights, including
patents, design rights, trade secrets, trademarks, know-how and continuing technological
innovation. We maintain an active program of identifying technology appropriate for patent
protection. Our practice is to require employees and consultants to execute non-disclosure and
proprietary rights agreements upon commencement of employment or consulting arrangements. These
agreements acknowledge our exclusive ownership of all intellectual property developed by the
individuals during their work for us and require that all proprietary information disclosed will
remain confidential. Although such agreements may be binding, they may not be enforceable in all
jurisdictions.
Our intellectual property portfolio is an important corporate asset. The steps we have taken and
may take in the future to protect our intellectual property may not adequately prevent
misappropriation or ensure that others will not develop competitive technologies or products. We
cannot assure investors that our competitors will not successfully challenge the validity of these
patents, or design products that avoid infringement of our proprietary rights with respect to our
technology. There can be no assurance that other companies are not investigating or developing
other similar technologies, that any patents will issue from any application pending or filed by us
or that, if patents do issue, the claims allowed will be sufficiently broad to deter or prohibit
others from marketing similar products. In addition, we cannot assure investors that any patents
issued to us will not be challenged, invalidated or circumvented, or that the rights under those
patents will provide a competitive advantage to us. Further, the laws of certain territories in
which our products are or may be developed, manufactured or sold, including South East Asia, may
not protect our products and intellectual property rights to the same extent as the laws of the
United States, the United Kingdom and continental European countries.
Our products may infringe the intellectual property rights of others
Companies in the industry in which we operate frequently receive claims of patent infringement or
infringement of other intellectual property rights. In this regard, third parties may in the future
assert claims against us concerning our existing products or with respect to future products under
development. We have entered into and may in the future enter into indemnification obligations in
favor of some customers that could be triggered upon an allegation or finding that we are
infringing other parties proprietary rights. If we do infringe a third partys
rights, we may need to negotiate with holders of patents relevant to our business. We have from
time to time received notices from third parties alleging infringement of their intellectual
property and as a result have entered into license agreements with those third parties with respect
to that
42
intellectual property. We may not in all cases be able to resolve allegations of infringement
through licensing arrangements, settlement, alternative designs or otherwise. We may take legal
action to determine the validity and scope of the third-party rights or to defend against any
allegations of infringement. In the course of pursuing any of these means we could incur
significant costs and diversion of our resources. Due to the competitive nature of our industry, it
is unlikely that we could increase our prices to cover such costs. In addition, such claims could
result in significant penalties or injunctions that could prevent us from selling some of our
products in certain markets or result in settlements that require payment of significant royalties
that could adversely affect our ability to price our products profitably.
If we fail to obtain the right to use the intellectual property rights of others necessary to
operate our business, our ability to succeed will be adversely affected
The telecommunications and optical components markets in which we sell our products have
experienced frequent litigation regarding patent and other intellectual property rights. Numerous
patents in these industries are held by others, including academic institutions and our
competitors. Optical component suppliers may seek to gain a competitive advantage or other third
parties may seek an economic return on their intellectual property portfolios by making
infringement claims against us. In the future, we may need to obtain license rights to patents or
other intellectual property held by others to the extent necessary for our business. Unless we are
able to obtain such licenses on commercially reasonable terms, patents or other intellectual
property held by others could inhibit our development of new products for our markets. Licenses
granting us the right to use third-party technology may not be available on commercially reasonable
terms, if at all. Generally, a license, if granted, would include payments of up-front fees,
ongoing royalties or both. These payments or other terms could have a significant adverse impact on
our operating results. Our larger competitors may be able to obtain licenses or cross-license their
technology on better terms than we can, which could put us at a competitive disadvantage.
We depend on a limited number of suppliers who could disrupt our business if they stopped,
decreased or delayed shipments
We depend on a limited number of suppliers of raw materials and equipment used to manufacture our
products. Some of these suppliers are sole sources. We typically have not entered into long-term
agreements with our suppliers and, therefore, these suppliers generally may stop supplying
materials and equipment at any time. The reliance on a sole or limited number of suppliers could
result in delivery problems, reduced control over product pricing and quality, and an inability to
identify and qualify another supplier in a timely manner. Any supply deficiencies relating to the
quality or quantities of materials or equipment we use to manufacture our products could adversely
affect our ability to fulfill customer orders or our financial results of operations.
If we fail to attract and retain key personnel, our business could suffer
Our future depends, in part, on our ability to attract and retain key personnel. Competition for
highly skilled technical people is extremely intense, and, the current economic environment
notwithstanding, we continue to face difficulty identifying and hiring qualified engineers in many
areas of our business. We may not be able to hire and retain such personnel at compensation levels
consistent with our existing compensation and salary structure. Our future also depends on the
continued contributions of our executive management team and other key management and technical
personnel, each of whom would be difficult to replace. The loss of services of these or other
executive officers or key personnel or the inability to continue to attract qualified personnel
could have a material adverse effect on our business.
Similar to other technology companies, we rely upon our ability to use stock options and other
forms of equity-based compensation as key components of our executive and employee compensation
structure. Historically, these components have been critical to our ability to retain important
personnel and offer competitive compensation packages. Without these components, we would be
required to significantly increase cash compensation levels (or develop alternative compensation
structures) in order to retain our key employees, particularly as and when an industry recovery
returns. Recent proposals to modify accounting rules relating to the expensing of equity
compensation may cause us to substantially reduce, or even eliminate, all or portions of our equity
compensation programs.
Our business and future operating results may be adversely affected by events outside of our
control
Our business and operating results are vulnerable to interruption by events outside of our control,
such as earthquakes, fire, power loss, telecommunications failures, political instability, military
conflict and uncertainties arising out of terrorist attacks, including a global economic slowdown,
the economic consequences of additional military action or additional terrorist activities and
associated political instability, and the effect of heightened security concerns on domestic and
international travel and commerce.
43
Charges to earnings resulting from the application of the purchase method of accounting may
adversely affect the market value of our common stock
We account for our acquisitions, including the acquisition of New Focus, using the purchase method
of accounting. In accordance with U.S. GAAP, we allocate the total estimated purchase price to the
acquired companys net tangible assets, amortizable intangible assets, and in-process research and
development based on their fair values as of the date of announcement of the transaction, and
record the excess of the purchase price over those fair values as goodwill. With respect to our
acquisition of New Focus, we expensed the portion of the estimated purchase price allocated to
in-process research and development in the first quarter of 2004. We will incur an increase in the
amount of amortization expense over the estimated useful lives of certain of the intangible assets
acquired in connection with the merger on an annual basis. To the extent the value of goodwill or
intangible assets with indefinite lives becomes impaired, we may be required to incur material
charges relating to the impairment of those assets. For example, the quarter ended April 2, 2005,
we recorded an impairment charge of $98.1 million related to goodwill. In addition, in the past,
after the completion of a transaction, we have amended the provisional values of certain inventory
we obtained as part of transactions, specifically the Nortel Networks acquisition. This amendment
resulted in the value of our inventory being increased by $20.2 million, current liabilities being
increased by approximately $1.3 million, intangible assets being decreased by approximately $9.1
million and property, plant and equipment increased by $9.8 million. We cannot assure you that we
will not have to make other similar modifications to our historical financial results in the
future. In addition, there can be no assurance that we will not incur restructuring charges as a
result of any such transaction, which may have an adverse effect on our earnings.
Our business involves the use of hazardous materials, and environmental laws and regulations may
expose us to liability and increase our costs
We historically have handled small amounts of hazardous materials as part of our manufacturing
activities and now handle more and different hazardous materials as a result of the manufacturing
processes related to New Focus, the optical components business acquired from Nortel Network
Corporation and the product lines we acquired from Marconi Optical Components Limited.
Consequently, our operations are subject to environmental laws and regulations governing, among
other things, the use and handling of hazardous substances and waste disposal. We may be required
to incur environmental costs to comply with current or future environmental laws. As with other
companies engaged in manufacturing activities that involve hazardous materials, a risk of
environmental liability is inherent in our manufacturing activities, as is the risk that our
facilities will be shut down in the event of a release of hazardous waste. The costs associated
with environmental compliance or remediation efforts or other environmental liabilities could
adversely affect our business.
The markets in which we operate are highly competitive, which could result in lost sales and lower
revenues
The market for fiber optic components is highly competitive and such competition could result in
our existing customers moving their orders to competitors. Certain of our competitors may be able
more quickly and effectively to:
In addition, market leaders in industries such as semiconductor and data communications, who may
have significantly more resources than we do, may in the future enter our market with competing
products. All of these risks may be increased if the market were to consolidate through mergers or
business combinations between competitors.
We cannot assure investors that we will be able to compete successfully with our competitors or
that aggressive competition in the market will not result in lower prices for our products or
decreased gross profit margins. Any such development would have a material adverse effect on our
business, financial condition and results of operations.
Major litigation regarding Bookham Technology plcs initial public offering and follow-on offering
and any other litigation in which we become involved, including as a result of acquisitions, may
substantially increase our costs and harm our business
On June 26, 2001,
a putative securities class action captioned
Lanter v. New Focus, Inc. was filed against New
Focus, Inc. and several of its officers and directors, or the
Individual Defendants, in the United States District Court for the Southern District
of New York. Also named as defendants were Credit Suisse First
Boston Corporation, Chase Securities, Inc., U.S. Bancorp
Piper Jaffray, Inc. and CIBC World Markets Corp., or the Underwriter
Defendants, the underwriters in New Focuss initial public offering.
Three subsequent lawsuits were filed containing substantially similar allegations. These
complaints have been consolidated. On April 19, 2002,
plaintiffs filed an Amended Class Action Complaint, described
below, naming as defendants the Individual Defendants and the
Underwriter Defendants.
44
On November 7, 2001, a
Class Action Complaint was filed against Bookham Technology plc
and others in the United States District Court for
the Southern District of New York. On April 19,
2002, plaintiffs filed an Amended Complaint. The Amended Complaint names
as defendants Bookham Technology plc, Goldman, Sachs & Co.
and FleetBoston Robertson Stephens, Inc., two of the
underwriters of Bookham Technology plcs initial public offering in
April 2000, and Andrew G. Rickman, Stephen J. Cockrell and
David Simpson, each of whom was an officer and/or
director at the time of the initial public offering.
The Amended Complaints assert claims under certain provisions
of the securities laws of the United States. They
allege, among other things, that the prospectuses for
Bookham Technology plcs and New Focuss initial public offerings were
materially false and misleading in describing the compensation to
be earned by the underwriters in connection with the offerings, and
in not disclosing certain alleged arrangements among the underwriters and initial purchasers of
ordinary shares, in the case of Bookham Technology plc, or common stock,
in the case of New Focus, from the underwriters. The Amended Complaints
seek unspecified damages (or in the alternative rescission
for those class members who no longer hold ordinary shares, in
the case of Bookham Technology plc or common stock, in the
case of New Focus), costs, attorneys fees, experts fees, interest and other
expenses. In October 2002, the individual defendants were
dismissed, without prejudice, from the action. In
July 2002, all defendants filed Motions to Dismiss the Amended Complaints. The motion
was denied as to Bookham Technology plc and New Focus in February
2003. Special committees of the board of directors authorized the companies
to negotiate a settlement of pending claims substantially consistent with a memorandum
of understanding negotiated among class plaintiffs, all issuer defendants and their
insurers. Plaintiffs and most of the issuer defendants and their insurers
have entered into a stipulation of settlement for the claims against the
issuer defendants, including the Company. Under the stipulation of
settlement, the plaintiffs will dismiss and release all claims against participating
defendants in exchange for a payment guaranty by the insurance companies
collectively responsible for insuring the issuers in the related
cases, and the assignment or surrender to the plaintiffs of certain claims the issuer
defendants may have against the underwriters. On February 15, 2005,
the Court issued an Opinion and Order preliminarily approving the settlement,
providing that the defendants and plaintiffs agree to a modification
narrowing the scope of the bar order set forth in the original
settlement agreement. We believe that both Bookham and New Focus have meritorious
defenses to the claims made in the Amended Complaints and we
therefore believe that such claims will not have a material
effect on our financial position.
On February 13, 2002,
Howard Yue, the former sole shareholder of Globe Y
Technology, Inc., a company acquired by New Focus in
February 2001, filed a lawsuit against New Focus and several
of its officers and directors in Santa Clara County Superior Court. The
lawsuit is captioned Howard Yue v. New Focus, Inc.
et al, and asserts claims stemming from New Focuss acquisition of Globe Y. Technology,
Inc. The plaintiff has amended his complaint several times following
the Courts dismissal of his earlier complaints. Currently, the
plaintiffs fifth amended complaint alleges the following causes of action
against New Focus: violation of §25400 and §25500 of the
California Corporations Code; violation of §§1709-1710 of
the California Civil Code; violation of §25402 of
the California Corporations Code; violation of §17200 and §17500
of the California Business & Professions Code; fraud and
deceit by concealment; fraud and deceit by active concealment; fraud
and deceit based upon non-disclosure of material facts; negligent
misrepresentation; and breach of contract and the duty of good faith
and fair dealing. The complaint seeks unspecified economic, punitive, and exemplary
damages, prejudgment interest, costs, and equitable and general relief.
In November 2004, defendants filed answers to the plaintiffs fifth amended
complaint denying the plaintiffs allegations and asserting various defenses.
In addition, in
October 2003, New Focus filed a cross-complaint against
Mr. Yue seeking damages in connection with Mr. Yues conduct
during the acquisition of Globe Y. Technology, Inc., by New Focus.
In February 2004, New Focus filed a corrected amended cross-complaint
against Mr. Yue. In May 2004, Mr. Yue filed an answer
to New Focuss corrected amended cross-complaint denying New Focuss allegations and
asserting various defenses. In December 2004, plaintiff and defendants filed
a motion for summary judgment and/or summary adjudication with
respect to the corrected amended cross-complaint and certain causes of action in
the fifth amended complaint. On April 26, 2005, the Court denied
both plaintiffs and defendants motions. The trial date had been continued
to an unspecified future date. New Focus intends to conduct a vigorous defense
of this lawsuit.
Litigation is subject to inherent uncertainties, and an adverse result in these or other matters
that may arise from time to time could have a material adverse effect on our business, results of
operations and financial condition. Any litigation to which we are subject may be costly and,
further, could require significant involvement of our senior management and may divert managements
attention from our business and operations.
Our success will depend on our ability to anticipate and respond to evolving technologies and
customer requirements
The market for telecommunications equipment is characterized by substantial capital investment and
diverse and evolving technologies, such as fiber optic, cable, wireless and satellite technologies.
Our ability to anticipate changes in technology, industry standards, customer requirements and
product offerings and to develop and introduce new and enhanced products will be significant
factors in our ability to succeed. We expect that new technologies will continue to emerge as
competition in the telecommunications industry increases and the need for higher and more cost
efficient bandwidth expands. The introduction of new products embodying new technologies or the
emergence of new industry standards could render our existing products uncompetitive from a pricing
standpoint, obsolete or unmarketable.
45
A variety of factors could cause the trading price of our common stock to be volatile or decline
The market price of our common stock has been, and is likely to continue to be, highly volatile due
to causes other than publication of our business results, such as:
Since Bookham Technology plcs initial public offering in April 2000, Bookham Technology plcs ADSs
and ordinary shares and the shares of our customers and competitors experienced substantial price
and volume fluctuations, in many cases without any direct relationship to the affected companys
operating performance. An outgrowth of this market volatility is the significant vulnerability of
our stock price and the stock prices of our customers and competitors to any actual or perceived
fluctuation in the strength of the markets we serve, regardless of the actual consequence of such
fluctuations. As a result, the market prices for these companies are highly volatile. These broad
market and industry factors caused the market price of Bookham Technology plcs ADSs, ordinary
shares, and our common stock to fluctuate, and may in the future cause the market price of our
common stock to fluctuate, regardless of our actual operating performance or the operating
performance of our customers.
The future sale of substantial amounts of our common stock could adversely affect the price of our
common stock
On December 20, 2004, we issued convertible debentures and warrants in a private placement with
institutional investors. The debentures and warrants issued in connection with the private
placement are convertible or exercisable, as applicable, for up to an aggregate of 7,797,526 shares
of our common stock, subject to adjustment in certain circumstances. In March 2004, Bookham
Technology plc issued what amounted to 7,866,100 shares of our common stock in
connection with the New Focus merger. In addition, in connection with Bookham Technology plcs
acquisition of the optical components business from Nortel Network Corporation, Bookham Technology
plc issued to Nortel Networks Limited, Nortel Networks Optical Components Limited, and Nortel
Networks UK Limited, an aggregate of 6.1 million shares of our common stock and a warrant to
purchase 900,000 shares of our common stock. As of April 2, 2005, Nortel Networks Limited held
approximately 2,378,941 shares of our common stock, Nortel Networks Optical Components Limited held
approximately 721,058 shares of our common stock, and Nortel Networks UK Limited held approximately
900,000 shares of our common stock. Other stockholders or groups of stockholders also hold
significant percentages of our shares of common stock. Sales by stockholders who acquired shares pursuant to the New Focus merger, by
Nortel Networks, by institutional investors holding the convertible debentures and warrants or by
other holders of substantial amounts of our shares in the public or private market could adversely
affect the market price of our common stock by increasing the supply of shares available for sale
compared to the demand in the private and public capital markets to buy our common stock. These
sales may also make it more difficult for us to sell equity securities in the future at a time and
price that we deem appropriate to meet our capital needs.
Recently enacted and proposed regulatory changes may cause us to incur increased costs
Recently enacted and proposed changes in the laws and regulations affecting public companies,
including the provisions of the Sarbanes-Oxley Act of 2002, will increase our expenses as we
evaluate the implications of new rules and devote resources to respond to the new requirements. In
particular, we expect to incur additional selling, general and administrative expenses as we
implement Section 404 of the Sarbanes-Oxley Act, which requires management to report on, and our
independent auditors to attest to, our internal controls. We must be compliant with Section 404 of
the Sarbanes-Oxley act by July 2005. The compliance of these new rules could also result in
continued diversion of managements time and attention, which could prove to be disruptive to
normal business operations. Further, the impact of these events could also make it more difficult
for us to attract and retain qualified persons to serve on our board of directors or as executive
officers, which could harm our business.
Some anti-takeover provisions contained in our charter and under Delaware laws could hinder a
takeover attempt
We are subject to the provisions of Section 203 of the General Corporation Law of the State of
Delaware prohibiting, under some circumstances, publicly-held Delaware corporations from engaging
in business combinations with some stockholders for a specified period of time without the approval
of the holders of substantially all of our outstanding voting stock. Such provisions could delay or
impede the removal of incumbent directors and could make more difficult a merger, tender offer or
proxy contest involving us, even if such events could be beneficial, in the short-term, to the
interests of the stockholders. In addition, such provisions could limit the price that some
investors might be willing to pay in the future for
46
shares of our common stock. Our certificate of incorporation and bylaws contain provisions relating
to the limitations of liability and indemnification of our directors and officers, dividing our
board of directors into three classes of directors serving three-year terms and providing that our
stockholders can take action only at a duly called annual or special meeting of stockholders. These
provisions also may have the effect of deterring hostile takeovers or delaying changes in control
or management of us.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest rates
We finance our operations through a mixture of stockholders funds, loan notes, finance leases and
working capital. Throughout the period, our only exposure to interest rate fluctuations was on our
cash deposits and certain of our dollar denominated Nortel notes and 7.0% debentures.
We monitor our interest rate risk on cash balances primarily through cash flow forecasting. Cash
that is surplus to immediate requirements is invested in short-term deposits with banks accessible
with one days notice and invested in overnight money market accounts.
