sv4za
As filed with the Securities
and Exchange Commission on March 24, 2009
Registration
No. 333-157528
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 2 to
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Bookham, Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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3674
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20-1303994
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification No.)
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2584 Junction Avenue
San Jose, California
95134
(408) 383-1400
(Address, including zip code,
and telephone number, including area code, of registrants
principal executive offices)
Alain Couder
Chief Executive Officer and
President
Bookham, Inc.
2584 Junction Avenue
San Jose, California
95134
(408) 383-1400
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
Copies to:
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Keith A. Flaum, Esq.
Chadwick L. Mills, Esq.
Cooley Godward Kronish LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306
(650) 843-5000
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Kate Rundle, Esq.
Bookham, Inc.
2584 Junction Avenue
San Jose, California 95134
(408) 383-1400
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Giovanni Barbarossa, Ph.D.
Avanex Corporation
40919 Encyclopedia Circle
Fremont, California 94538
(510) 897-4188
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David J. Segre, Esq.
Robert T. Ishii, Esq.
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
(650) 493-9300
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Approximate date of proposed sale to the
public: As soon as practicable after the
effectiveness of this registration statement and the
satisfaction or waiver of all other conditions under the merger
agreement described herein.
If the securities being registered on this Form are being
offered in connection with the formation of a holding company
and there is compliance with General Instruction G, check the
following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company þ
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(Do not check if a smaller reporting company)
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If applicable, place an X in the box to designate the
appropriate rule provision relied upon in conducting this
transaction:
Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender
Offer)
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Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender
Offer)
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The Registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment that
specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
The information in this joint proxy statement/prospectus is not
complete and may be changed. Bookham may not sell these
securities until the registration statement filed with the U.S.
Securities and Exchange Commission is effective. This joint
proxy statement/prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
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SUBJECT TO COMPLETION DATED
MARCH 23, 2009
SPECIAL
MEETINGS OF STOCKHOLDERS
MERGER PROPOSED YOUR VOTE IS VERY
IMPORTANT
The boards of directors of Bookham, Inc. and Avanex Corporation
have each unanimously approved a merger combining Bookham and
Avanex.
If the merger is consummated, holders of Avanex common stock
will be entitled to receive 5.426 shares of Bookham common
stock for each share of Avanex common stock they own (the
exchange ratio does not give effect to the proposed reverse
stock split discussed in the section of this joint proxy
statement/prospectus entitled Bookham
Proposal No. 3 Amendments to
Bookhams Restated Certificate of Incorporation to Effect a
Reverse Stock Split and to Reduce the Number of Authorized
Shares of Bookham Common Stock and Preferred Stock). The
exchange ratio will not be adjusted for changes in the stock
price of either company before the merger is consummated.
Bookham common stock is listed on the NASDAQ Global Market under
the symbol BKHM.
On ,
2009, the last trading day before the date of this joint proxy
statement/prospectus, the closing price of Bookham common stock
was $ per share. Avanex common
stock is listed on the NASDAQ Global Market under the symbol
AVNX.
Bookham is soliciting proxies for use at a special meeting of
its stockholders to consider and vote upon (i) a proposal
to approve the issuance of Bookham common stock to the
stockholders of Avanex in the merger, (ii) a proposal to
approve an amendment to Bookhams restated certificate of
incorporation to increase the number of authorized shares of
Bookham common stock to 450,000,000 shares (on a
pre-reverse
stock split basis), (iii) a proposal to approve amendments
to Bookhams restated certificate of incorporation that
would effect a reverse stock split of the issued and outstanding
shares of Bookham common stock and a corresponding proportionate
reduction in the total number of authorized shares of Bookham
common stock and preferred stock, and (iv) an adjournment
of the Bookham special meeting, if necessary, if a quorum is
present, to solicit additional proxies if there are not
sufficient votes in favor of any of these proposals.
Avanex is soliciting proxies for use at a special meeting of its
stockholders to consider and vote upon (i) a proposal to
adopt the merger agreement with Bookham, and (ii) an
adjournment of the Avanex special meeting, if necessary, if a
quorum is present, to solicit additional proxies if there are
not sufficient votes in favor of any of this proposal.
The dates, times and places of the special meetings are as
follows:
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For Bookham stockholders:
April 27, 2009
11:00 a.m., local time
Bookham, Inc.
2584 Junction Avenue
San Jose, California 95134
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For Avanex stockholders:
April 27, 2009
11:00 a.m., local time
Avanex Corporation
40919 Encyclopedia Circle
Fremont, California 94538
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This joint proxy statement/prospectus refers to important
business and financial information about Bookham and Avanex that
is not included in or delivered with this joint proxy
statement/prospectus. Such information is available without
charge to stockholders of Bookham and Avanex upon written or
oral request at the following addresses: For information
concerning Bookham, Bookham, Inc., Attn: Investor Relations,
2584 Junction Avenue, San Jose, CA 95134 or by telephone at
(408) 383-1400
and for information concerning Avanex, Avanex Corporation, Attn:
Investor Relations, 40919 Encyclopedia Circle, Fremont, CA 94538
or by telephone at
(510) 897-4188.