Foreign currency
Due to our multinational operations, we are subject to fluctuations based upon changes in the
exchange rates between the currencies in which we collect revenue and pay expenses. Our expenses
are not necessarily incurred in the currency in which revenue is generated, and, as a result, we
may from time to time have to exchange currency to meet our obligations. These currency
conversions are subject to exchange rate fluctuations, in particular, changes in the value of the
pound sterling compared to the US dollar. In an effort to mitigate exposure to those
fluctuations, we hedge portions of our forecasted expenses
denominated in pound sterling. At April 2, 2005, we held 3 foreign currency forward exchange contracts to purchase pound
sterling with a nominal value of $58.3 million and contract
expirations at various dates from May 2005 to December 2005. It is estimated that a 10% fluctuation
in the dollar at July 3, 2004 would have led to a profit of $7.1 million (dollar weakening), or
loss of $7.5 million (dollar strengthening) on our outstanding
trades. At April 2, 2005 a
similar fluctuation would have impacted the outstanding trades by a profit of $6.5 million (dollar
weakening) and loss of $4.7 million (dollar strengthening). There have been no material changes
to our exposure to market risk from that which was disclosed in our Transition Report on Form
10-K/A, for the transition period from January 1, 2004 to July 3, 2004.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
Our management, with the participation of our chief executive officer and chief financial officer,
evaluated the effectiveness of our disclosure controls and procedures as of April 2, 2005. The term
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act, means controls and other procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time periods specified in
the SECs rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be disclosed by a company
in the reports that it files or submits under the Exchange Act is accumulated and communicated to
the companys management, including its principal executive and principal financial officers, as
appropriate to allow timely decisions regarding required disclosure. Management recognizes that any
controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving their objectives and management necessarily applies its judgment in
evaluating the cost-benefit relationship of possible controls and procedures. Based on the
evaluation of our disclosure controls and procedures as of April 2, 2005, our chief executive
officer and chief financial officer concluded that, as of such date, our disclosure controls and
procedures were not effective at the reasonable assurance level for the reasons described below.
The significant demands on our management and accounting personnel in recent months, including
those resulting from our transfer of our principal accounting functions from our offices in the
United Kingdom to those in the United States, which was recently undertaken as a result of our
reincorporation in the United States, led to increases in the time required to perform control
procedures and to develop and analyze information in connection with the closing of our books for
the quarter ended April 2, 2005. The increase in the time required to close our books caused
delays in finalizing our financial statements, which prevented the filing of our quarterly report
on Form 10-Q for the quarter ended April 2, 2005 by May 12, 2005, the filing deadline. Our
management has concluded that the delays reflected a material weakness in our internal controls
over financial reporting.
47
Our management is currently undertaking a comprehensive effort to prepare for the assessments
required by Section 404 of Sarbanes-Oxley that will take effect for our fiscal year ending July 2,
2005 and have also evaluated the financial statement close process necessary for the preparation of
our required SEC filings in light of our conversion to US GAAP in connection with our
reincorporation as a Delaware corporation on September 10, 2004 and the requirements of Section
404. In view of our reincorporation, we continue to educate our
entire accounting staff in US GAAP and invest in personnel and infrastructure to facilitate the closing of interim financial
results under US GAAP. We have also concluded that certain processes and controls need to be
improved, including more timely and complete documentation of judgments made during the financial
statement close process and improvements to information technology access and security controls.
These initiatives were commenced during the quarter ended October 2, 2004, and will continue into
subsequent fiscal quarters.
During the quarter ended April 2, 2005, we hired an individual with primary responsibility for
coordinating and preparing our SEC periodic reports, as well as transitioned our principal
relationship with our external auditors from their London office to the San Jose office as part of
continuing efforts to facilitate the closing and reporting of interim financial results under US
GAAP.
Changes in internal controls
Except as noted above, there has been no significant change in our internal controls over the
financial reporting during the quarter ended April 2, 2005 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
48
April 2, 2005
July 3, 2004
(Unaudited)
(A)
$
27,475
$
109,682
3,338
6,974
6,985
21,393
13,565
15,477
15,954
49,393
48,339
15,471
17,887
14,442
13,908
153,963
226,320
4,265
4,434
19,977
119,953
32,568
43,849
70,836
72,369
1,100
$
281,609
$
468,025
$
32,987
$
28,765
532
628
5,131
37,579
38,351
56
53
71,154
72,928
379
400
45,860
50,000
18,855
9,420
14,107
145,668
137,435
338
326
925,774
917,639
(1,123
)
(1,354
)
38,953
33,035
(828,001
)
(619,056
)
135,941
330,590
$
281,609
$
468,025
(A)
Derived from audited consolidated financial
statements included in the Companys Transition Report on
Form 10-K/A for the transition period from January 1, 2004
to July 3, 2004.
Table of Contents
(in thousands, except per share amounts)
Three Months Ended
Nine Months Ended
April 2, 2005
April 4, 2004
April 2, 2005
April 4, 2004
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
$
30,684
$
21,048
$
80,015
$
45,159
19,255
19,918
59,239
74,242
49,939
40,966
139,254
119,401
49,392
41,760
144,352
116,853
547
(794
)
(5,098
)
2,548
10,648
12,451
35,071
36,353
13,957
13,426
45,595
28,480
2,855
2,764
8,318
6,505
5,666
5,911
3,777
16,028
23,761
289
532
(5,097
)
(650
)
(8,157
)
98,136
98,136
129,662
29,210
203,030
92,853
(129,115
)
(30,004
)
(208,128
)
(90,305
)
82
1,338
(153
)
(2,208
)
1,741
(2,150
)
7,308
1,666
(3,211
)
12
(9,470
)
(460
)
(1,470
)
(800
)
(2,315
)
(129,575
)
(31,474
)
(208,928
)
(92,620
)
(17
)
3,439
$
(129,575
)
$
(31,474
)
$
(208,945
)
$
(89,181
)
$
(3.86
)
$
(1.31
)
$
(6.27
)
$
(4.03
)
33,556
23,976
33,322
22,144
$
(42
)
$
$
(24
)
$
(38
)
(4
)
369
560
$
289
$
$
532
$
Table of Contents
Nine
Months Ended
April 2,
April 4,
2005
2004
(Unaudited)
(Unaudited)
$
(208,945
)
$
(89,181
)
Depreciation
of property and equipment
15,095
7,716
Impairment of property and equipment
449
3,461
Amortization of other intangible assets
8,318
6,505
Stock-based compensation
532
Write-back of acquisition expenses not incurred
1,807
Gain on sale of property and equipment
(650
)
(8,157
)
Impairment of goodwill
98,136
Tax credit recognized for research and development activities
(3,719
)
Foreign
currency exchange rate movements on notes
(1,316
)
(8,383
)
Amortization
of interest expense for warrants and beneficial conversion feature
231
In-process
research and development charges
5,911
Changes in operating assets and liabilities:
(7,117
)
(2,684
)
117
9,016
2,297
3,038
3,393
(7,710
)
(5,058
)
4,761
(92,711
)
(79,426
)
1,200
(1,893
)
(12,470
)
(9,274
)
1,298
10,845
91,492
5,736
(6,129
)
93,063
3
3,262
55
24,175
(5,131
)
(468
)
(4,161
)
(49
)
14,941
2,745
1,692
8,198
(82,207
)
24,580
109,682
117,546
$
27,475
$
142,126
Table of Contents
Table of Contents
Statement of
Operations
Balance Sheet
1.835
1.855
1.712
1.855
1.820
Three months ended
Nine months ended
April 2, 2005
April 4, 2004
April 2, 2005
April 4, 2004
(in thousands, except per share data)
(in thousands, except per share data)
$
(129,575
)
$
(31,474
)
$
(208,945
)
$
(89,181
)
289
532
(1,048
)
(6,034
)
$
(130,334
)
$
(31,474
)
$
(214,447
)
$
(89,181
)
$
(3.86
)
$
(1.31
)
$
(6.27
)
$
(4.03
)
$
(3.88
)
$
(1.31
)
$
(6.44
)
$
(4.03
)
Table of Contents
Table of Contents
Table of Contents
Nine months ended April 2, 2005
Accrued
Amounts
Amounts paid
Other*
Accrued
restructuring costs
charged to
restructuring
at July 3, 2004
restructuring
costs at April 2,
costs
2005
$
19,422
$
3,161
$
(5,875
)
$
(12
)
$
16,696
1,284
13,406
(8,121
)
(346
)
6,223
20,706
$
16,567
$
(13,996
)
$
(358
)
22,919
(12,220
)
(8,117
)
$
8,486
$
14,802
Three months ended April 2, 2005
Accrued
Amounts
Amounts paid
Other*
Accrued
restructuring costs
charged to
restructuring
at Jan 1, 2005
restructuring
costs at April 2,
costs
2005
$
17,607
$
785
$
(1,816
)
$
120
$
16,696
7,891
2,992
(4,721
)
61
6,223
25,498
$
3,777
$
(6,537
)
$
181
22,919
(9,059
)
(8,117
)
$
16,439
$
14,802
Three months ended
Nine months ended
April 2,
April 4,
April 2,
April 4,
2005
2004
2005
2004
in thousands, except per share amounts
$
(129,575
)
$
(31,474
)
$
(208,945
)
$
(89,181
)
$
(3.86
)
$
(1.31
)
$
(6.27
)
$
(4.03
)
33,556
23,976
33,322
22,144
Table of Contents
Three months ended
Nine months ended
April 2, 2005
April 4, 2004
April 2, 2005
April 4, 2004
(in thousands)
(in thousands)
$
(129,575
)
$
(31,474
)
$
(208,945
)
$
(89,181
)
(1,426
)
673
282
(2,675
)
1,090
5,256
1,834
13
(11
)
$
(133,663
)
$
(30,384
)
$
(203,027
)
$
(87,065
)
April 2, 2005
July 3, 2004
(in thousands)
$
10,273
$
30,880
23,905
9,004
15,215
8,455
$
49,393
$
48,339
Table of Contents
Other acquired
Amortization on
Net book value of
intangible
other acquired
other acquired
Goodwill
assets
intangible assets
intangible assets
$
119,953
$
65,329
$
(21,479
)
$
43,850
(8,318
)
(8,318
)
(4,456
)
292
(4,158
)
(98,136
)
(1,840
)
2,097
(897
)
1,194
$
19,977
$
62,970
$
(30,402
)
$
32,568
Table of Contents
April 2, 2005
July 3, 2004
(in thousands)
$
12,657
$
12,848
7,025
11,335
3,093
3,851
14,802
8,486
1,113
2
718
$
37,579
$
38,351
Three months
Nine months
Three months
Nine months
ended April 2, 2005
ended April 2, 2005
ended April 4, 2004
ended
April 4, 2004
(in thousands)
(in thousands)
$
3,554
$
4,606
$
5,042
$
2,507
(666
)
(3,595
)
(100
)
(1,695
)
534
3,563
1,315
6,508
(88
)
(1,240
)
(441
)
(1,504
)
$
3,334
$
3,334
$
5,816
$
5,816
Table of Contents
Table of Contents
Three months ended
Nine months ended
April 2,
April 4,
April 2,
April 4,
2005
2004
2005
2004
(in thousands)
(in thousands)
$
45,915
$
38,225
$
122,937
$
116,660
4,024
2,741
16,317
2,741
$
49,939
$
40,966
$
139,254
$
119,401
$
(129,501
)
$
(25,483
)
$
(207,222
)
$
(83,190
)
(74
)
(5,991
)
(1,723
)
(5,991
)
$
(129,575
)
$
(31,474
)
$
(208,945
)
$
(89,181
)
Original purchase
Purchase price
Revised fair value
price allocation
adjustment
allocation as of April 2, 2005
(in thousands)
$
197,710
$
$
197,710
6,286
6,286
6,969
292
7,261
$
210,965
$
292
$
211,257
$
101,665
$
6,260
$
107,925
625
(19
)
606
606
(471
)
135
2,317
2,317
10,563
(3,966
)
6,597
5,890
5,890
89,299
(1,512
)
87,787
$
210,965
$
292
$
211,257
Original purchase
Purchase price
Revised fair value
price allocation
adjustment
allocation
as of April 2, 2005
$
105.4
$
5.9
$
111.3
2.6
2.6
3.9
3.9
4.0
(0.4
)
3.6
14.4
1.3
15.7
6.0
0.3
6.3
(10.8
)
(10.8
)
(18.9
)
(0.8
)
(19.7
)
(4.9
)
(4.9
)
$
101.7
$
6.3
$
108.0
Table of Contents
Table of Contents
The term of the Supply Agreement is extended by one year to
November 2006, provided that Nortel Networks obligation to purchase a
percentage of certain optical components from the Company will expire by its
terms in November 2005.
Nortel Networks has provided the Company with a
purchase commitment for last time buys, for certain
of the Companys discontinued products, which Nortel
Networks will be obligated to purchase as these
products are manufactured and delivered. If the
Company fails to meet milestones set out in an agreed
upon delivery schedule for last-time buy products by
more than 10% in aggregate revenue for three
consecutive weeks, and does not rectify the failure
within 30 days, those products will be deemed
critical products, subject to the relevant provisions
of the Supply Agreement described below.
At Nortel Networks request, the Company has agreed
to increase its manufacturing of certain critical
product wafer infeeds against a Nortel Networks
agreed upon manufacturing schedule. Upon manufacture
and placement into inventory, Nortel Networks has
agreed to pay a holding and inventory fee pending
Nortels outright purchase of such wafers. In
addition, Nortel Networks may at its election supply
any capital equipment required in connection with the
requisite inventory buildup or extend the time period
for meeting its demand if its demand requires the
Company to increase its capital equipment to meet the
demand in the required time period.
Table of Contents
If at any time the Company (a) has a cash balance of
less than $25 million; (b) is unable to manufacture
critical products in any material respect, and that
inability continues uncured for a period of six
weeks, or (c) is subject to an insolvency event, such
as a petition or assignment in bankruptcy,
appointment of a trustee, custodian or receiver, or
entrance into an arrangement for the general benefit
of creditors, then the Company shall grant a license
for the assembly, post-processing and test
intellectual property (but excluding wafer
technology) of certain critical products to Nortel
Networks and to any designated alternative supplier.
If the Companys cash balance is less than $10
million or there is an insolvency event, Nortel
Networks Limited shall have the right to buy all
Nortel inventory held by the Company, and the Company
shall grant a license to Nortel Networks Limited or
any alternative supplier for the manufacture of all
products covered by the First Addendum.
The Companys licensing and related obligations
terminate on February 8, 2007, unless the license has
been exercised, in which case they would terminate 24
months from the date the license was exercised,
provided that at that time, among other things, the
Company has a cash balance of $25 million and is able
to meet Nortel Networks demand for the subject
products.
$1.0 million if the Company fails to deposit intellectual property
relating to all covered products in escrow and its cash balance has
fallen below $10 million.
$1.0 million in each case if (a) the Company fails to meet 90% of
scheduled critical component wafer manufacturing through August 2005,
subject to cure provisions or (b) the Company fails to use
commercially reasonable efforts to provide for an alternative supplier
of two identified product lines when obligated to do so under the
agreement.
$2.0 million in each case if (a) the Company fails to deliver 75% of
scheduled last time buys through August 2005, subject to cure
provisions, or (b) the Company fails to meet 75% of scheduled critical
product deliveries through November 2005, subject to cure provisions.
Table of Contents
the Companys intentional cessation of shipment of products to Nortel Networks against an agreed delivery schedule;
the Companys failure to deliver products pursuant to the Supply Agreement to the extent that Nortel Networks would be
entitled to cancel all or part of an order, provided that Nortel Networks provides written notice of such default;
the Companys failure to meet a milestone for a last time buy product, provided that Nortel Networks provides written
notice of such default;
the Companys breach of or default under any one of its material obligations under the Supply Agreement which continues
for more than 10 calendar days;
any other default by the Company which would entitle Nortel Networks to terminate the Supply Agreement; or
any event of default under the Amended and Restated Notes, as further amended pursuant to the Notes Agreement.
Table of Contents
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Three months ended
Nine months ended
(unaudited)
(unaudited)
April 2,
April 4,
Percentage
April 2,
April 4,
Percentage
$ thousands
2005
2004
Change
2005
2004
Change
$
49,939
$
40,966
22
%
$
139,254
$
119,401
17
%
Table of Contents
Three months ended
Nine months ended
(unaudited)
(unaudited)
April 2,
April 4,
Percentage
April 2,
April 4,
Percentage
$ thousands
2005
2004
Change
2005
2004
Change
$
49,392
$
41,760
18
%
$
144,352
$
116,853
24
%
Table of Contents
Three months ended
Nine months ended
(unaudited)
(unaudited)
April 2,
April 4,
Percentage
April 2,
April 4,
Percentage
$ thousands
2005
2004
Change
2005
2004
Change
$
547
$
(794
)
169
%
$
(5,098
)
$
2,548
(300
)%
1
%
(2
)%
3
%
$
(4
)%
$
2
%
(6
)%
Three months ended
Nine months ended
(unaudited)
(unaudited)
April 2,
April 4,
Percentage
April 2,
April 4,
Percentage
$ thousands
2005
2004
Change
2005
2004
Change
$
10,648
$
12,451
(14
)%
$
35,071
$
36,353
(4
)%
21
%
30
%
(9
)%
25
%
30
%
(5
)%
Table of Contents
Three months ended
Nine months ended
(unaudited)
(unaudited)
April 2,
April 4,
Percentage
April 2,
April 4,
Percentage
$ thousands
2005
2004
Change
2005
2004
Change
$
13,957
$
13,426
4
%
$
45,595
$
28,480
60
%
28
%
33
%
(5
)%
33
%
24
%
9
%
Three months ended
Nine months ended
(unaudited)
(unaudited)
April 2,
April 4,
Percentage
April 2,
April 4,
Percentage
$ thousands
2005
2004
Change
2005
2004
Change
$
2,855
$
2,764
3
%
$
8,318
$
6,505
28
%
Three months ended
Nine months ended
(unaudited)
(unaudited)
$ thousands
April 2, 2005
April 4, 2004
April 2, 2005
April 4, 2004
$
785
$
$
3,029
$
9,449
2,992
12,999
14,312
$
3,777
$
$
16,028
$
23,761
Table of Contents
Three months ended
Nine months ended
(unaudited)
(unaudited)
April 2,
April 4,
Percentage
April 2,
April 4,
Percentage
$ thousands
2005
2004
Change
2005
2004
Change
$
(460
)
$
(1,470
)
(69
)%
$
(800
)
$
(2,315
)
65
%
(1
)%
(4
)%
3
%
(1
)%
(2
)%
(1
)%
April 2,
July 3,
2005
2004
$
27,475
$
109,682
6,974
6,985
$
34,449
$
116,667
$
3,338
$
$
4,265
$
4,434
$
82,809
$
153,392
Table of Contents
Table of Contents
our ability to implement our 2004 Restructuring Plan;
our ability to increase our revenues;
our ability to raise additional funds;
market conditions within the optical components industry; and
general economic conditions and performance of the NASDAQ National Market.
Table of Contents
Table of Contents
Table of Contents
Table of Contents
retaining existing customers and attracting additional customers;
retaining and hiring additional key personnel;
retaining strategic partners and attracting new strategic
partners; and
creating uniform standards, controls, procedures, policies and
information systems.
Table of Contents
Table of Contents
Table of Contents
Table of Contents
currency fluctuations, which could result in increased operating
expenses and reduced revenues;
greater difficulty in accounts receivable collection and longer
collection periods;
difficulty in enforcing or adequately protecting our intellectual
property;
foreign taxes;
political, legal and economic instability in foreign markets; and
foreign regulations.
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
respond to new technologies or technical standards;
react to changing customer requirements and expectations;
devote needed resources to the development, production, promotion and sale of products; and
deliver competitive products at lower prices.
Table of Contents
Table of Contents
announcements by our competitors and customers of their historical
results or technological innovations or new products;
developments with respect to patents or proprietary rights;
governmental regulatory action; and
general market conditions.
Table of Contents
Table of Contents
Table of Contents
Part II Other Information
Item 1. Legal Proceedings
On June 26, 2001, a putative securities class action captioned Lanter v. New Focus, Inc. was
filed against New Focus, Inc. and several of its officers and directors, or the Individual
Defendants, in the United States District Court for the Southern District of New York. Also named
as defendants were Credit Suisse First Boston Corporation, Chase Securities, Inc., U.S. Bancorp
Piper Jaffray, Inc. and CIBC World Markets Corp., or the Underwriter Defendants, the underwriters
in New Focuss initial public offering. Three subsequent lawsuits were filed containing
substantially similar allegations. These complaints have been consolidated. On April 19, 2002,
plaintiffs filed an Amended Class Action Complaint, described below, naming as defendants the
Individual Defendants and the Underwriter Defendants.
On November 7, 2001, a Class Action Complaint was filed against Bookham Technology plc and others
in the United States District Court for the Southern District of New York. On April 19, 2002,
plaintiffs filed an Amended Complaint. The Amended Complaint names as defendants Bookham Technology
plc, Goldman, Sachs & Co. and FleetBoston Robertson Stephens, Inc., two of the underwriters of
Bookham Technology plcs initial public offering in April 2000, and Andrew G. Rickman, Stephen J.
Cockrell and David Simpson, each of whom was an officer and/or director at the time of the initial
public offering.
The Amended Complaints assert claims under certain provisions of the securities laws of the United
States. They allege, among other things, that the prospectuses for Bookham Technology plcs and New
Focuss initial public offerings were materially false and misleading in describing the
compensation to be earned by the underwriters in connection with the offerings, and in not
disclosing certain alleged arrangements among the underwriters and initial purchasers of ordinary
shares, in the case of Bookham Technology plc, or common stock, in the case of New Focus, from the
underwriters. The Amended Complaints seek unspecified damages (or in the alternative rescission for
those class members who no longer hold ordinary shares, in the case of Bookham Technology plc or
common stock, in the case of New Focus), costs, attorneys fees, experts fees, interest and other
expenses. In October 2002, the individual defendants were dismissed, without prejudice, from the
action. In July 2002, all defendants filed Motions to Dismiss the Amended Complaints. The motion
was denied as to Bookham Technology plc and New Focus in February 2003. Special committees of the
board of directors authorized the companies to negotiate a settlement of pending claims
substantially consistent with a memorandum of understanding negotiated among class plaintiffs, all
issuer defendants and their insurers. Plaintiffs and most of the issuer defendants and their
insurers have entered into a stipulation of settlement for the claims against the issuer
defendants, including the Company. Under the stipulation of settlement, the plaintiffs will
dismiss and release all claims against participating defendants in exchange for a payment guaranty
by the insurance companies collectively responsible for insuring the issuers in the related cases,
and the assignment or surrender to the plaintiffs of certain claims the issuer defendants may have
against the underwriters. On February 15, 2005, the Court issued an Opinion and Order
preliminarily approving the settlement, providing that the defendants and plaintiffs agree to a
modification narrowing the scope of the bar order set forth in the original settlement agreement. We believe that both Bookham and New Focus have
meritorious defenses to the claims made in the Amended Complaints and we therefore believe that
such claims will not have a material effect on our financial position.
On February 13, 2002, Howard Yue, the former sole shareholder of Globe Y Technology, Inc., a
company acquired by New Focus in February 2001, filed a lawsuit against New Focus and several of
its officers and directors in Santa Clara County Superior Court. The lawsuit is captioned Howard
Yue v. New Focus, Inc. et al, and asserts claims stemming from New Focuss acquisition of Globe Y.
Technology, Inc. The plaintiff has amended his complaint several times following the Courts
dismissal of his earlier complaints. Currently, the plaintiffs fifth amended complaint alleges the
following causes of action against New Focus: violation of §25400 and §25500 of the California
Corporations Code; violation of §§1709-1710 of the California Civil Code; violation of §25402 of
the California Corporations Code; violation of §17200 and §17500 of the California Business &
Professions Code; fraud and deceit by concealment; fraud and deceit by active concealment; fraud
and deceit based upon non-disclosure of material facts; negligent misrepresentation; and breach of
contract and the duty of good faith and fair dealing. The complaint seeks unspecified economic,
punitive, and exemplary damages, prejudgment interest, costs, and equitable and general relief. In
November 2004, defendants filed answers to the plaintiffs fifth amended complaint denying the
plaintiffs allegations and asserting various defenses.
In addition, in October 2003, New Focus filed a cross-complaint against Mr. Yue seeking damages in
connection with Mr. Yues conduct during the acquisition of Globe Y. Technology, Inc., by New
Focus. In February 2004, New Focus filed a corrected amended cross-complaint against Mr. Yue. In
May 2004, Mr. Yue filed an answer to New Focuss corrected amended cross-complaint denying New
Focuss allegations and asserting various defenses. In December 2004, plaintiff and defendants
filed a motion for summary judgment and/or summary adjudication with respect to the corrected
amended cross-complaint and certain causes of action in the fifth amended complaint. On April 26,
2005, the Court denied both plaintiffs and defendants motions. The trial date had been continued
to an unspecified future date. New Focus intends to conduct a vigorous defense of this lawsuit.
Item 6. Exhibits
See the Exhibit Index, which is incorporated herein by reference, on the page immediately preceding
the exhibits for a list of exhibits filed as part of this quarterly report.
49
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
50
BOOKHAM, INC.
By:
/s/ Stephen Abely
Stephen Abely
May 17, 2005
Chief Financial Officer
(Principal Financial and Accounting Officer)
Table of Contents
EXHIBIT INDEX
Exhibit
Number
Description of Exhibit
Addendum to Optical Components Supply Agreement, dated as of February 7, 2005, by and between Bookham Technology plc and Nortel Networks Limited.
Notes Amendment and Waiver Agreement, dated as of February 7, 2005 by and among Bookham Technology plc, Bookham, Inc., Nortel Networks UK Limited and Nortel Networks Corporation.
Letter Agreement dated, as of March 24, 2005, by and between Bookham, Inc. and Nortel Networks Limited.
UK Subplan to the 2004 Stock Incentive Plan.
Restricted Stock Agreement dated
February 9, 2005 between Bookham, Inc. and Giorgio Anania.
Restricted Stock Agreement dated February 9, 2005 between Bookham, Inc. and Stephen Abely.
Bonus Agreement dated February 9, 2005 between Bookham, Inc. and Giorgio Anania.
Bonus Agreement dated February 9, 2005 between Bookham, Inc. and Stephen Abely.
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
Section 1350 Certification of Chief Executive Officer.
Section 1350 Certification of Chief Financial Officer.
* | Confidential treatment has been requested as to certain portions of these Exhibits. Such portions have been omitted and filed separately with the Securities and Exchange Commission. |
51
Exhibit 10.1
Confidential Materials omitted and filed separately with the
Nortel Agreement No:
Addendum
to
Optical Components Supply Agreement
This Addendum, including attached exhibits, (the Agreement) dated the 7th day of February, 2005, (the Effective Date) is made between Nortel Networks Limited, a Canadian corporation with offices located at 8200 Dixie Road, Suite 100, Brampton, Ontario L6T 5P6 ( NNL ) and Bookham Technology plc a company incorporated under the laws of England and Wales with office located at Towcester, Northamptonshire, NN12 8EQ, United Kingdom ( Supplier and, together with NNL, the Parties );
WHEREAS:
1. | NNL and Supplier entered into an Optical Components Supply Agreement effective November 8, 2002 (the Supply Agreement ); | |||
2. | NNL wishes to ensure the security of supply for certain Products (as defined below); | |||
3. | Supplier has agreed to take certain steps to secure the supply of Products to Nortel; | |||
4. | The Parties have agreed to amend and supplement the Supply Agreement; |
NOW, THEREFORE
, in consideration of the premises and promises set forth herein, and the execution,
simultaneously with this Agreement, of the Notes Amendment and Waiver Agreement and other good and
valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the Parties
agree as follows:
Definitions and Interpretation
1.1
Definitions.
Except as otherwise defined herein, the defined terms used in this Agreement
will be as defined in the Supply Agreement.
1.1.1
Alternate Suppliers has the meaning set out in Exhibit D Section 2.5.
1.1.2
CPW Build Price has the meaning set out in Section 3.2.
1.1.3
CPW Price has the meaning set out in Section 3.3.
1.1.4
Critical IP means the [**].
1.1.5
Critical Products mean the Products identified as Critical in Exhibit B attached
here to.
1.1.6
Critical Product Wafer means the wafers identified in Exhibit C attached hereto.
1.1.7
First Trigger: has the meaning set out in Exhibit D Section 2
1.1.8
LTB Schedule has the meaning in Section 2.1.
1.1.9
LTB Products has the meaning in Section 2.1.
1.1.10
Product means Critical Products, LTB Products and Sole Sourced Products.
1.1.11
Second Trigger has the meaning set out in Exhibit D Section 3
1.1.12
Series A-2 Note means the Series A-2 Note as defined in the Notes Amendment and Waiver
Agreement.
1.1.13
Series B-1 Note means the Series B-1 Note as defined in the Notes Amendment and Waiver
Agreement.
1.1.14
[**] Products means the products and Products listed as such in Exhibit B hereto,
including the Critical Products. [**] such products, [**] such relevant product will be
[**]. For the purposes of clarity [**] pursuant to the Grant of Rights in Exhibit D [**].
1.2 Interpretation
1.2.1
This Agreement amends and supplements to the Supply Agreement. To the extent there
is a conflict between the terms of this Agreement and the Supply Agreement, this Agreement
shall govern. Unless modified by the terms of this Agreement, the Supply Agreement shall
remain unchanged.
1.2.2
Nothing contained in this Agreement negates the Supply Agreement and its ongoing
force and effect with respect to the content thereto.
2.0 | Last Time Buy |
2.1 | Supplier has advised that it intends to discontinue manufacturing the Products listed on Exhibit A attached hereto (LTB Products). The Parties have agreed to a schedule for the production and delivery of the LTB Products as set out in Exhibit A (the LTB Schedule). Nortel agrees to purchase the product identified in the final detailed LTB Schedule as Supplier manufactures and delivers such product and not solely as in accordance with the delivery schedule. Nortel shall have no obligation to purchase quantities of product in excess of the total aggregate quantities for each product as set out in the final detailed LTB Schedule to be provided within 2 weeks of the Effective Date. Supplier agrees that it will supply LTB Products to meet Nortels requirements as set out in the LTB Schedule, notwithstanding the provisions of Section 15.2 of the Supply Agreement with respect to production capacity. The Prices of the LTB Products shall be as set out in Exhibit A. Nortel may designate Nortel Affiliates to purchase the LTB Product and Supplier agrees to sell the LTB Product to such Nortel Affiliates. |
2.2 | In event the Supplier fails to meet a milestone for an LTB Product by more than 10%, for 3 consecutive weeks and does not fully rectify such failure within 30 days of its occurrence, the LTB Product shall be deemed to be a Critical Product and immediately become subject to the provisions Section 5 the Grant of License and Exhibit D. |
2.3 | The parties acknowledge that the LTB Schedule contains, as of the Effective Date, the following variables: (i) Nortel has [**]; (ii) Nortel has [**] as of the Effective Date. |
2.4 | Nortel will provide a final detailed LTB Plan setting out final LTB Product quantities and LTB Product mix (as described in 2.3) within 14 days of the Effective Date. The parties agree that the quantities in the LTB Plan will not increase, but may decrease, from the quantities as of the Effective Date. |
2.5 | The parties further agree that Supplier shipments of product during the entire month of February will be counted towards its LTB Plan obligations pursuant to an existing last time buy purchase order . In addition, the parties agree that Supplier shipments of SiV product during the months of January and February will be counted towards its LTB Plan obligations pursuant to an existing last time buy purchase order. |
2.6 | Intentionally Deleted. |
3. | Wafer Build and Inventory |
3.1 | Supplier agrees to increase capacity for, and produce the wafers for, the Critical Products (Critical Product Wafers), as described in Exhibit C, to meet Nortels requirements. The Parties have agreed on a plan, as set out in Exhibit C, to meet Nortels requirements for Critical Product Wafers (the CPW Plan). |
3.2 | To the extent Nortel requires Supplier to build an inventory of Critical Product Wafers, Nortel will issue a Purchase Order to Supplier setting out the quantities of the Wafers and the price. The parties agree that the price to build and hold in inventory the Critical Product Wafers will be [**] as described in Exhibit E (CPW Build Price). Nortel will have the right to reasonably request and Supplier will provide documentation [**]. Payment of the CPW Build Price will be payable monthly [**] as the wafers are placed into inventory. Title to the Critical Product Wafers will transfer to Nortel or the Alternate Supplier upon payment of the CPW Price. Within [**] of the Effective Date Nortel will provide Bookham a plan for use or disposition of the Critical Product Wafers held pursuant to the CPW Plan. |
3.3 | Supplier agrees that it will hold the Critical Product Wafers in inventory for Nortels benefit, in a segregated area, [**]. The Purchase Order for the Critical Product Wafers, shall specify whether the Supplier is required to coat, dice and/or assemble to chip on carrier level, prior to delivery. The total price to Nortel of the Critical Product Wafers is described in Exhibit E (the CPW Price). The parties agree that any prior payment by Nortel of the CPW Build Price will be credited against any payable CPW Price amounts. [**]. The parties also agree that in the event Supplier uses Critical Product Wafers for the purposes of manufacturing Critical Product for Nortel, Supplier will provide a credit to Nortel on the Critical Product Price for any CPW Build Price or CPW Price previously paid by Nortel. |
3.4 | In the event Nortels demand for the Critical Product Wafers would require Supplier to increase its capital equipment to meet such demand in the agreed time period, Nortel may, at its option, offer to supply additional capital equipment, on terms to be agreed, or extend the time period for meeting its demand. |
3.5 | Supplier will reasonably assure the good quality of the Critical Product Wafers using its standard manufacturing processes. For example Supplier will utilize wafer level process control monitors, SPC and monitor on going product reliability and performance through wafers processed for current production requirements. If process indicators suggest potential quality issues with a Critical Product Wafer, such wafer shall not be put in inventory on Nortels behalf, and Nortel shall not be required to pay for same. During Critical Product Wafer manufacturing Bookham will perform the additional quality assurance tests and protocols as described in Exhibit F. |
3.6 | The Critical Product Wafer will be subject to indemnifications rights and obligations as set out in the Supply Agreement. |
3.7 | Supplier warrants that : |
3.7.1
Critical Product Wafers shall, at the actual delivery date, be new and free and
clear of all security interests or other liens or any other encumbrances;
3.7.2
Critical Product Wafer shall be free from any defect in materials or workmanship, or
any other condition, which causes the dye of Critical Product Wafers to fail to conform to
and operate in accordance with the final product Specifications, provided such wafers are
stored, handled, has passed testing and used in accordance with professional standards and
any written instructions provided by Supplier to Nortel;
3.7.3
Critical Product Wafers furnished by Supplier, and used in accordance with
professional standards and any written instructions provided by Supplier to Nortel, are
safe for normal use, are non-toxic, present no abnormal hazards to persons or their
environment, and may be disposed of as normal refuse without special precautions.
3.8 | The parties will meet quarterly to review the CPW Plan. |
3.8.1
At the time of such quarterly meeting, Nortel may cancel the Supplier build against
the CPW Plan by up to [**]% provided [**] prior written notice is given to Supplier and
may cancel the remaining [**]% of the Critical Product Wafers upon [**] notice, without
any further liability or obligations .
3.8.2
At the time of such quarterly meeting, Nortel may request a volume increase and/or a
change in the product or wavelength mix of Critical Product Wafers. Supplier and Nortel
shall mutually agree on any such product or wavelength mix changes or volume increases. In
the event Supplier agrees, any such changes will only be implemented [**] after such
agreement.
4.0 | Inventory and Capacity |
4.1 | In the event of the Second Trigger: |
a) Nortel will have the right to purchase and Supplier agrees to sell to Nortel, any finished goods inventory or work in progress associated with products and Products supplied under the Supply Agreement, for which Supplier does not have a binding contractual obligation to sell to other customers. The price attributable to the work in progress inventory will be a percentage of the Product Price based on the level of completion of the inventory;
b) Provided Nortel issues binding purchase orders to consume the output of such allocation as it becomes available and subject to Suppliers binding contractual obligations to its other customers, Supplier shall allocate production, manufacturing, assembly and/or testing capacity to Nortel, equivalent to Nortels demand for
products and Products supplied under the Supply Agreement, on a product family basis, from the previous financial quarter .
5. | Grant of License |
5.1 | In addition to, and not in substitution for, the License granted in Section 29 of the Supply Agreement the Parties have agreed to an additional grant of License as set out in Exhibit D. |
6.0 | Inspection Rights |
6.1 | Nortel may inspect Suppliers facilities, Products and/or Critical Product Wafers during the facilities regular business hours to assess Suppliers ability to meet milestones and comply with the terms of this Agreement. Nortel will give reasonable advance notice of any inspection. However, Nortel must give at least 2 days advance notice to inspect a manufacturing facility and/or operations facilities. At Nortels expense, Supplier will provide whatever is reasonably required by Nortel to perform its inspection. Nortel may perform a quality assurance inspection of Suppliers manufacturing and/or operations facilities, if Nortel does not unreasonably interfere with Suppliers normal day-to-day operations. If in Nortels reasonable opinion Supplier is unlikely to meet a milestone set out in the LTB Schedule or CPW Plan, at Nortels request, the Parties will hold regularly scheduled update meetings to report on the status of the milestones but not less than monthly. |
7.0 | Remedies |
7.1 | In addition to any other rights and remedies Nortel may have in law or equity, in the event of an Prepayment Event described in Exhibit G a prepayment under the Series B-1 Note and Series A-2 Note will become exercisable by Nortel. |
8.0 | Termination |
8.1 | With the exception of Exhibit D which shall terminate in accordance with Exhibit D, Section 6, this Agreement shall terminate upon the expiry of the Renewal Term of the Supply Agreement referred to in Section 9.8 below. |
9.0 | General |
9.1 | This Agreement may be executed in counterparts, each of which shall be deemed an original, but both of which together shall constitute one and the same instrument. A faxed signature shall have the same legally binding effect as an original signature. The section headings contained in this Agreement are for reference purposes only and shall not affect the meaning of this Agreement. |
9.2 | If any provision of this Agreement is determined to be legally unenforceable or invalid, the remaining provisions will continue in effect. The parties will substitute a provision that most closely approximates the economic effect and intent of the invalid provision. |
9.3 | Neither party will assign or transfer this Agreement, or its rights or obligations, without the prior written consent of the other party. Consent will not be unreasonably withheld or delayed. However, Nortel may assign or subcontract its rights or obligations under this Agreement to a Subsidiary without Suppliers consent or to a person or entity to which Nortel has seceded all or substantially all of its business and assets to which this Agreement relates. |
9.4 | Unless waived and agreed in writing by the parties, no action or inaction by a party under this Agreement will constitute a waiver of a partys rights or obligations under this Agreement. |
9.5 | Under this Agreement Supplier is an independent contractor. This Agreement does not create a joint venture, partnership, principal-agent or employment relationship between Supplier and Nortel. |
9.6 | All exhibits attached to this Agreement are also incorporated herein. |
9.7 | All written communication concerning this Agreement or amendments or restatements of this Agreement will be in the English language. |
9.8 | The Parties agree to renew the Supply Agreement for a further one year term (Renewal Term). For the purposes of clarity the provisions of Sections 2.1 (Share Allocations and Minimum Commitment);2.2 (Target Allocations); and 3.4 (Preferred Supplier Status) shall not apply during the Renewal Term. |
9.9 | During the Renewal Term, Bookhams supplier status will be determined in accordance with ongoing ratings under Nortels Supplier Business Engagement Model. As of the Effective Date of this Agreement, Supplier met the requirements for Strategic Supplier Status. |
IN WITNESS WHEREOF, the Parties have caused this Agreement to be signed by their duly
authorized representatives to be effective as of the Effective Date defined herein.
9.10
The validity, construction, interpretation and performance of this Agreement and the rights
and obligations of the Parties and any purchase made hereunder shall be governed by the laws
of the State of New York, without regard to its rules with respect to the conflict of laws.
The application of the U.N. Convention on Contracts for the International Sale of Goods is
specifically excluded from this Agreement.
9.11
Section headings are inserted herein for convenience only and shall not affect the meaning or
interpretation of this Agreement or any provision hereof.
NORTEL NETWORKS LIMITED
|
BOOKHAM TECHNOLOGY PLC | |
|
||
By:
/s/ John Haydon
|
By: /s/ Steve Abely | |
Printed Name:
John Haydon
|
Printed Name: Steve Abely | |
Title:
Global Supply Management
|
Title: Director | |
Date:
February 6, 2005
|
Date: February 7, 2005 |
Exhibit A
Last Time Buy Plan Summary
Exhibit A
LTB Schedules
-Unit Volumes
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Unit | Total | Assumptions/ | |||||||||||||||||||||||||||||||||||||
Product
|
Price | Volume | March | April | May | June | July | August | Sept | Oct | Nov | Dec | Jan | Feb | Mar | Apr | May | June | July | Conditions | ||||||||||||||||||||
Confidential Materials deleted and filed separately with the Securities and Exchange Commission.
Exhibit A-1
LTB Product Wavelengths
Exhibit A-1
LTB HP laser product wavelengths
Module
equivalent
CW Stock
Total
HP Channel
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Exhibit A-1
LTB HP laser product wavelengths
Module
equivalent
CW Stock
Total
HP Channel
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Exhibit A-1
LTB HP laser product wavelengths
Module
equivalent
CW Stock
Total
HP Channel
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Exhibit B
Critical Products and Sole Source Product
Critical Products
Sole Source Products
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Exhibit C
Critical Product Wafers and CPW Plan
Critical Product Wafer Plan
Modules | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Wafer Output | Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | Qtr 5 | Qtr 6 | Qtr 7 | Equivalent | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Plan | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | Total | Planned | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Start Up
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Leadtime 1st Wafers
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Total | [**] | [**] | [**] | [**] | [**] | [**] | [**] | [**] | [**] | [**] | [**] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Conditions of Wafer Output Plan | ||
1. | [**] | |
2. | [**] | |
3. | [**] on the following basis | |
[**] | ||
[**] |
Exhibit D
GRANT OF LICENSE
Section 1
1.1 Subject to Sections 2 and 3 below, Supplier, to the extent of its legal right so to do, hereby grants to Nortel a personal, non-transferable, non-assignable, indivisible, non-exclusive, irrevocable, worldwide license (including a license to any required intellectual property rights) to: (1) make and have made those Products, (2) incorporate and combine Products with Nortels products, (3) sell, distribute and support Products incorporated with Nortels products and (4) use the Product Technical Information and Process Technical Information to manufacture, support and repair Products as provided in this grant of license. Supplier will provide technical assistance in conjunction with this license at commercially reasonable rates.
Section 2.
2.1 In the event the Cash Balance (as defined in the Series A-2 Note and Series B-1 Note Supplier) is less than $25 million U.S. dollars (the First Trigger) or Supplier to a material degree is unable to manufacture or supply Critical Products, in accordance with the terms of this Agreement or the Supply Agreement, for a continuous period of not less than six (6) weeks except for the eAPBE Products which shall become subject to this requirement only when it achieves General Availability status (the Supply Failure) or in the event Supplier is the subject of a petition or assignment in bankruptcy, or files a notice of intention to make a proposal, under applicable bankruptcy laws or other similar laws (including laws related to corporate restructuring or reorganization); or Supplier is subject to the appointment of a trustee, custodian, receiver, or receiver-manager of itself or of any substantial part of its assets; or Supplier makes an assignment, or enters into an arrangement with or for the general benefit of its creditor (the Insolvency Trigger) then the license in Section 1 will become exercisable BUT shall only apply to the Critical IP. For clarity, in the event the license is exercisable due to the Supply Failure the license will only be exercisable for the specific Critical Product(s) which are the cause or subject of the Supply Failure.
2.2 NNL will give written notice to Supplier prior to exercising its license under Section 2.1.
2.3 Within [**] after the Effective Date, Supplier will, on a preliminary basis, identify to Nortel an alternate supplier (or suppliers) for the Assembly, Packaging & Test aspects, as well as the post wafer processing techniques, of the Critical Products (the Alternate Supplier). If Nortel does not approve of the Alternate Supplier proposed by Supplier, Supplier will propose a different Alternate Supplier within five (5) business days of Nortels rejection. If the parties cannot agree on the Alternate Supplier, working reasonably and in good faith, then Nortel may choose the Alternate Supplier, Nortel
would not be restricted and no consent would be required from Supplier to use a Prohibited Manufacturer. In addition, within [**] after the Effective Date, Supplier and Nortel will in good faith negotiate and agree on a form of confidentiality and license agreement which will be used as the basis for an agreement with Alternate Supplier under which Products could be manufactured for Nortel. Such agreement will be substantially similar to the form agreed between Supplier and Nortel. The confidentiality and licensing agreement shall include, without limitation, termination rights and reasonable audit rights provisions in favour of Supplier, will name Supplier as a third party beneficiary to such agreement and provide for future audits of operations by an independent auditor to verify compliance with the confidentiality and license agreement.
2.4 Prior to [**], Supplier shall collect and deposit into an escrow, maintained by a mutually agreeable escrow agent on mutually agreeable terms, the copies of all documents relating to the Critical IP. These would be released to Nortel upon the First Trigger, Supply Failure (to the extent applicable) or Insolvency Trigger. The escrow agreement will include, without limitation, a right for Nortel to verify the content of the deposit materials and to request further information if the deposited information is not sufficient to enable Nortel to assemble, package and test the Critical Products. The Parties agree to work together to identify counsel of a major Canadian law firm in Ottawa to act as escrow agent.
2.5 In the event the license becomes exercisable under Section 2.1, then the parties will enable, at Nortels cost and Suppliers reasonable assistance, the Alternate Supplier with the Critical IP (the Alternate Supplier License). Such Alternate Supplier shall sign a confidentiality and license agreement substantially similar to the form agreed to by the parties.
2.5.1 Critical Product Wafers for use in the Critical Products being manufactured by the Alternate Supplier shall be purchased from Supplier at the CPW Price.
2.5.2 If Nortel determines that the performance of the Alternate Supplier is inadequate, then Nortel may, at its cost and without Supplier assistance, transfer to a different supplier of its choice.
Section 3
3.1 In the event the Cash Balance is less than $10 million U.S. dollars (the Second Trigger) or the Insolvency Trigger, then the license in Section 1 will become exercisable BUT shall only apply to Sole Sourced Products, but excluding LTB Products unless deemed to be a Critical Product.
3.2 Nortel will give written notice to Supplier prior to exercising its license under Section 3.1.
3.3 Nortel may elect to have any third party manufacturer manufacture the Sole Sourced Products. Nortel is not restricted from using, and no consent would be required from Supplier to use, a Prohibited Manufacturer to manufacture Sole Sourced Products. As a condition precedent to providing any of such Product and Process Technical Information to a third party manufacturer, such third party manufacturer shall sign a confidentiality and license agreement substantially similar to the form agreed to by the parties.
3.4 Prior to the Cash Balance reaching $10 million US dollars, Supplier shall collect and deposit into an escrow, maintained by a mutually agreeable escrow agent on mutually agreeable terms, the copies of all documents relating to the Product Technical Information and Process Technical Information SOLELY as it relates to the Sole Sourced Products (Sole Source IP). These documents would be released to Nortel upon the Second Trigger or Insolvency Trigger.
Section 4
4.1 Supplier shall have the right upon not less than [**] prior written notice to have an independent qualified auditor, reasonably acceptable to both Parties examine, not more than twice per year, review the relevant books and records of Nortel to verify compliance with the provisions of the above sections. Supplier will be responsible for the cost of any such audit, unless Nortel is in breach of these Sections, in which case Nortel will reimburse Supplier for the cost of such audit.
Section 5 Cure
5.1 In the event the license becomes exercisable under sections 2 or 3, Nortels ability to exercise the license will terminate, together with any Alternate Supplier License, 24 months from the date the license first became exercisable PROVIDED that at the end of such 24 months (i) Supplier has the ability to meet Nortels demand for the subject Products; (ii) Suppliers Cash Balance is above $25 million U.S. dollars and, where applicable, (iii) to the extent that Nortel has obtained the license rights hereunder as a result of the occurrence of an Insolvency Trigger, upon the earliest to occur of any of the following: (A) the dismissal of proceedings pursuant to applicable Insolvency Law, (B) the discharge, termination or relief from appointment of any trustee, custodian, receiver, or receiver-manager appointed with respect to the Company (or of any substantial part of its assets) under applicable Insolvency Law, (C) the entry of an order by a court of competent jurisdiction adopting a plan of reorganization under applicable Insolvency Law or (D) the completion of an assignment for the benefit of creditors that substantially maintains the business of the Company immediately prior to such assignment. In the event Supplier has not satisfied (i) and (ii) (and (iii) where applicable), the license will continue until such time as Supplier satisfies these conditions.
5.2 Provided: i) Supplier is not in breach of a material provision of this Agreement or the Supply Agreement which affects or which is anticipated to affect such Product, which breach remains uncured; and ii) Supplier remains competitive with its competitors on the
basis of Product price, Product performance, quality (return rate), delivery and customer service level with respect to such Product: , and subject to Suppliers ability to meet and fulfill Nortels demand of Product, Supplier shall remain Nortels Primary Supplier of the Products during the period between triggering an exercisable event and the expiry of Nortels ability to exercise the license in accordance with section 5.1. Primary Supplier shall mean that Supplier receives more than [**]% of the actual allocation it was receiving at the time of the exercisable event of Nortels business for the Products. Notwithstanding the foregoing, Nortel will have the right to adjust the Share Allocations in order to establish a second source where, using Suppliers financial data, it is reasonably foreseeable that the Second Trigger will occur within the lead times such second source would require to increase capacity in order for Nortel to ensure security of supply of the Products. During the Term of the Supply Agreement, for the purposes of the Share Allocations and Target Allocations, Nortel will be deemed to have purchased from Supplier the value of the Product purchased from an Alternate Supplier.
Section 6 Expiry
6.1 The terms of this Exhibit D Grant of License and the rights granted herein shall terminate 24 months from the Effective Date unless the license in Section 1 becomes exercisable during such period. Should the license in Section 1 become exercisable the license shall continue until such time as the license may terminate in accordance with Section 5.
Exhibit E
Critical Product Wafer Pricing
Critical Product Wafer
CPW Build Price
CPW Price
$[**]
$[**]
$[**]
$[**]
$[**]
$[**]
$[**]
$[**]
$[**]
$[**]
Exhibit F
Quality Assurance Monitoring and Testing to be Performed on Critical Product Wafers
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Measurements provide necessary controls for the material to be representative of other fully verified product which is processed for order requirements during the same timeframe.
Exhibit G
Note Prepayment Events
The First Prepayment Event shall become exercisable in the event: (i) the Supplier fails to deposit copies of substantially all, and all material, documents relating to the Critical IP in accordance with Section 2.4 of Exhibit D on or before March 31, 2005, and (ii) the Supplier has not cured the breach on or before April 30, 2005.
The Second Prepayment Event shall become exercisable in the event: (i) the Supplier fails to deposit copies of substantially all, and all material, documents relating to the Sole Source IP in accordance with Section 3.4 of Exhibit D prior to the Suppliers Cash Balance falling below $10 million, and (ii) the Supplier has not cured the breach on or before the day [**] after the day Suppliers Cash Balance falls below $10 million.
In the event the First Prepayment Event is made, the amount of the Second Prepayment Event shall be reduced to $0.5M
The Third Prepayment Event s hall become exercisable be in the event that: (i) by end of Suppliers fiscal April 2005 Supplier has not achieved 90% delivery on the total value represented by the LTB Plan requirements, as may be modified by the parties, as of end of Suppliers fiscal April 2005; and (ii) by [**] Supplier has not (a) cured such deficiency by having established a minimum of 90% delivery on the total value represented by the LTB Plan requirements, as may be modified by the parties, as of end of Suppliers fiscal April 2005 and (b) achieved 90% delivery on the total value of the LTB Plan requirements, as may be modified by the parties, as of [**].
The Fourth Prepayment Event s hall become exercisable in the event that: (i) by end of Suppliers fiscal August 2005; Supplier has not achieved [**]% delivery on the total value represented by the LTB Plan requirements, as of August 31, 2005 and (ii) by [**] Supplier has not (a) cured such deficiency by having established a minimum of 75% delivery on the total value represented by the LTB Plan requirements, as may be modified by the parties, as of end of Suppliers fiscal August 2005 and (b) achieved 75% delivery on the total value of the LTB Plan requirements, as may be modified by the parties, as of [**].
The Fifth Prepayment Event s hall become exercisable in the event that: (i) by end of Suppliers fiscal July 2005 Supplier has not achieved 90% delivery on the total volume represented by the CPW Plan requirements, as may be modified by the parties, as of end of Suppliers fiscal July 2005; and (ii) by [**] Supplier has not (a) cured such deficiency by having established a minimum of 90% delivery on the total volume represented by the CPW Plan requirements, as may be modified by the parties, as of end of fiscal July 2005 and (b) achieved 90% delivery on the total volume represented by the CPW Plan requirements, as may be modified by the parties, as of [**]
The Sixth Prepayment Event s hall become exercisable in the event that: (i) by end of fiscal November 2005 Supplier has not achieved 75% delivery on the total volume represented by the CPW Plan requirements, as may be modified by the parties, as of end of fiscal November 2005; and (ii) by [**] Supplier has not (a) cured such deficiency by having established a minimum of 75% delivery on the total volume represented by the CPW Plan requirements, as may be modified by the parties, as of end of fiscal November and (b) achieved 75% delivery on the total volume represented by the CPW Plan requirements, as may be modified by the parties, as of [**].
The Seventh Prepayment Event shall become exercisable in the event that, Nortel has exercised its right under Section 2.1 of Exhibit D pursuant to an exercisable event and Supplier does not use commercially reasonable efforts, at Nortels cost, to enable an Alternate Supplier, which has reasonable skill in the industry, with the Critical Product IP, such that [**] under Section 2.1 of Exhibit D,
EXECUTION VERSION
Exhibit 10.2
Confidential Materials omitted and filed separately with the
NOTES AMENDMENT AND WAIVER AGREEMENT
This Waiver Agreement (the Agreement ) is entered into as of February 7, 2005, among Bookham Technology plc, a public limited company incorporated under the laws of England and Wales ( Bookham plc ), Bookham, Inc., a Delaware corporation ( Bookham, Inc. and, together with Bookham plc and its other subsidiaries whose names appear on the signature pages hereto, the Bookham Parties ), Nortel Networks UK Limited ( NNUKL ) and Nortel Networks Corporation ( Nortel Networks ).
WHEREAS, the parties to this Agreement are parties to a Restructuring Agreement (the Restructuring Agreement ), dated as of December 2, 2004;
WHEREAS, Bookham plc has issued to NNUKL an amended and restated Series B-1 Senior Secured Note, originally dated November 8, 2002, in aggregate principal amount of $30,000,000.00 (the Series B-1 Note );
WHEREAS, Bookham, Inc. has issued to NNUKL an amended and restated Series A-1 Senior Unsecured Convertible Note, originally dated September 10, 2004, in the principal amount of $20,000,000.00 (the Series A-2 Note , together with the Series B-1 Note, the Notes );
WHEREAS, Bookham, Inc. and the other Bookham Parties and NNUKL desire to further amend the Notes as set forth herein;
WHEREAS, Bookham, Inc. and certain of its subsidiaries and NNUKL are parties to an amended and restated U.S. Security Agreement (the U.S. Security Agreement ), dated as of December 2, 2004;
WHEREAS, Bookham, Inc. and certain of its subsidiaries and Nortel Networks and certain of its subsidiaries have entered into certain other security and other agreements and delivered certain other documents in connection with the foregoing (all such agreements and documents, the Related Transaction Documents );
WHEREAS, pursuant to the Series B-1 Note, NNUKL has extended credit to Bookham plc and, pursuant to the Series A-2 Note, NNUKL has extended credit to Bookham, Inc.; and
WHEREAS, the Bookham Parties have requested that NNUKL agree to waive certain provisions of the Notes pursuant to the terms and subject to the conditions set forth herein;
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NOW THEREFORE, in consideration of the mutual premises hereinafter set forth and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows:
1. Amendment; Waiver; Further Actions . (a) Contemporaneously with the execution and delivery of this Agreement, NNUKL hereby:
(i) | waives the application of Section 9(a)(vii) of the Series B-1 Note until the eighteen-month anniversary of the date hereof; and | |||
(ii) | waives the application of Section 9(a)(vi) of the Series A-2 Note until the eighteen-month anniversary of the date hereof. |
Except as specifically waived hereby, each of the Restructuring Agreement, the Notes, the U.S. Security Agreement and the Related Transaction Documents shall continue in full force and effect in accordance with the provisions thereof as in existence on the date hereof. After the date hereof, any reference thereto shall mean any such document, as applicable, as modified hereby.
(b) Contemporaneously with the execution and delivery of this Agreement, Bookham, Inc. and the other Bookham Parties agree that the Notes are amended as follows:
(i) | The following new subsection (d) shall be inserted at the end of Section 4 of the Series A-2 Note: | |||
(d) Within two (2) Business Days after the occurrence of a Supply-Related Prepayment Event (as defined below), the Borrower shall, upon request of Lender, apply an amount equal to the Applicable Prepayment Amount to prepay this Series A-2 Note and the Series B-1 Note on a pro rata basis (based on their respective outstanding principal amounts) in cash by wire transfer of immediately available funds. | ||||
(ii) | The following new subsection (e) shall be inserted at the end of Section 4 of the Series B-1 Note: | |||
(e) Within two (2) Business Days after the occurrence of a Supply-Related Prepayment Event (as defined below), the Borrower shall, upon request of Lender, apply an amount equal to the Applicable Prepayment Amount to prepay the Series A-2 Note and this Series B-1 Note on a pro rata basis (based on their respective outstanding principal amounts) in cash by wire transfer of immediately available funds. | ||||
(iii) | The following new defined terms shall be inserted in alphabetical order in Section 16 of each of the Notes: | |||
Addendum means the Addendum to Optical Components Supply Agreement dated as of the date hereof between Nortel Networks |
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Limited, a Canadian corporation, and Bookham Technology plc that amends and supplements the Supply Agreement. | ||||
Applicable Prepayment Amount means, with respect to each of the Supply Related Prepayment Events set forth in the first column of the table below (each as defined in Exhibit G to the Addendum), the corresponding amount in dollars set forth in the second column of the table below: |
Supply Related Prepayment Event | Applicable Prepayment Amount | |
First Prepayment Event
|
$0.5 million | |
Second Prepayment Event
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$1.0 million* | |
Third Prepayment Event
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$1.0 million | |
Fourth Prepayment Event
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$2.0 million | |
Fifth Prepayment Event
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$1.0 million | |
Sixth Prepayment Event
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$2.0 million | |
Seventh Prepayment Event
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$1.0 million | |
* | The Applicable Prepayment Amount with respect to the Second Prepayment Event shall be reduced to $0.5 million if the Applicable Prepayment Amount with respect to the First Prepayment Event has been applied to prepay the Series A-2 Note and/or the Series B-2 Notes as required by their terms. |
Supply Agreement means the Optical Components Supply Agreement between Nortel Networks Limited, a Canadian corporation, and Bookham Technology plc, effective as of November 8, 2002 (as amended, modified or supplemented from time to time). | ||||
Supply-Related Prepayment Event means any of the seven Note Prepayment Events specified in Exhibit G to the Addendum. |
(c) Each of the Bookham Parties (A) agrees that all references to the Notes contained in the U.S. Security Agreement and the Related Transaction Documents and any filing or other documents contemplated thereby shall mean the Notes as hereby amended and (B) agrees, and agrees to cause its respective affiliates to, promptly execute and deliver any and all further agreements, instruments and other documents, and to take any and all other actions, reasonably requested by NNUKL and Nortel Networks to effect the purposes of this Agreement, including without limitation, executing and delivering amended and restated notes, security agreements, deeds, mortgages, filings and other documents.
2. Representations and Warranties . The Bookham Parties hereby jointly represent and warrant to NNUKL and Nortel Networks as follows:
(a) Each Bookham Party is a corporation or legal entity duly organized and validly existing under the laws of the jurisdiction of its organization and is duly qualified or licensed to do business and is in good standing (if and to the extent such term is recognized in the relevant jurisdiction) in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary,
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except where the failure to so qualify would not reasonably be expected to result in damages to the Bookham Parties of more than $1,000,000 in the aggregate.
(b) Each Bookham Party has the requisite corporate power and authority to own, lease and operate its properties and to carry on its business as currently conducted and the requisite corporate power and authority to enter into and perform this Agreement and all other agreements and documents contemplated hereby (the Additional Documents ) and to carry out the transactions contemplated by this Agreement and the Additional Documents.
(c) This Agreement has been, and the Additional Documents when executed will be, duly executed and delivered by the applicable Bookham Party, and constitute valid and binding obligations of such Bookham Party, enforceable in accordance with their respective terms, except that no such representation and warranty is made herein with respect to the law of any jurisdiction outside of the United States.
(d) Other than (A) as set forth on Exhibit H to the Restructuring Agreement (B) Indebtedness secured by purchase money security interests, (C) the Series A-2 Note, (D) the Series B-1 Note, (E) $25,500,000 aggregate principal amount of 7.0% senior unsecured convertible debentures issued by Bookham, Inc. on December 20, 2004 and (F) capitalized leases, letters of credit, indemnity obligations and performance bonds not exceeding U.S.$2,000,000 in the aggregate, the Bookham Parties do not have any Indebtedness. Indebtedness means any obligation in respect of (i) borrowed money (excluding intercompany loans), (ii) capitalized lease obligations, (iii) obligations under interest rate agreements and currency agreements, (iv) guarantees of any obligation of any third Person, (v) letters of credit and (vi) indemnity obligations or performance bonds.
(e) The execution and delivery of this Agreement and any Additional Documents have been duly authorized by all requisite corporate action on the part of the Bookham Parties party hereto and thereto, as the case may be.
(f) Neither the execution or delivery by any Bookham Party of this Agreement, the consummation of the transactions contemplated hereby, nor the compliance by the Bookham Parties with any of the provisions hereof will (i) conflict with, violate or result in the breach of, any provision of the certificate of incorporation or by-laws or other organizational documents of any Bookham Party; (ii) conflict with, violate, or result in the breach by any Bookham Party of any applicable law; (iii) conflict with, violate, result in the breach or termination of, or constitute a default or give rise to any right of termination or acceleration or right to increase the obligations or otherwise modify the terms under any contract, agreement or understanding to which any Bookham Party is a party or by which any Bookham Party or any of its assets is bound; or (iv) result in the creation of any lien upon any of the assets of the Bookham Parties (other than the liens created pursuant to the transactions contemplated hereby), in each case, with respect to the foregoing, except for such conflicts, violations, breaches, terminations, defaults, rights or liens that have not had and would not reasonably by expected to have, individually or in the aggregate, a material adverse effect on any Bookham Party.
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(g) No consent, approval or authorization of, permit from, or declaration, filing or registration with, any governmental authority or any other person is required to be made or obtained by any Bookham Party in connection with the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, except where the failure to obtain such consent, approval, authorization or permit, or to make such declaration, filing or registration, has not had and would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on any Bookham Party.
(h) As of the date hereof, other than Bookham (Canada), Inc. neither Bookham, Inc., nor any of its subsidiaries owns, leases or operates any assets in Canada, except for any Intellectual Property registered in Canada. The aggregate fair market value of the assets of Bookham, Inc. and its subsidiaries in Canada does not exceed $[**] as of the date hereof. Intellectual Property means trademarks, service marks, brand names, distinguishing guises, trade dress, trade names, words, symbols, color schemes, business names, internet domain names and other indications of origin, patents and pending patent applications, utility models, inventors certificates and invention disclosures
(i) Bookham Technology (Shenzhen) (FFTZ) Co. Ltd. and New Focus Pacific (SHIP) Co. Ltd. are the only entities organized under the laws of China in which Bookham, Inc. or any of its subsidiaries holds an equity interest; and Bookham International Ltd. owns all the outstanding equity interests of Bookham Technology (Shenzhen) (FFTZ) Co. Ltd. and New Focus Pacific (SHIP) Co. Ltd. free and clear of all Liens.
(j) Each Principal Subsidiary (as defined in the U.S. Security Agreement) of Bookham, Inc. is a party to the U.S. Security Agreement and is a Guarantor (as defined in the Series A-2 Note) of the obligations of Bookham, Inc. under the Series A-2 Note and the obligations of Bookham plc under the Series B-1 Note and is a Pledgor Party under the U.S. Security Agreement or the Canadian Security Agreement that is included among the Related Transaction Documents.
3. Conditions to Effectiveness . This Agreement shall become effective as of the date first above written when the parties to this Agreement shall have received executed and delivered counterparts of this Agreement that, taken together, bear the signatures of each of the parties hereto.
4. Indemnification . Each of the Bookham Parties hereby agrees, jointly and severally, to indemnify and hold harmless Nortel Networks and each of its affiliates and each of their respective officers, directors, employees, agents, advisors and representatives (each, an Indemnified Party) from and against any and all claims, damages, losses, liabilities and expenses (including, without limitation, fees and disbursements of counsel), joint or several, that may be incurred by or asserted or awarded against any Indemnified Party (including, without limitation, in connection with any investigation, litigation or proceeding or the preparation of a defense in connection therewith), in each case arising out of or in connection with or by reason of this Agreement, the Restructuring Agreement, the Notes, the U.S. Security Agreement and the Related Transaction Documents, or the transactions contemplated thereby or hereby, as applicable. In the case of an investigation, litigation or other proceeding to which the indemnity
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in this paragraph applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by the any of the Bookham Parties, any of their directors, security holders or creditors, an Indemnified Party or any other person or an Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated hereby are consummated. In no event, however, shall any Bookham Party be liable on any theory of liability for any special, indirect, consequential or punitive damages (including, without limitation, any loss of profits, business or anticipated savings), it being understood that the foregoing limitation shall not apply to any such damages of a third party that result in any claim against, damage to or loss, liability or expense of an Indemnified Party.
No Indemnified Party shall have any liability (whether in contract, tort or otherwise) to any of the Bookham Parties or any of their respective affiliates, security holders or creditors for or in connection with this Agreement, the Restructuring Agreement, the Notes, the U.S. Security Agreement and the Related Transaction Documents, or the transactions contemplated thereby or hereby, as applicable, except as set forth in the Supply Agreement and the Addendum. In no event, however, shall any Indemnified Party be liable on any theory of liability for any special, indirect, consequential or punitive damages (including, without limitation, any loss of profits, business or anticipated savings).
5. Miscellaneous .
(a) Parties in Interest . All covenants, agreements, representations, warranties and undertakings in this Agreement made by and on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and permitted assigns of the parties hereto.
(b) Amendments and Waivers . Except as set forth in this Agreement, changes in or additions to this Agreement may be made, or compliance with any term, covenant, agreement, condition or provision set forth herein may be omitted or waived (either generally or in a particular instance and either retroactively or prospectively), upon the written consent of all of the parties to this Agreement.
(c) Governing Law . This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York (without reference to the conflicts of law provisions thereof).
(d) Notices . All notices, requests, consents, and other communications under this Agreement shall be in writing and shall be deemed delivered (i) two business days after being sent by registered or certified mail, return receipt requested, postage prepaid or (ii) one business day after being sent via a reputable nationwide overnight courier service guaranteeing next business day delivery, in each case to the intended recipient as set forth below:
(i) If to any Bookham Party, at Bookham Technology plc, Caswell Towcester, Northamptonshire NN12 8EQ, United Kingdom, Attention: Corporate Secretary, with a copy to Thomas S. Ward, Esq., Wilmer Cutler Pickering Hale and Dorr LLP, 60 State Street, Boston, MA 02109; and
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(ii) If to NNUKL or Nortel Networks, at Nortel Networks Corporation, 8200 Dixie Road, Brampton, ON L6T 5P6, Canada, Attention: Secretary, with a copy to Robert Fishman, Nortel Networks Corporation, 2221 Lakeside Boulevard, Mail Stop 991-14-B40, Richardson, TX 75082-4399.
(iii) Any party may give any notice, request, consent or other communication under this Agreement using any other means (including, without limitation, personal delivery, messenger service, telecopy, first class mail or electronic mail), but no such notice, request, consent or other communication shall be deemed to have been duly given unless and until it is actually received by the party for whom it is intended. Any party may change the address to which notices, requests, consents or other communications hereunder are to be delivered by giving the other parties notice in the manner set forth in this Section 3(d).
(e) Entire Agreement . This Agreement and the exhibits hereto together with any other agreement referred to herein constitute the entire agreement among the parties with respect to the subject matter hereof.
(f) Severability . The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.
(g) Counterparts; Facsimile Signatures . This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which shall constitute one and the same document. This Agreement may be executed by facsimile signatures.
(h) Expenses . Bookham, Inc. shall pay Nortel Networks or its designee a fee in cash equal to [**] Dollars ($[**]) (it being understood that Nortel Networks and its subsidiaries shall not be entitled to any additional reimbursement for any fees and disbursements of external legal counsel to NNUKL and Nortel Networks in connection with the preparation, negotiation, execution and delivery of this Agreement) within five (5) business days of the date of the Agreement. Except as otherwise expressly set forth in this Agreement, each party shall otherwise bear all of its own expenses incurred in connection with the transactions contemplated hereby.
* * * * *
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IN WITNESS WHEREOF, this Restructuring Agreement has been executed by the parties hereto as of the day and year first written above.
BOOKHAM TECHNOLOGY PLC | ||||
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By: | /s/ Stephen M. Abely | ||
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Name: | Stephen M. Abely | ||
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Title: | Director | ||
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BOOKHAM, INC. | ||||
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By: | /s/ Stephen M. Abely | ||
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Name: | Stephen M. Abely | ||
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Title: | Chief Financial Officer | ||
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NEW FOCUS, INC. | ||||
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By: | /s/ Stephen M. Abely | ||
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Name: | Stephen M. Abely | ||
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Title: | President | ||
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ONETTA, INC. | ||||
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By: | /s/ Thomas Kelley | ||
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Name: | Thomas Kelley | ||
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Title: | Corporate Secretary | ||
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IGNIS OPTICS, INC. | ||||
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By: | /s/ Stephen M. Abely | ||
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Name: | Stephen M. Abely | ||
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Title: | President | ||
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[NOTES AMENDMENT AND WAIVER AGREEMENT]
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BOOKHAM (CANADA), INC. | ||||
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By: | /s/ Thomas Kelley | ||
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Name: | Thomas Kelley | ||
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Title: | Corporate Secretary | ||
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BOOKHAM (SWITZERLAND) AG | ||||
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By: | /s/ Steve M. Abely | ||
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Name: | Steve M. Abely | ||
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Title: | Director and President | ||
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[NOTES AMENDMENT AND WAIVER AGREEMENT]
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NORTEL NETWORKS UK LIMITED | ||||
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By: | /s/ Christian Waida | ||
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Name: | Christian Waida | ||
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Title: | Director | ||
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NORTEL NETWORKS CORPORATION | ||||
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By: | /s/ Khush Dadyburtor | ||
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Name: | Khush Dadyburtor | ||
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Title: | V.P. Mergers & Acquisitions | ||
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By: | /s/ Gordon A. Davies | ||
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Name: | Gordon A. Davies | ||
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Title: | Corporate Secretary | ||
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[NOTES AMENDMENT AND WAIVER AGREEMENT]
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Exhibit 10.3
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
March 24, 2005
Mr. Steve Abely, CFO
Bookham, Inc.
1-10 Brewer Hunt Way
Ottawa, Ontario
Canada
You have requested that Nortel Networks Limited ( Nortel ) provide certain commercial accommodations to Bookham, Inc. ( Bookham ) in connection with certain agreements between Nortel and its affiliates and Bookham and its affiliates, including:
| The Restructuring Agreement entered into as of December 2, 2004, among Bookham Technology plc, Bookham, Inc., Bookham plc and its other subsidiaries whose names appear on the signature pages, Nortel Networks UK Limited and Nortel Networks Corporation, as amended (the Restructuring Agreement ) | |||
| Series A-2 Senior Secured Note Due 2007 U.S.$20,000,000 September 10, 2004 executed by BOOKHAM, INC., BOOKHAM TECHNOLOGY PLC, NEW FOCUS, INC., ONETTA, INC., BOOKHAM (US) INC., BOOKHAM (CANADA), INC., BOOKHAM (SWITZERLAND) AG, IGNIS OPTICS, INC. |
and
Series B-1 Senior Secured Note Due 2006 U.S.$30,000,000.00 November 8, 2002 executed by BOOKHAM TECHNOLOGY PLC, NEW FOCUS, INC., ONETTA, INC., BOOKHAM (US) INC., BOOKHAM (CANADA) INC., BOOKHAM (SWITZERLAND) AG, IGNIS OPTICS, INC., BOOKHAM, INC.
(together the Senior Secured Notes )
The Restructuring Agreement, the Senior Secured Notes, the security agreements entered into pursuant thereto and in connection therewith (the Security Agreements ) and the other agreements and documents delivered pursuant thereto together are referred to hereinafter as the Senior Note Documents .
| Optical Components Supply Agreement between Bookham Technology plc and Nortel Networks Limited with Nortel Networks Agreement No. 011634, as amended (the Supply Agreement ). |
Nortel is prepared to make certain of the requested accommodations available to Bookham on the terms and subject to the conditions contained herein (the Proposal ).
1. The Supply Agreement will be amended to provide that, for the twelve (12) month period beginning April 1, 2005 (the Effective Date), the due date for payments by Nortel to Bookham under the Supply Agreement for product delivered during such 12-month term will be [**] calendar days following receipt by Nortel of the invoice to [**] calendar days (paid via wire transfer or in a similar manner) following receipt by Nortel of the invoice. For the avoidance of doubt, the foregoing does not allow Bookham to accelerate the issuance of invoices. The reduction of payment terms referenced in this paragraph will automatically expire upon the occurrence of an Expiration Event (defined below).
2. The Supply Agreement will also be amended to provide a price increase of [**]% on Last Time Buys (as such term is defined in the Supply Agreement Addendum dated February 7, 2005) and a price increase of [**]% on all other products purchased under the Supply Agreement, such price increases to remain in effect for no longer than twelve (12) months from the Effective Date. The price increases will apply to the prices in effect immediately prior to the Effective Date, and Nortel and Bookham will agree to a schedule which will set out the price increases by part and such schedule will be included in the written amendment to the Supply Agreement. Following such twelve (12) months (or shorter in the event that an Expiration Event occurs) time period, prices will return to those in effect under the Supply Agreement immediately prior to the Effective Date. The price increases referenced in this paragraph will automatically expire upon the occurrence of an Expiration Event.
The parties agree to work together to create a process which is acceptable to Nortels and Bookhams auditors and finance department for implementing the above price increases.
3. Nortel will or will instruct its contract manufacturer to, no later than fifteen (15) business days after the Effective Date, issue non-cancelable purchase orders for all products Nortel estimates it will require for:
(i) | eight (8) months against its twelve (12) month forecast current at April 1, 2005 for products other than Last Time Buys; and | |||
(ii) | one hundred percent (100%) of the value of the Last Time Buys. |
((i) and (ii) collectively the Accelerated Purchase Orders). However, the foregoing will not prevent Nortel from issuing additional purchase orders in Nortels discretion. The product mix to be delivered by Bookham pursuant to the Accelerated Purchase Orders will be determined on a monthly basis by Nortel and Bookham and will be in agreement with the Supply Agreement Addendum dated February 7, 2005. In no event will such Accelerated Purchase Orders be transferable or assignable by Bookham. The Accelerated Purchase Orders will automatically expire upon the occurrence of an Expiration Event.
4. The Supply Agreement shall be amended to provide that it is not assignable or transferable without the express written consent of Nortel, which consent may be withheld by Nortel in its sole discretion, and that any attempted assignment or transfer in violation of such provision shall be void.
The Supply Agreement to the extent not inconsistent with the terms and conditions of this Proposal and any definitive documentation evidencing the transactions contemplated herein (the Definitive Documentation) will govern purchase orders and the following provisions will have no force or effect as at the Effective Date (i) any click-wrap or shrink-wrap terms and conditions (or any terms and conditions referenced within any click-wrap or shrink-wrap terms), (ii) any purchase order or standard acknowledgement form terms and conditions.
5. The provisions of the Senior Secured Notes which require prepayments in the event Bookham raises additional capital will be modified on a temporary basis such that no prepayments will be required from the proceeds of additional capital raised by Bookham (whether debt or equity) from the Effective Date through the first anniversary thereof except and to the extent that such proceeds in the aggregate, during such period exceed US$75 million. No proceeds of any such additional capital shall be used to retire, redeem, prepay, or repay any other debt of Bookham, but shall instead be used for working capital in the ordinary course of business. The prepayment modifications referenced in this paragraph will automatically expire upon the occurrence of an Expiration Event.
6. In consideration of the value provided herein by Nortel, in particular the price increases and changed payment terms, contemporaneously with the execution of the amendment to the Supply Agreement contemplated herein, Bookham and Nortel will enter into amendments to the Security Agreements and such of the other Senior Note Documents as, in Nortels discretion, may be necessary or advisable to:
(i) | confirm the perfection and priority of the liens, charges, and security interests granted under or pursuant to the Senior Note Documents; | |||
(ii) | grant to Nortel a first priority mortgage on the real property located at Swindon, United Kingdom; however, Bookham shall be permitted to sell such real property and retain the proceeds of sale free and clear of any security interest for working capital in the ordinary course of business, provided an Event of Default by Bookham has not occurred under the Supply Agreement or a default has not occurred under the Senior Note Documents; | |||
(iii) | grant to Nortel a perfected, first priority security interest in Nortel specific inventory as described in Exhibits A and B to the Supply Agreement Addendum dated February 7, 2005 provided that, so long as no Event of Default shall have occurred and be continuing under the Supply Agreement or under any of the Senior Note Documents on the one year anniversary of the Effective Date, Nortel in its sole discretion may, at Bookhams request, release and terminate such security interest; |
(iv) | grant to Nortel a perfected, first priority security interest in accounts owing by Nortel or its affiliates to Bookham or its affiliates provided that, so long as no Event of Default shall have occurred and be continuing under the Supply Agreement or under any of the Senior Note Documents on the [**] anniversary of the Effective Date, Nortel in its sole discretion may, at Bookhams request, release and terminate such security interest; | |||
(v) | provide that the Security Agreements secure the obligations of Bookham under the Supply Agreement in addition to the indebtedness evidenced by the Senior Secured Notes; | |||
(vi) | provide that an Event of Default by Bookham under the Supply Agreement is an event of default under the Senior Note Documents, and vice versa; | |||
(vii) | remove clause (g) from the definition of Collateral in the Amended and Restated U.S. Security Agreement dated as of December 2, 2004, such that the proceeds form part of Nortels collateral; | |||
(viii) | reflect changes in relevant law, including Article 9 of the Uniform Commercial Code, which may be necessary or advisable for the Security Agreements; and | |||
(ix) | provide such comfort as Nortel may otherwise reasonably require as to the creation, perfection, and priority of the liens, charges, and security interests contemplated under the Senior Note Documents and this Proposal. |
Bookham expressly agrees that [**] under the Supply Agreement.
For the purpose of this Proposal, an Event of Default under the Supply Agreement shall mean the occurrence of any of the following without the requirement for further notice or action: (i) Bookhams intentional cessation of shipment of product to Nortel against an agreed delivery schedule without prior written approval by an authorized representative of Nortel; (ii) Bookhams failure to deliver products pursuant to the requirements of Section 8 of the Supply Agreement to the extent that the same would entitle Nortel to cancel all or part of an order, provided that Nortel has provided Bookham written notice of such default; (iii) Bookhams failure to meet a milestone for a Last Time Buy product pursuant to Section 2.2 of the February 7, 2005 Addendum to the Supply Agreement, provided that Nortel has provided Bookham written notice of such default; (iv) Bookhams breach of or default under any one of its material obligations under the Supply Agreement which continues for more than 10 calendar days; or (v) any other default by Bookham which would entitle Nortel to terminate the Supply Agreement pursuant to Section 25.2 of that agreement.
For the purpose of this Proposal, an Event of Default under the Senior Note Documents shall have the meaning provided therein.
7. As of the Effective Date, Bookham will represent and warrant in writing that it has reviewed the impact of the amendment to the Supply Agreement, the amendments to the Senior Note Documents, and the other matters contemplated herein, from an accounting and legal perspective and that it has or will take all necessary steps to ensure
compliance with United States federal and state securities laws and U.S. generally-accepted accounting principles.
8. Because the accommodations to Bookham referenced herein (including the shortened payment terms, Accelerated Purchase Orders, price increases and prepayment modifications) are intended to assist Bookham in its restructuring only, they will terminate automatically upon the occurrence of any of the following (each an Expiration Event): (i) Event of Default not currently waived under the Supply Agreement or any of the Senior Note Documents, or (ii) change in control of Bookham or an insolvency event with respect to Bookham, each to be defined in a manner acceptable to Nortel in definitive documentation. Upon an Expiration Event, the modifications described in Sections 1 through 3 and 5 shall no longer apply.
9. Notwithstanding anything contained herein, all of the terms and conditions of this Proposal shall terminate on April 29, 2005 unless all of the following have been satisfied:
A. | Definitive agreements reflecting the terms of this Proposal and such other terms as are customary, all in form and substance satisfactory to Nortel and Bookham, shall have been executed by both Bookham and Nortel; | |||
B. | No Events of Default under the Supply Agreement or any of the Senior Note Documents which have not been waived or cured or material adverse change in the business of Bookham shall occur from the date hereof; and | |||
C. | Nortel, its agents, and advisors shall have completed a review of the collateral securing the Senior Secured Notes and the related Guarantees, with Bookhams and the Guarantors cooperation and assistance. Such review will include ensuring that Nortel has valid liens on all of the collateral intended to be covered by the Security Agreements (as amended as required by this Proposal) given in connection with the Senior Secured Notes and the Guarantees, and that Bookham has complied with its obligations to Nortel with respect to intellectual property. |
Nortel expressly reserves all of its rights, remedies, powers and privileges under the Supply Agreement and the Senior Note Documents, except to the limited extent specifically provided to the contrary herein. No failure on the part of Nortel to exercise, and no delay by Nortel in exercising, any right, remedy, power or privilege under the Supply Agreement or the Senior Note Documents, at law, or in equity, shall operate as a waiver thereof, nor shall any single or partial exercise by Nortel of any such right, remedy, power or privilege preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.
Please sign below to evidence Bookhams agreement to the terms described herein and to enter into appropriate amendments to the Supply Agreement and the Senior Note Documents to reflect this Proposal, which amendments will be prepared by Nortel following your agreement to this Proposal.
Sincerely,
/s/ Philippe Morin
Philippe Morin,GM Optical Networks
Nortel Networks Limited
Agreed :
BOOKHAM, INC.
By:
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/s/ Steve M. Abely | |||
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Name:
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Title:
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Exhibit 10.4
BOOKHAM, INC.
RULES
of the
BOOKHAM, INC.
2004 STOCK INCENTIVE PLAN
UK INLAND REVENUE APPROVED SUB-PLAN
(UK Sub-Plan adopted by the Board on
January 25, 2005 and approved by the UK Inland Revenue
on
l
2004 under reference X22847)
Alder Castle
10 Noble Street
London EC2V 7QJ
Tel: 020 7645 2711
Fax: 020 7645 2424
BOOKHAM, INC. 2004 STOCK INCENTIVE PLAN
UK INLAND REVENUE APPROVED SUB-PLAN
1. | Purpose |
This UK Inland Revenue Approved Sub-Plan (the Sub-Plan) has been established by resolution of Board of Directors (the Board) of Bookham, Inc. a Delaware Corporation (the Company), as a sub-plan to the Bookham, Inc. 2004 Stock Incentive Plan (the Main Plan) pursuant to Section 12(e) of the Main Plan (provisions for foreign participants).
For the avoidance of doubt:
(a) | the terms of the Main Plan shall govern all Options granted hereunder unless otherwise set forth in this Sub-Plan provided always that Options granted under this Sub-Plan may not be subject to a cash alternative; | |||
(b) | Options granted under this Sub-Plan shall be taken into account for the purposes of the limit specified in Section 4(a) of the Main Plan; | |||
(c) | Section 5(g) and Sections 6 9 (inclusive) of the Main Plan shall not apply to Options granted under this Sub-Plan; and | |||
(d) | in the event of any conflict between the rules of the Main Plan and the Sub-Plan, the rules of the Sub-Plan shall take precedence in respect of Options granted under the Sub-Plan. | |||
2. | Eligibility |
Any full time director of any Group Company employed under a contract of employment with a Group Company who devotes not less than twenty-five hours per week (excluding meal breaks) to his duties and any employees of any Group Company (but excluding in either case any person ineligible to participate in this Sub-Plan under the terms of paragraph 9 of Schedule 4) are eligible to be granted options under the Sub-Plan. Each person who receives an Option under the Sub-Plan is deemed a Participant.
3. | Administration and Delegation |
(a) Administration by Board of Directors . The Sub-Plan will be administered by the Board. The Board shall have authority to grant Options and to adopt, amend and repeal such administrative rules, guidelines and practices relating to the Sub-Plan as it shall deem advisable. The Board may correct any defect, supply any omission or reconcile any inconsistency in the Sub-Plan or any Option in the manner and to the extent it shall deem expedient to carry the Sub-Plan into effect and it shall be the sole and final judge of such expediency. All decisions by the Board shall be made in the Boards sole discretion and shall be final and binding on all persons having or claiming any interest in the Sub-Plan or in any Option. No director or person acting pursuant to the authority delegated by the Board shall be liable for any action or determination relating to or under the Sub-Plan made in good faith.
(b) Appointment of Committees . To the extent permitted by applicable law, the Board may delegate any or all of its powers under the Sub-Plan to one or more committees or
1
subcommittees of the Board (a Committee). All references in the Sub-Plan to the Board shall mean the Board or a Committee of the Board or the officers referred to in Section 3(c) below to the extent that the Boards powers or authority under the Sub-Plan have been delegated to such Committee or officers.
(c) Delegation to Officers . To the extent permitted by applicable law, the Board may delegate to one or more officers of the Company the power to grant Options to those eligible to participate in accordance with Section 2 of the Sub-Plan and to exercise such other powers under the Sub-Plan as the Board may determine, provided that the Board shall fix the terms of the Options to be granted by such officers (including the exercise price of such Options, which may include a formula by which the exercise price will be determined) and the maximum number of shares subject to Options that the officers may grant; provided further, however, that no officer shall be authorized to grant Options to any executive officer of the Company (as defined by Rule 3b-7 under the Securities Exchange Act of 1934, as amended (the Exchange Act)) or to any officer of the Company (as defined by Rule 16a-1 under the Exchange Act).
4. | Stock Available for Options |
(a) Number of Shares . Subject to adjustment under Section 6, Options may be made under the Sub-Plan for up to that number of shares of common stock, $0.01 par value per share, of the Company (the Common Stock) (provided that such Common Stock meets the requirements of paragraphs 16-20 (inclusive) of Schedule 4) which equals 4,000,000 less the number of shares of Common Stock which have been subject to Awards under the Main Plan. If any Option expires or is terminated, surrendered or canceled without having been fully exercised or is forfeited in whole or in part or results in any Common Stock not being issued, the unused Common Stock covered by such Option shall again be available for the grant of Options under the Main Plan or the Sub-Plan. Shares issued under the Sub-Plan may consist in whole or in part of authorized but unissued shares or treasury shares.
(b) Inland Revenue limit per participant . Any Option granted to a Participant pursuant to this Sub-Plan shall be limited and take effect so that the aggregate of the Market Value of Common Stock which a Participant may acquire in pursuance of rights previously obtained but not exercised under this Sub-Plan or under any other plan (not being a savings-related share option plan) approved under Schedule 4 established by the Company or by any associated company of the Company (within the meaning of paragraph 35 of Schedule 4) shall not exceed or further exceed GB £30,000 sterling or such other limit as may from time to time be imposed by paragraph 6 of Schedule 4. The term Market Value has the meaning ascribed by Part 8 of the UK Taxation of Chargeable Gains Act 1992. For the purposes of this Section 4(b):
(1) the Market Value of Common Stock shall be calculated as at the time when the rights in relation to that stock were obtained, or in a case where an agreement relating to them has been made under paragraph 22 of Schedule 4, such earlier time or times as may be provided in the agreement; and
(2) the US dollar value of the Common Stock shall be converted to GB sterling by reference to the closing mid-market US$:GB£ exchange rate on the business day immediately preceding the day on which such calculation is made as published in the relevant edition of the Financial Times.
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5. | Stock Options |
(a) General . The Board may grant options to purchase Common Stock (each, an Option) and determine the number of shares of Common Stock to be covered by each Option, the exercise price of each Option (subject to Section 5(c) below) and the conditions and limitations applicable to the exercise of each Option as it considers necessary or advisable provided that any performance based conditions satisfy the requirements of Section 5(b) below.
(b) Performance Conditions . In accordance with the Boards powers under Section 5(b) above, an Option may be granted subject to such performance related objective condition or conditions of exercise as the Board may determine provided that any such condition or conditions shall be set out in the documentation evidencing that Option. In circumstances where an event or events occur the Board, in its discretion acting fairly and reasonably, may amend, relax or waive such condition or conditions provided that any amendment, relaxation or waiver does not result in the Option being subject to a condition or conditions which is/are more difficult to satisfy than those which applied immediately prior to such amendment, relaxation or waiver.
(c) Exercise Price . The Board shall establish the exercise price of each Option and specify such exercise price in the applicable option agreement. The exercise price shall not be manifestly less than the Market Value, as that term is defined in Section 4(b) of this Sub-Plan:
(1) as at the date of grant of that Option; or
(2) at the Boards discretion, the day immediately preceding the date of grant; or
(3) at the Boards discretion, at such earlier time or times as the Board may determine (with the previous agreement of the Inland Revenue),
in each case as agreed in advance with Shares Valuation of the Inland Revenue.
(d) Duration of Options . Each Option shall be exercisable at such times and subject to such terms and conditions as the Board may specify in the applicable option agreement.
(e) Exercise of Options . Options may be exercised by delivery to the Company of a written notice of exercise signed by the proper person or by any other form of notice (including electronic notice) approved by the Board together with payment in full as specified in Section 5(f) for the number of shares for which the Option is exercised provided always that no Option shall be exercisable at a time when the Participant is ineligible to participate in this Sub-Plan under the terms of paragraph 9 of Schedule 4.
(f) Payment Upon Exercise. Common Stock purchased upon the exercise of an Option granted under the Sub-Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may otherwise provide in an option agreement, by (i) delivery of an irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to the Company sufficient funds to pay the exercise price and any required
3
tax withholding or (ii) delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver promptly to the Company cash or a check sufficient to pay the exercise price and any required tax withholding; or
(3) by any combination of the above permitted forms of payment.
(g) Issue or transfer of Common Stock . Within 30 days of the proper exercise of an Option, the Company shall issue or procure the transfer of Common Stock in respect of which the Option has been exercised to the Participant. Common Stock issued to a Participant shall, save for any rights determined by reference to a date preceding the date of issue, shall rank pari passu with other shares of the same class in issue at the date of issue to the Participant.
6. | Adjustments for Changes in Common Stock and Certain Other Events |
(a) Changes in Capitalization . In the event of any stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares or other similar change in capitalization or event, or any distribution to holders of Common Stock other than an ordinary cash dividend (in all cases provided that such events fall within paragraph 22(3) of Schedule 4):
(1) the number and description of securities available under this Sub-Plan; and
(2) the number and description of securities and exercise price per share of each outstanding Option,
shall be appropriately adjusted by the Company to the extent determined by the Board (subject to prior approval of the Inland Revenue so long as the Sub-Plan is approved under Schedule 4 by the Inland Revenue).
(b) Reorganization Events .
(1) Definition . A Reorganization Event shall mean: (i) any merger or consolidation of the Company with or into another entity as a result of which all of the Common Stock of the Company is converted into or exchanged for the right to receive cash, securities or other property, (ii) any exchange of all of the Common Stock of the Company for cash, securities or other property pursuant to a share exchange transaction or (iii) any liquidation or dissolution of the Company.
(2) Consequences of a Reorganization Event . In connection with a Reorganization Event, the Board may as to all or any outstanding Options on such terms as the Board determines upon written notice to a Participant, provide that the Participants unexercised Options shall become exercisable in full and will terminate immediately prior to the consummation of such Reorganization Event (or such later date as such written notice may specify) unless exercised by the Participant within a specified period following the date of such notice.
(3) Further consequences of a Reorganization Event .
(i) If as a result of any Reorganization Event which is also an Acquisition Event an Acquiring Company obtains Control of the Company any Participant
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may, at any time within the Appropriate Period, by agreement with the Acquiring Company, release any Option which has not lapsed (the Old Option) in consideration for the grant to him of an option (the New Option) which (for the purposes of paragraph 27 of Schedule 4) is equivalent to the Old Option but relates to shares in a different company (whether the Acquiring Company itself or some other company falling within paragraph 16(b) or paragraph 16(c) of Schedule 4).
(ii) The New Option shall not be regarded for the purposes of Section 6(b)(3)(i) above as equivalent to the Old Option unless the conditions set out in Paragraph 27(4) of Schedule 4 are satisfied, but so that the provisions of the Sub-Plan shall for this purpose be construed as if:
(aa) | the New Option were an option granted under the Sub-Plan at the same time as the Old Option; | |||
(bb) | except for the purposes of the definition of Group Company, the reference to Bookham, Inc. in the definition of the Company in Section 1 of the Sub-Plan was a reference to the different company mentioned in Section 6(b)(3)(i). |
(iii) Options under this Sub-Plan not terminated, exercised or exchanged prior to the expiry of the Appropriate Period shall terminate.
7. | General Provisions Applicable to Options |
(a) Transferability of Options . Options shall not be sold, assigned, transferred, pledged or otherwise encumbered by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution and, during the life of the Participant, shall be exercisable only by the Participant. References to a Participant, to the extent relevant in the context, shall include references to authorized transferees.
(b) Documentation . Each Option shall be evidenced in such form (written, electronic or otherwise) as the Board shall determine. Each Option may contain terms and conditions in addition to those set forth in the Sub-Plan provided that such terms and conditions are set out in the Option grant documentation and shall have first been approved by the Inland Revenue.
(c) Board Discretion . Except as otherwise provided by the Sub-Plan, each Option may be made alone or in addition or in relation to any other Option. The terms of each Option need not be identical, and the Board need not treat Participants uniformly.
(d) Termination of Status . The Board shall determine the effect on an Option of the disability, death, retirement (on or after the Specified Age), authorized leave of absence or other change in the employment or other status of a Participant and the extent to which, and the period during which, the Participant, or the Participants legal representative or designated beneficiary may exercise rights under the Option provided always that no Option may be exercised later than 12 months after the date of a Participants death.
(e) Withholding . Each Participant shall pay to the Company, or make provision satisfactory to the Company for payment of, any taxes and national insurance contributions
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required by law to be withheld in connection with the exercise of an Option. The Company may, to the extent permitted by law, deduct any such tax and national insurance obligations from any payment of any kind otherwise due to a Participant. In the Boards discretion, such tax and national insurance obligations may be paid in whole or in part from the proceeds of the sale of shares of Common Stock (whether via a broker/dealer arrangement or otherwise).
(f) Employer national insurance contributions . An Option may be granted subject, if the Board so determines, to any or all (at the Boards discretion) of the following conditions of exercise:
(1) the Participant completing and executing an irrevocable agreement (in such form as determined by the Board) under which the Participant allows the Relevant Company to recover from him the whole or any part of its liability for Employers Option NICs; and/or
(2) the Participant entering into a joint election with the Relevant Company (in such form as determined by the Board) for the whole or part of any liability for Employers Option NICs to be transferred to the Participant provided that the form of such election and the arrangement made in that election for securing that the liability transferred by the election will be met and have been approved, prior to the time the election is entered into, by the Inland Revenue.
(g) Conditions on Delivery of Stock . The Company will not be obligated to deliver any shares of Common Stock pursuant to the Sub-Plan until:
(i) all conditions of the Option have been met or removed to the satisfaction of the Company and in accordance with the rules of the Sub-Plan,
(ii) in the opinion of the Companys counsel, all other legal matters in connection with the issuance and delivery of such shares have been satisfied, including any applicable securities laws and any applicable stock exchange or stock market rules and regulations, and
(iii) the Participant has executed and delivered to the Company such representations or agreements as the Company may consider appropriate to satisfy the requirements of any applicable laws, rules or regulations.
(h) Acceleration . The Board, acting fairly and reasonably, may at any time provide that any Option shall become immediately exercisable in full or in part.
(i) Additional definitions .
Acquisition Event means an event by which any company (the Acquiring Company):
(1) obtains Control of the Company as a result of making:
(i) a general offer to acquire the whole of the issued ordinary share capital of the Company which is made on condition such that if it is satisfied, the Acquiring Company will have Control of the Company; or
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(ii) a general offer to acquire all the shares in the Company which are of the same class as the shares which may be acquired by the exercise of Options,
in either case ignoring any shares which are already owned by it or by a member of the same group of companies; or
(2) obtains Control of the Company in pursuance to a compromise or arrangement sanctioned by the court under Section 425 Companies Act 1985 (or non-UK equivalent which the Inland Revenue accepts as closely comparable); or
(3) becomes bound or entitled to acquire shares under Sections 428-430F Companies Act 1985 (or non-UK equivalent which the Inland Revenue accepts as closely comparable).
Appropriate Period means the relevant period set out in paragraphs (a), (b) or (c) as appropriate of paragraph 26(3) of Schedule 4.
Control has the meaning given by Section 719 Income Tax (Earnings and Pensions) Act 2003.
Employers Option NICs means secondary Class 1 national insurance contributions payable in respect of a gain that is treated as remuneration derived from the Participants employment by virtue of Section 4(4)(a) of the Social Security Contributions and Benefits Act 1992.
Group Company means the Company and any company which is under the control of the Company.
Key Feature means a provision which is necessary in order to meet the requirements of Schedule 4.
Relevant Company means the company by which the Participant is employed.
Schedule 4 means schedule 4 to the Income Tax (Earnings and Pensions) Act 2003.
Specified Age age 55.
8. | Miscellaneous |
(a) No Right To Employment or Other Status . No person shall have any claim or right to be granted an Option, and the grant of an Option shall not be construed as giving a Participant the right to continued employment or any other relationship with any Group Company. The Company and all other Group Companies expressly reserve the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim under the Sub-Plan or the Main Plan, except as expressly provided in the applicable Option.
(b) No Right to Employment Further Provisions . Notwithstanding any other provision of the Main Plan or the Sub-Plan:
(1) the Main Plan and Sub-Plan shall not form any part of any contract of employment between the Company or any past or present Group Company and any
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employees of any of those companies, and they shall not confer on any such employees any legal or equitable rights (other than those constituting the Options themselves) against the Company or any past or present Group Company, directly or indirectly, or give rise to any cause of action in law or in equity against the Company or past or present Group Company;
(2) in no circumstances shall any Participant on ceasing to hold the office or employment by virtue of which he is or may be eligible to participate in the Main Plan or the Sub-Plan be entitled to any compensation for any loss of any right or benefit or prospective right or benefit under the Main Plan or the Sub-Plan which he might otherwise have enjoyed (including, without limitation, the lapse of Options or part thereof held by him by reason of his ceasing to hold an office or ceasing to be employed by the Company or any past or present Group Company) whether such compensation is claimed by way of damages for wrongful dismissal or other breach of contract or by way of compensation for loss of office or otherwise.
(c) No Rights As Stockholder . Subject to the provisions of the applicable Option, no Participant or Designated Beneficiary shall have any rights as a stockholder with respect to any shares of Common Stock to be distributed with respect to an Option until becoming the record holder of such shares. Notwithstanding the foregoing, in the event the Company effects a split of the Common Stock by means of a stock dividend and the exercise price of and the number of shares subject to such Option are adjusted as of the date of the distribution of the dividend (rather than as of the record date for such dividend), then a Participant who exercises an Option between the record date and the distribution date for such stock dividend shall be entitled to receive, on the distribution date, the stock dividend with respect to the shares of Common Stock acquired upon such Option exercise, notwithstanding the fact that such shares were not outstanding as of the close of business on the record date for such stock dividend.
(d) Effective Date and Term of Sub-Plan . The Sub-Plan shall become effective on the date on which it is adopted by the Board, but no Option may be granted unless and until the Sub-Plan has been approved by the UK Inland Revenue. No Options shall be granted under the Sub-Plan after the completion of 10 years from the earlier of:
(i) the date on which the Sub-Plan was adopted by the Board, or
(ii) the date the Sub-Plan was approved by the Companys stockholders,
but Options previously granted may extend beyond that date.
(e) Amendment of Sub-Plan . The Board may amend, suspend or terminate the Sub-Plan or any portion thereof or an Option granted hereunder at any time; provided that:
(i) to the extent determined by the Board, no amendment requiring stockholder approval under any applicable legal, regulatory or listing requirement shall become effective until such stockholder approval is obtained, and
(ii) no amendment, suspension or termination in relation to a Key Feature shall take effect until it has been approved by the UK Inland Revenue.
8
No Option shall be made that is conditioned upon stockholder approval of any amendment to the Sub-Plan.
(f) Governing Law . The provisions of the Sub-Plan and all Options made hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware, without regard to any applicable conflicts of law.
9
Exhibit 10.5
Bookham, Inc.
Restricted Stock Agreement
Granted Under 2004 Stock Incentive Plan
AGREEMENT made February 9, 2005, between Bookham, Inc., a Delaware corporation (the Company ), and Giorgio Anania (the Participant ).
For valuable consideration, receipt of which is acknowledged, the parties hereto agree as follows:
1. Issuance of Shares; Forfeiture of Options .
(a) The Company shall issue to the Participant, subject to the terms and conditions set forth in this Agreement and in the Companys 2004 Stock Incentive Plan (the Plan ), 147,409 shares (the Shares ) of common stock, $0.01 par value, of the Company ( Common Stock ). The Shares will be held in book entry by the Companys transfer agent in the name of the Participant for that number of Shares issued to the Participant. The Participant agrees that the Shares shall be subject to the forfeiture provisions set forth in Section 2 of this Agreement and the restrictions on transfer set forth in Section 4 of this Agreement.
(b) In consideration for the issuance of the Shares, the Participant shall surrender to the Company for cancellation 589,636 options to acquire Common Stock (such number being equal to 147,409 multiplied by four (4)), which options were previously granted by the Company to the Participant. Upon surrender, the options will be cancelled and will be of no further force or effect and the Participant shall have no further rights with respect to such options. The Company shall have no obligation to issue the Shares unless and until the Participant surrenders the options. The options surrendered by the Participant are set forth in Exhibit A.
2. Vesting .
(a) The Shares shall vest and become free from the forfeiture provisions in Section 2(b) hereof and become free from the transfer restrictions in Section 4 hereof on the earlier of:
(1) the one-year anniversary of the date hereof, provided that (A) the Participant has been continuously employed by the Company between the date hereof and such anniversary, (B) on or before such anniversary, the Company has filed on a timely basis any report required pursuant to Item 308 of Regulation S-K and (C) on such anniversary the Company does not have any material weakness that has not been remedied to the satisfaction of the Audit Committee of the Companys Board of Directors and the Companys independent auditors; or
(2) the termination of the Participants employment with the Company by the Company without Cause or by the Participant for Good Reason. As used herein, Cause means any (i) willful failure by the Participant, which failure is not cured within 30 days of
written notice to the Participant from the Company, to perform his or her material responsibilities to the Company or (ii) willful misconduct by the Participant that affects the business reputation of the Company. As used herein, Good Reason means any significant diminution in the Participants title, authority or responsibilities, or any reduction in the annual cash compensation payable to the Participant, other than by mutual agreement.
(b) In the event that the Shares do not vest in accordance with Section 2(a) on or before the one-year anniversary of the date hereof, then on such anniversary, all of the Shares shall be forfeited immediately and automatically to the Company and the Participant shall have no further rights with respect to such Shares.
(c) In the event that the Participants employment with the Company is terminated by reason of the Participants death or disability prior to the one-year anniversary of the date hereof, all of the Shares shall be forfeited immediately and automatically. For this purpose, disability shall mean the inability of the Participant, due to a medical reason, to carry out his duties as an employee of the Company for a period of six consecutive months.
(d) Notwithstanding anything herein to the contrary, upon the consummation of a Change in Control of the Company (as defined in Exhibit B), the performance conditions contained in Sections 1(a)(1)(B) and 1(a)(1)(C) shall be deemed to be satisfied.
(e) For purposes of this Agreement, employment with the Company shall include employment with a parent or subsidiary of the Company, or any successor to the Company.
3. Automatic Sale Upon Vesting .
(a) Upon any vesting of Shares pursuant to Section 2 hereof, the Company shall sell, or arrange for the sale of, such number of the Shares no longer subject to forfeiture under Section 2 as is sufficient to generate net proceeds sufficient to satisfy the Companys minimum statutory withholding obligations with respect to the income recognized by the Participant upon the lapse of the forfeiture provisions (based on minimum statutory withholding rates for all tax purposes, including payroll and social security taxes, that are applicable to such income), and the Company shall retain such net proceeds in satisfaction of such tax withholding obligations.
(b) The Participant hereby appoints the General Counsel his attorney in fact to sell the Participants Shares in accordance with this Section 3. The Participant agrees to execute and deliver such documents, instruments and certificates as may reasonably be required in connection with the sale of the Shares pursuant to this Section 3.
(c) The Participant represents to the Company that, as of the date hereof, he is not aware of any material nonpublic information about the Company or the Common Stock. The Participant and the Company have structured this Agreement to constitute a binding contract relating to the sale of Common Stock pursuant to this Section 3, consistent with the affirmative defense to liability under Section 10(b) of the Securities Exchange Act of 1934 under Rule 10b5-1(c) promulgated under such Act.
-2-
4. Restrictions on Transfer .
(a) The Participant shall not sell, assign, transfer, pledge, hypothecate or otherwise dispose of, by operation of law or otherwise (collectively transfer ) any Shares, or any interest therein, until such Shares have vested, except that the Participant may transfer such Shares (i) to or for the benefit of any spouse, children, parents, uncles, aunts, siblings, grandchildren and any other relatives approved by the Board of Directors (collectively, Approved Relatives ) or to a trust established solely for the benefit of the Participant and/or Approved Relatives, provided that such Shares shall remain subject to this Agreement (including without limitation the restrictions on transfer set forth in this Section 4 and the forfeiture provisions contained in Section 2) and such permitted transferee shall, as a condition to such transfer, deliver to the Company a written instrument confirming that such transferee shall be bound by all of the terms and conditions of this Agreement or (ii) as part of the sale of all or substantially all of the shares of capital stock of the Company (including pursuant to a merger or consolidation), provided that, in accordance with the Plan and except as otherwise provided herein, the securities or other property received by the Participant in connection with such transaction shall remain subject to this Agreement.
(b) The Company shall not be required (i) to transfer on its books any of the Shares which have been transferred in violation of any of the provisions set forth in this Agreement or (ii) to treat as owner of such Shares or to pay dividends to any transferee to whom such Shares have been transferred in violation of any of the provisions of this Agreement.
5. Restrictive Legends .
All Shares subject to this Agreement subject to the following restriction, in addition to any other legends that may be required under federal or state securities laws:
The shares of stock represented by this certificate are subject to forfeiture provisions and restrictions on transfer set forth in a certain Restricted Stock Agreement between the corporation and the registered owner of these shares (or his predecessor in interest), and such Agreement is available for inspection without charge at the office of the Secretary of the corporation.
6. Provisions of the Plan .
This Agreement is subject to the provisions of the Plan, a copy of which is furnished to the Participant with this Agreement.
7. Withholding Taxes; Section 83(b) Election .
(a) The Participant acknowledges and agrees that the Company has the right to deduct from payments of any kind otherwise due to the Participant any federal, state, local or other taxes of any kind required by law to be withheld with respect to the issuance of the Shares to the Participant or the lapse of the forfeiture provisions.
-3-
(b) The Participant has reviewed with the Participants own tax advisors the federal, state, local and other tax consequences of this investment and the transactions contemplated by this Agreement. The Participant is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Participant understands that the Participant (and not the Company) shall be responsible for the Participants own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement.
THE PARTICIPANT AGREES NOT TO FILE AN ELECTION UNDER SECTION 83(B) OF THE INTERNAL REVENUE CODE WITH RESPECT TO THE ISSUANCE OF THE SHARES.
8. Miscellaneous .
(a) No Rights to Employment . The Participant acknowledges and agrees that the vesting of the Shares pursuant to Section 2 hereof is earned only by satisfaction of the performance conditions and continuing service as an employee at the will of the Company (not through the act of being hired or being granted the Shares hereunder). The Participant further acknowledges and agrees that the transactions contemplated hereunder and the vesting schedule set forth herein do not constitute an express or implied promise of continued engagement as an employee for the vesting period, for any period, or at all.
(b) Severability . The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law.
(c) Waiver . Any provision for the benefit of the Company contained in this Agreement may be waived, either generally or in any particular instance, by the Board of Directors of the Company.
(d) Binding Effect . This Agreement shall be binding upon and inure to the benefit of the Company and the Participant and their respective heirs, executors, administrators, legal representatives, successors and assigns, subject to the restrictions on transfer set forth in Section 4 of this Agreement.
(e) Notice . Each notice relating to this Agreement shall be in writing and delivered in person or by first class mail, postage prepaid, to the address as hereinafter provided. Each notice shall be deemed to have been given on the date it is received. Each notice to the Company shall be addressed to it at its office at 2584 Junction Avenue, San Jose, CA 95134 (Attention: Company Secretary). Each notice to the Participant shall be addressed to the Participant at the Participants last known address.
(f) Pronouns . Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural, and vice versa.
-4-
(g) Entire Agreement . This Agreement and the Plan constitute the entire agreement between the parties, and supersede all prior agreements and understandings, relating to the subject matter of this Agreement.
(h) Amendment . This Agreement may be amended or modified only by a written instrument executed by both the Company and the Participant.
(i) Governing Law . This Agreement shall be construed, interpreted and enforced in accordance with the internal laws of the State of Delaware without regard to any applicable conflicts of laws.
(j) Interpretation . The interpretation and construction of any terms or conditions of the Plan, or of this Agreement or other matters related to the Plan by the Compensation Committee of the Board of Directors of the Company shall be final and conclusive.
(k) Participants Acknowledgments . The Participant acknowledges that he or she: (i) has read this Agreement; (ii) has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of the Participants own choice or has voluntarily declined to seek such counsel; (iii) understands the terms and consequences of this Agreement; (iv) is fully aware of the legal and binding effect of this Agreement; and (v) understands that the law firm of Wilmer Cutler Pickering Hale and Dorr LLP is acting as counsel to the Company in connection with the transactions contemplated by the Agreement, and is not acting as counsel for the Participant.
(l) Delivery of Certificates . Subject to Section 3, the Participant may request that the Company deliver the Shares in certificated form with respect to any Shares that have ceased to be subject to forfeiture pursuant to Section 2.
(m) No Deferral . Notwithstanding anything herein to the contrary, neither the Company nor the Participant may defer the delivery of the Shares.
-5-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
BOOKHAM, INC. | ||||
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By: | /s/ Peter Bordui | ||
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Name: Peter Bordui | |||
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Title: Chairman of the Board |
/s/ Giorgio Anania | ||||
Giorgio Anania | ||||
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Address: | |||
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-6-
EXHIBIT A
Giorgio Anania
Option Ownership Prior to 2-9-05
Number | Grant Date | Plan | Shares | Exercise Price | ||||||||||||
00000690**
|
3/13/2000 | 1998 | 18,000 | $ | 178.5300 | |||||||||||
|
||||||||||||||||
00001693**
|
8/3/2001 | 1998 | 100,000 | $ | 30.5286 | |||||||||||
|
||||||||||||||||
00002216**
|
2/8/2002 | 1998 | 22,400 | $ | 21.7807 | |||||||||||
|
||||||||||||||||
00004394**
|
11/14/2002 | 1998 | 120,736 | $ | 13.9253 | |||||||||||
|
||||||||||||||||
00004720**
|
9/25/2003 | 1998 | 203,559 | $ | 24.1194 | |||||||||||
|
||||||||||||||||
00004934**
|
6/2/2004 | 1998 | 150,673 | $ | 10.4440 | |||||||||||
|
||||||||||||||||
US000592
|
3/24/1999 | 1998 | 18,000 | $ | 19.3330 | |||||||||||
|
||||||||||||||||
US000448
|
4/2/1999 | 1998 | 60,000 | $ | 19.3330 | |||||||||||
|
||||||||||||||||
US000394
|
9/7/1998 | 1998 | 28,000 | $ | 17.6660 | |||||||||||
|
||||||||||||||||
BK001002
|
22/09/2004 | 2004 | 60,000 | $ | 6.4900 | |||||||||||
|
||||||||||||||||
BK001007
|
22/09/2004 | 2004 | 60,000 | $ | 6.4900 | |||||||||||
|
||||||||||||||||
|
||||||||||||||||
|
841,368 |
Options Cancelled at 2-9-05
3/13/2000
1998
18,000
$
178.5300
8/3/2001
1998
100,000
$
30.5286
2/8/2002
1998
22,400
$
21.7807
11/14/2002
1998
120,736
$
13.9253
9/25/2003
1998
203,559
$
24.1194
-7-
00004934**
|
6/2/2004 | 1998 | 18,941 | $ | 10.4440 | |||||||||||
|
||||||||||||||||
US000592
|
3/24/1999 | 1998 | 18,000 | $ | 19.3330 | |||||||||||
|
||||||||||||||||
US000448
|
4/2/1999 | 1998 | 60,000 | $ | 19.3330 | |||||||||||
|
||||||||||||||||
US000394
|
9/7/1998 | 1998 | 28,000 | $ | 17.6660 | |||||||||||
|
||||||||||||||||
|
||||||||||||||||
|
589,636 |
Option Ownership Post 2-9-05
6/2/2004
1998
131,732
$
10.4440
22/09/2004
2004
60,000
$
6.4900
22/09/2004
2004
60,000
$
6.4900
251,732
-8-
EXHIBIT B
As used herein, Change in Control shall mean:
(i) the sale of all or substantially all of the assets of the Company;
(ii) a merger, consolidation, reorganization, recapitalization or share exchange involving the Company with any corporation where, as a result of the transaction, the voting securities of the Company outstanding immediately prior thereto do not continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity including the holding company of such entity) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity immediately after such transaction;
(iii) the sale, transfer or disposition of any shares of the Companys stock to any person or group of persons resulting in that person or persons holding more than fifty percent (50%) of the Companys total voting securities; or
(iv) any change in the composition of the Board of Directors of the Company such that the Continuing Directors (as defined below) cease to constitute a majority of the Board. Continuing Directors shall mean those directors appointed to the Board who (a) are members of the Board of Directors on the date hereof or (b) are nominated or elected subsequent to the date hereof by at least a majority of the directors who were Continuing Directors at the time of any such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided that a director shall not be a Continuing Director where the directors initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or contests by or on behalf of a person other than the Board.
-9-
Exhibit 10.6
Bookham, Inc.
Restricted Stock Agreement
Granted Under 2004 Stock Incentive Plan
AGREEMENT made February 9, 2005, between Bookham, Inc., a Delaware corporation (the Company ), and Stephen Abely (the Participant ).
For valuable consideration, receipt of which is acknowledged, the parties hereto agree as follows:
1. Issuance of Shares; Forfeiture of Options .
(a) The Company shall issue to the Participant, subject to the terms and conditions set forth in this Agreement and in the Companys 2004 Stock Incentive Plan (the Plan ), 102,450 shares (the Shares ) of common stock, $0.01 par value, of the Company ( Common Stock ). The Shares will be held in book entry by the Companys transfer agent in the name of the Participant for that number of Shares issued to the Participant. The Participant agrees that the Shares shall be subject to the forfeiture provisions set forth in Section 2 of this Agreement and the restrictions on transfer set forth in Section 4 of this Agreement.
(b) In consideration for the issuance of the Shares, the Participant shall surrender to the Company for cancellation all of the options which were previously granted by the Company to the Participant. Upon surrender, the options will be cancelled and will be of no further force or effect and the Participant shall have no further rights with respect to such options. The Company shall have no obligation to issue the Shares unless and until the Participant surrenders the options. The options surrendered by the Participant are set forth in Exhibit A.
2. Vesting .
(a) The Shares shall vest and become free from the forfeiture provisions in Section 2(b) hereof and become free from the transfer restrictions in Section 4 hereof on the earlier of:
(1) the one-year anniversary of the date hereof, provided that (A) the Participant has been continuously employed by the Company between the date hereof and such anniversary, (B) on or before such anniversary, the Company has filed on a timely basis any report required pursuant to Item 308 of Regulation S-K and (C) on such anniversary the Company does not have any material weakness that has not been remedied to the satisfaction of the Audit Committee of the Companys Board of Directors and the Companys independent auditors; or
(2) the termination of the Participants employment with the Company by the Company without Cause or by the Participant for Good Reason. As used herein, Cause means any (i) willful failure by the Participant, which failure is not cured within 30 days of written notice to the Participant from the Company, to perform his or her material
responsibilities to the Company or (ii) willful misconduct by the Participant that affects the business reputation of the Company. As used herein, Good Reason means any significant diminution in the Participants title, authority or responsibilities, or any reduction in the annual cash compensation payable to the Participant.
(b) In the event that the Shares do not vest in accordance with Section 2(a) on or before the one-year anniversary of the date hereof, then on such anniversary, all of the Shares shall be forfeited immediately and automatically to the Company and the Participant shall have no further rights with respect to such Shares.
(c) In the event that the Participants employment with the Company is terminated by reason of the Participants death or disability prior to the one-year anniversary of the date hereof, all of the Shares shall be forfeited immediately and automatically. For this purpose, disability shall mean the inability of the Participant, due to a medical reason, to carry out his duties as an employee of the Company for a period of six consecutive months.
(d) Notwithstanding anything herein to the contrary, upon the consummation of a Change in Control of the Company (as defined in Exhibit B), the performance conditions contained in Sections 1(a)(1)(B) and 1(a)(1)(C) shall be deemed to be satisfied.
(e) For purposes of this Agreement, employment with the Company shall include employment with a parent or subsidiary of the Company, or any successor to the Company.
3. Automatic Sale Upon Vesting .
(a) Upon any vesting of Shares pursuant to Section 2 hereof, the Company shall sell, or arrange for the sale of, such number of the Shares no longer subject to forfeiture under Section 2 as is sufficient to generate net proceeds sufficient to satisfy the Companys minimum statutory withholding obligations with respect to the income recognized by the Participant upon the lapse of the forfeiture provisions (based on minimum statutory withholding rates for all tax purposes, including payroll and social security taxes, that are applicable to such income), and the Company shall retain such net proceeds in satisfaction of such tax withholding obligations.
(b) The Participant hereby appoints the General Counsel and Company Secretary his attorney in fact to sell the Participants Shares in accordance with this Section 3. The Participant agrees to execute and deliver such documents, instruments and certificates as may reasonably be required in connection with the sale of the Shares pursuant to this Section 3.
(c) The Participant represents to the Company that, as of the date hereof, he is not aware of any material nonpublic information about the Company or the Common Stock. The Participant and the Company have structured this Agreement to constitute a binding contract relating to the sale of Common Stock pursuant to this Section 3, consistent with the affirmative defense to liability under Section 10(b) of the Securities Exchange Act of 1934 under Rule 10b5-1(c) promulgated under such Act.
-2-
4. Restrictions on Transfer .
(a) The Participant shall not sell, assign, transfer, pledge, hypothecate or otherwise dispose of, by operation of law or otherwise (collectively transfer ) any Shares, or any interest therein, until such Shares have vested, except that the Participant may transfer such Shares (i) to or for the benefit of any spouse, children, parents, uncles, aunts, siblings, grandchildren and any other relatives approved by the Board of Directors (collectively, Approved Relatives ) or to a trust established solely for the benefit of the Participant and/or Approved Relatives, provided that such Shares shall remain subject to this Agreement (including without limitation the restrictions on transfer set forth in this Section 4 and the forfeiture provisions contained in Section 2) and such permitted transferee shall, as a condition to such transfer, deliver to the Company a written instrument confirming that such transferee shall be bound by all of the terms and conditions of this Agreement or (ii) as part of the sale of all or substantially all of the shares of capital stock of the Company (including pursuant to a merger or consolidation), provided that, in accordance with the Plan and except as otherwise provided herein, the securities or other property received by the Participant in connection with such transaction shall remain subject to this Agreement.
(b) The Company shall not be required (i) to transfer on its books any of the Shares which have been transferred in violation of any of the provisions set forth in this Agreement or (ii) to treat as owner of such Shares or to pay dividends to any transferee to whom such Shares have been transferred in violation of any of the provisions of this Agreement.
5. Restrictive Legends .
All Shares subject to this Agreement subject to the following restriction, in addition to any other legends that may be required under federal or state securities laws:
The shares of stock represented by this certificate are subject to forfeiture provisions and restrictions on transfer set forth in a certain Restricted Stock Agreement between the corporation and the registered owner of these shares (or his predecessor in interest), and such Agreement is available for inspection without charge at the office of the Secretary of the corporation.
6. Provisions of the Plan .
This Agreement is subject to the provisions of the Plan, a copy of which is furnished to the Participant with this Agreement.
7. Withholding Taxes; Section 83(b) Election .
(a) The Participant acknowledges and agrees that the Company has the right to deduct from payments of any kind otherwise due to the Participant any federal, state, local or other taxes of any kind required by law to be withheld with respect to the issuance of the Shares to the Participant or the lapse of the forfeiture provisions.
-3-
(b) The Participant has reviewed with the Participants own tax advisors the federal, state, local and other tax consequences of this investment and the transactions contemplated by this Agreement. The Participant is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Participant understands that the Participant (and not the Company) shall be responsible for the Participants own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement.
THE PARTICIPANT AGREES NOT TO FILE AN ELECTION UNDER SECTION 83(B) OF THE INTERNAL REVENUE CODE WITH RESPECT TO THE ISSUANCE OF THE SHARES.
8. Miscellaneous .
(a) No Rights to Employment . The Participant acknowledges and agrees that the vesting of the Shares pursuant to Section 2 hereof is earned only by satisfaction of the performance conditions and continuing service as an employee at the will of the Company (not through the act of being hired or being granted the Shares hereunder). The Participant further acknowledges and agrees that the transactions contemplated hereunder and the vesting schedule set forth herein do not constitute an express or implied promise of continued engagement as an employee for the vesting period, for any period, or at all.
(b) Severability . The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law.
(c) Waiver . Any provision for the benefit of the Company contained in this Agreement may be waived, either generally or in any particular instance, by the Board of Directors of the Company.
(d) Binding Effect . This Agreement shall be binding upon and inure to the benefit of the Company and the Participant and their respective heirs, executors, administrators, legal representatives, successors and assigns, subject to the restrictions on transfer set forth in Section 4 of this Agreement.
(e) Notice . Each notice relating to this Agreement shall be in writing and delivered in person or by first class mail, postage prepaid, to the address as hereinafter provided. Each notice shall be deemed to have been given on the date it is received. Each notice to the Company shall be addressed to it at its offices at Caswell, Towchester, Northhamptonshire NN12 8EQ, United Kingdom (Attention: General Counsel and Company Secretary). Each notice to the Participant shall be addressed to the Participant at the Participants last known address.
(f) Pronouns . Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural, and vice versa.
-4-
(g) Entire Agreement . This Agreement and the Plan constitute the entire agreement between the parties, and supersede all prior agreements and understandings, relating to the subject matter of this Agreement.
(h) Amendment . This Agreement may be amended or modified only by a written instrument executed by both the Company and the Participant.
(i) Governing Law . This Agreement shall be construed, interpreted and enforced in accordance with the internal laws of the State of Delaware without regard to any applicable conflicts of laws.
(j) Interpretation . The interpretation and construction of any terms or conditions of the Plan, or of this Agreement or other matters related to the Plan by the Compensation Committee of the Board of Directors of the Company shall be final and conclusive.
(k) Participants Acknowledgments . The Participant acknowledges that he or she: (i) has read this Agreement; (ii) has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of the Participants own choice or has voluntarily declined to seek such counsel; (iii) understands the terms and consequences of this Agreement; (iv) is fully aware of the legal and binding effect of this Agreement; and (v) understands that the law firm of Wilmer Cutler Pickering Hale and Dorr LLP is acting as counsel to the Company in connection with the transactions contemplated by the Agreement, and is not acting as counsel for the Participant.
(l) Delivery of Certificates . Subject to Section 3, the Participant may request that the Company deliver the Shares in certificated form with respect to any Shares that have ceased to be subject to forfeiture pursuant to Section 2.
(m) No Deferral . Notwithstanding anything herein to the contrary, neither the Company nor the Participant may defer the delivery of the Shares.
-5-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
BOOKHAM, INC. | ||||
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By : | /s/ Peter Bordui | ||
|
||||
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Name: Peter Bordui | |||
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Title: Chairman of the Board |
/s/ Stephen Abely | ||||
Stephen Abely | ||||
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Address: | |||
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-6-
EXHIBIT A
The Participant shall surrender the options to purchase 263,770 shares of the Companys common stock which constitute his entire holding of stock options in the Company.
-7-
EXHIBIT B
As used herein, Change in Control shall mean:
(i) the sale of all or substantially all of the assets of the Company;
(ii) a merger, consolidation, reorganization, recapitalization or share exchange involving the Company with any corporation where, as a result of the transaction, the voting securities of the Company outstanding immediately prior thereto do not continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity including the holding company of such entity) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity immediately after such transaction;
(iii) the sale, transfer or disposition of any shares of the Companys stock to any person or group of persons resulting in that person or persons holding more than fifty percent (50%) of the Companys total voting securities; or
(iv) any change in the composition of the Board of Directors of the Company such that the Continuing Directors (as defined below) cease to constitute a majority of the Board. Continuing Directors shall mean those directors appointed to the Board who (a) are members of the Board of Directors on the date hereof or (b) are nominated or elected subsequent to the date hereof by at least a majority of the directors who were Continuing Directors at the time of any such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided that a director shall not be a Continuing Director where the directors initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or contests by or on behalf of a person other than the Board.
-8-
Exhibit 10.7
Bookham, Inc.
Retention Bonus Agreement
AGREEMENT made February 9 2005, between Bookham, Inc., a Delaware corporation (the Company ), and Giorgio Anania (the Participant ).
For valuable consideration, receipt of which is acknowledged, the parties hereto agree as follows:
1. Bonus Payment .
(a) The Company shall pay to the Participant, subject to the terms and conditions set forth in this Agreement, a cash bonus payment in the amount of GB£240,000 (the Bonus Amount) on the earlier of (i) the one-year anniversary of the date hereof, provided that the Participant has been continuously employed by the Company between the date hereof and such anniversary, or (ii) the termination of the Participants employment with the Company by the Company without Cause or by the Participant for Good Reason. As used herein, Cause means any (i) willful failure by the Participant, which failure is not cured within 30 days of written notice to the Participant from the Company, to perform his or her material responsibilities to the Company or (ii) willful misconduct by the Participant that affects the business reputation of the Company. As used herein, Good Reason means any significant diminution in the Participants title, authority or responsibilities, or any reduction in the annual cash compensation payable to the Participant. In the event that neither of the conditions specified in the first sentence of this Section 1(a) is satisfied on or before the one-year anniversary of the date hereof, the Company shall have no obligation to pay the Bonus Amount to the Participant.
(b) In the event that the Participants employment with the Company is terminated by reason of the Participants death or disability prior to the one-year anniversary of the date hereof, the Company shall have no obligation to pay the Bonus Amount to the Participant or his or her estate. For this purpose, disability shall mean the inability of the Participant, due to a medical reason, to carry out his or her duties as an employee of the Company for a period of six consecutive months.
(c) The Bonus Amount may be payable, at the option of the Company, in cancellation of all or a portion of any outstanding indebtedness of the Participant to the Company or in cash (by check) or both.
(d) For purposes of this Agreement, employment with the Company shall include employment with a parent or subsidiary of the Company, or any successor to the Company.
2. Change in Control . Notwithstanding anything herein to the contrary, upon the consummation of a Change in Control of the Company (as defined in Exhibit A), this Agreement shall terminate and be of no further force or effect.
3. Withholding Taxes . The Participant acknowledges and agrees that the Company has the right to deduct from the Bonus Amount any federal, state, local or other taxes of any kind required by law to be withheld with respect to the payment of such amount.
4. Miscellaneous .
(a) No Rights to Employment . The Participant acknowledges and agrees that the payment of the Bonus Amount is earned only by continuing service as an employee at the will of the Company (not through the act of being hired or entering into this Agreement). The Participant further acknowledges and agrees that this Agreement does not constitute an express or implied promise of continued engagement as an employee or consultant for the one-year vesting period, for any period, or at all.
(b) Severability . The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law.
(c) Waiver . Any provision for the benefit of the Company contained in this Agreement may be waived, either generally or in any particular instance, by the Board of Directors of the Company.
(d) Binding Effect . This Agreement shall be binding upon and inure to the benefit of the Company and the Participant and their respective heirs, executors, administrators, legal representatives, successors and assigns.
(e) Notice . Each notice relating to this Agreement shall be in writing and delivered in person or by first class mail, postage prepaid, to the address as hereinafter provided. Each notice shall be deemed to have been given on the date it is received. Each notice to the Company shall be addressed to it at its offices at 2584 Junction Avenue, San Jose, CA 95134 (Attention: Company Secretary). Each notice to the Participant shall be addressed to the Participant at the Participants last known address.
(f) Pronouns . Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural, and vice versa.
(g) Entire Agreement . This Agreement constitutes the entire agreement between the parties, and supersedes all prior agreements and understandings, relating to the subject matter of this Agreement.
(h) Amendment . This Agreement may be amended or modified only by a written instrument executed by both the Company and the Participant.
(i) Governing Law . This Agreement shall be construed, interpreted and enforced in accordance with the internal laws of the State of Delaware without regard to any applicable conflicts of laws.
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(j) Interpretation . The interpretation and construction of any terms of this Agreement by the Compensation Committee of the Board of Directors of the Company shall be final and conclusive.
(k) Participants Acknowledgments . The Participant acknowledges that he or she: (i) has read this Agreement; (ii) has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of the Participants own choice or has voluntarily declined to seek such counsel; (iii) understands the terms and consequences of this Agreement; (iv) is fully aware of the legal and binding effect of this Agreement; and (v) understands that the law firm of Wilmer Cutler Pickering Hale and Dorr LLP is acting as counsel to the Company in connection with the transactions contemplated by the Agreement, and is not acting as counsel for the Participant.
(l) No Deferral . Notwithstanding anything herein to the contrary, neither the Company nor the Participant may defer the delivery of the Bonus Amount.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
BOOKHAM, INC.
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By: | /s/ Peter Bordui | |||
Name: | Peter Bordui | |||
Title: | Chairman of the Board | |||
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/s/ Giorgio Anania | |||||
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Giorgio Anania | |||||
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Address: | [_____________________] | ||||
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[_____________________] |
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EXHIBIT A
As used herein, Change in Control shall mean:
(i) the sale of all or substantially all of the assets of the Company;
(ii) a merger, consolidation, reorganization, recapitalization or share exchange involving the Company with any corporation where, as a result of the transaction, the voting securities of the Company outstanding immediately prior thereto do not continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity including the holding company of such entity) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity immediately after such transaction;
(iii) the sale, transfer or disposition of any shares of the Companys stock to any person or group of persons resulting in that person or persons holding more than fifty percent (50%) of the Companys total voting securities; or
(iv) any change in the composition of the Board of Directors of the Company such that the Continuing Directors (as defined below) cease to constitute a majority of the Board. Continuing Directors shall mean those directors appointed to the Board who (a) are members of the Board of Directors on the date hereof or (b) are nominated or elected subsequent to the date hereof by at least a majority of the directors who were Continuing Directors at the time of any such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided that a director shall not be a Continuing Director where the directors initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or contests by or on behalf of a person other than the Board.
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Exhibit 10.8
Bookham, Inc.
Retention Bonus Agreement
AGREEMENT made February 9 2005, between Bookham, Inc., a Delaware corporation (the Company ), and Stephen Abely (the Participant ).
For valuable consideration, receipt of which is acknowledged, the parties hereto agree as follows:
1. Bonus Payment .
(a) The Company shall pay to the Participant, subject to the terms and conditions set forth in this Agreement, a cash bonus payment in the amount of US$309,400 (the Bonus Amount) on the earlier of (i) the one-year anniversary of the date hereof, provided that the Participant has been continuously employed by the Company between the date hereof and such anniversary, or (ii) the termination of the Participants employment with the Company by the Company without Cause or by the Participant for Good Reason. As used herein, Cause means any (i) willful failure by the Participant, which failure is not cured within 30 days of written notice to the Participant from the Company, to perform his or her material responsibilities to the Company or (ii) willful misconduct by the Participant that affects the business reputation of the Company. As used herein, Good Reason means any significant diminution in the Participants title, authority or responsibilities, or any reduction in the annual cash compensation payable to the Participant. In the event that neither of the conditions specified in the first sentence of this Section 1(a) is satisfied on or before the one-year anniversary of the date hereof, the Company shall have no obligation to pay the Bonus Amount to the Participant.
(b) In the event that the Participants employment with the Company is terminated by reason of the Participants death or disability prior to the one-year anniversary of the date hereof, the Company shall have no obligation to pay the Bonus Amount to the Participant or his or her estate. For this purpose, disability shall mean the inability of the Participant, due to a medical reason, to carry out his or her duties as an employee of the Company for a period of six consecutive months.
(c) The Bonus Amount may be payable, at the option of the Company, in cancellation of all or a portion of any outstanding indebtedness of the Participant to the Company or in cash (by check) or both.
(d) For purposes of this Agreement, employment with the Company shall include employment with a parent or subsidiary of the Company, or any successor to the Company.
2. Change in Control . Notwithstanding anything herein to the contrary, upon the consummation of a Change in Control of the Company (as defined in Exhibit A), this Agreement shall terminate and be of no further force or effect.
3. Withholding Taxes . The Participant acknowledges and agrees that the Company has the right to deduct from the Bonus Amount any federal, state, local or other taxes of any kind required by law to be withheld with respect to the payment of such amount.
4. Miscellaneous .
(a) No Rights to Employment . The Participant acknowledges and agrees that the payment of the Bonus Amount is earned only by continuing service as an employee at the will of the Company (not through the act of being hired or entering into this Agreement). The Participant further acknowledges and agrees that this Agreement does not constitute an express or implied promise of continued engagement as an employee or consultant for the one-year vesting period, for any period, or at all.
(b) Severability . The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law.
(c) Waiver . Any provision for the benefit of the Company contained in this Agreement may be waived, either generally or in any particular instance, by the Board of Directors of the Company.
(d) Binding Effect . This Agreement shall be binding upon and inure to the benefit of the Company and the Participant and their respective heirs, executors, administrators, legal representatives, successors and assigns.
(e) Notice . Each notice relating to this Agreement shall be in writing and delivered in person or by first class mail, postage prepaid, to the address as hereinafter provided. Each notice shall be deemed to have been given on the date it is received. Each notice to the Company shall be addressed to it at its offices at Caswell, Towchester, Northhamptonshire NN12 8EQ, United Kingdom (Attention: General Counsel and Company Secretary). Each notice to the Participant shall be addressed to the Participant at the Participants last known address.
(f) Pronouns . Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural, and vice versa.
(g) Entire Agreement . This Agreement constitutes the entire agreement between the parties, and supersedes all prior agreements and understandings, relating to the subject matter of this Agreement.
(h) Amendment . This Agreement may be amended or modified only by a written instrument executed by both the Company and the Participant.
(i) Governing Law . This Agreement shall be construed, interpreted and enforced in accordance with the internal laws of the State of Delaware without regard to any applicable conflicts of laws.
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(j) Interpretation . The interpretation and construction of any terms of this Agreement by the Compensation Committee of the Board of Directors of the Company shall be final and conclusive.
(k) Participants Acknowledgments . The Participant acknowledges that he or she: (i) has read this Agreement; (ii) has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of the Participants own choice or has voluntarily declined to seek such counsel; (iii) understands the terms and consequences of this Agreement; (iv) is fully aware of the legal and binding effect of this Agreement; and (v) understands that the law firm of Wilmer Cutler Pickering Hale and Dorr LLP is acting as counsel to the Company in connection with the transactions contemplated by the Agreement, and is not acting as counsel for the Participant.
(l) No Deferral . Notwithstanding anything herein to the contrary, neither the Company nor the Participant may defer the delivery of the Bonus Amount.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
BOOKHAM, INC.
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By: | /s/ Peter Bordui | |||
Name: | Peter Bordui | |||
Title: | Chairman of the Board | |||
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/s/ Stephen Abely | |||||
|
Stephen Abely | |||||
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Address: | [_____________________] | ||||
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[_____________________] |
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EXHIBIT A
As used herein, Change in Control shall mean:
(i) the sale of all or substantially all of the assets of the Company;
(ii) a merger, consolidation, reorganization, recapitalization or share exchange involving the Company with any corporation where, as a result of the transaction, the voting securities of the Company outstanding immediately prior thereto do not continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity including the holding company of such entity) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity immediately after such transaction;
(iii) the sale, transfer or disposition of any shares of the Companys stock to any person or group of persons resulting in that person or persons holding more than fifty percent (50%) of the Companys total voting securities; or
(iv) any change in the composition of the Board of Directors of the Company such that the Continuing Directors (as defined below) cease to constitute a majority of the Board. Continuing Directors shall mean those directors appointed to the Board who (a) are members of the Board of Directors on the date hereof or (b) are nominated or elected subsequent to the date hereof by at least a majority of the directors who were Continuing Directors at the time of any such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided that a director shall not be a Continuing Director where the directors initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or contests by or on behalf of a person other than the Board.
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Exhibit 31.1
CERTIFICATIONS
I, Giorgio Anania, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Bookham, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for
the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) [Not Applicable];
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrants
ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
Date: May 17, 2005
By:
/s/ GIORGIO ANANIA
Giorgio Anania
President and Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATIONS
I, Stephen Abely, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Bookham, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for
the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) [Not Applicable];
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrants
ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
Date: May 17, 2005
By:
/s/ STEPHEN ABELY
Stephen Abely
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO
In connection with the quarterly report on Form 10-Q of Bookham, Inc. (the Company) for the
period ended April 2, 2005 as filed with the Securities and Exchange Commission on the date hereof
(the Report), the undersigned, Giorgio Anania, President and Chief Executive Officer of the Company, hereby
certifies, pursuant to 18 U.S.C. Section 1350, that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Date: May 17, 2005
By:
/s/ GIORGIO ANANIA
Giorgio Anania
President and Chief Executive Officer
(Principal Executive Officer)
Exhibit 32.2
CERTIFICATION PURSUANT TO
In connection with the quarterly report on Form 10-Q of Bookham, Inc. (the Company) for the
period ended April 2, 2005 as filed with the Securities and Exchange Commission on the date hereof
(the Report), the undersigned, Stephen Abely, Chief Financial Officer of the Company, hereby
certifies, pursuant to 18 U.S.C. Section 1350, that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Date: May 17, 2005
By:
/s/ STEPHEN ABELY
Stephen Abely
Chief Financial Officer
(Principal Financial and
Accounting Officer)