To obtain timely delivery, Bookham stockholders must request
the information no later than five business days before the date
of the Bookham special meeting, or no later than April 20,
2009, and Avanex stockholders must request the information no
later than five business days before the date of the Avanex
special meeting, or no later than April 20, 2009.
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Alain Couder
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Giovanni Barbarossa, Ph.D.
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Chief Executive Officer and President
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Chief Executive Officer
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Bookham, Inc.
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Avanex Corporation
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FOR A DISCUSSION OF SIGNIFICANT MATTERS THAT SHOULD BE
CONSIDERED BEFORE VOTING AT THE SPECIAL MEETINGS, SEE RISK
FACTORS BEGINNING ON PAGE 26.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES REGULATORS HAVE APPROVED OR DISAPPROVED THE BOOKHAM
COMMON STOCK TO BE ISSUED IN THE MERGER OR DETERMINED WHETHER
THIS JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This joint proxy statement/prospectus is
dated ,
2009, and is first being mailed to stockholders of Bookham and
Avanex on or
about ,
2009.
THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
BOOKHAM,
INC.
2584 Junction Avenue
San Jose, California 95134
(408) 383-1400
NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS
TO BE HELD ON APRIL 27, 2009
To the Stockholders of Bookham, Inc.:
On behalf of the board of directors of Bookham, Inc., a Delaware
corporation, we are pleased to deliver this joint proxy
statement/prospectus for the proposed merger combining Bookham
and Avanex Corporation, a Delaware corporation. A special
meeting of stockholders of Bookham will be held on Monday,
April 27, 2009 at 11:00 a.m., local time, at the principal
executive offices of Bookham located at 2584 Junction Avenue,
San Jose, California 95134, for the following purposes:
1. To consider and vote upon the issuance of shares of
Bookham common stock in the merger contemplated by the Agreement
and Plan of Merger and Reorganization, dated as of
January 27, 2009, by and among Bookham, Inc., Ultraviolet
Acquisition Sub, Inc., a Delaware corporation and a wholly owned
subsidiary of Bookham, and Avanex Corporation, a Delaware
corporation.
2. To approve an amendment to Bookhams restated
certificate of incorporation to increase the number of
authorized shares of Bookham common stock to 450,000,000 (on a
pre-reverse stock split basis).
3. To approve amendments to Bookhams restated
certificate of incorporation that would effect a reverse stock
split, pursuant to which any whole number of issued and
outstanding shares of Bookham common stock between and including
five and thirty would be combined and reclassified into one
share of Bookham common stock, and pursuant to which the total
number of authorized shares of Bookham common stock and
preferred stock would be proportionately reduced, and to
authorize the Bookham board of directors to select and file one
such amendment that would effect the reverse stock split within
such range and that would proportionately reduce the total
number of authorized shares of Bookham common stock and
preferred stock.
4. To consider and vote upon an adjournment of the Bookham
special meeting, if necessary, if a quorum is present, to
solicit additional proxies if there are not sufficient votes in
favor of any of Bookham Proposal Nos. 1, 2 or 3.
5. To transact such other business as may properly come
before the special meeting or any adjournment or postponement
thereof.
The board of directors of Bookham has fixed March 18, 2009
as the record date for the determination of stockholders
entitled to notice of, and to vote at, the Bookham special
meeting and any adjournment or postponement thereof. Only
holders of record of shares of Bookham common stock at the close
of business on the record date are entitled to notice of, and to
vote at, the Bookham special meeting. At the close of business
on the record date, Bookham had outstanding and entitled to
vote 100,959,545 shares of common stock.
Your vote is important. The affirmative vote of the holders
of a majority of the voting power of the shares voting in person
or by proxy at the Bookham special meeting is required for
approval of each of Bookham Proposal Nos. 1 and 4, and the
affirmative vote of the holders of a majority of the voting
power of Bookham common stock outstanding on the record date for
the Bookham special meeting is required for approval of Bookham
Proposal Nos. 2 and 3. Even if you plan to attend the
Bookham special meeting in person, we request that you sign and
return the enclosed proxy card or vote by telephone or by using
the Internet as instructed on the enclosed proxy card and thus
ensure that your shares will be represented at the special
meeting if you are unable to attend. If you sign, date and mail
your proxy card without indicating how you wish to vote, your
proxy will be counted as a vote in favor of each of Bookham
Proposal Nos. 1, 2, 3 and 4. If you fail to return your
proxy card or vote by
telephone or by using the Internet, the effect will be that
your shares will not be counted for purposes of determining
whether a quorum is present at the special meeting. If you do
attend the Bookham special meeting and wish to vote in person,
you may withdraw your proxy and vote in person.
By Order of the Board of Directors,
Alain Couder
Chief Executive Officer and President
San Jose, California
,
2009
BOOKHAMS BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED
AND BELIEVES THAT EACH OF THE BOOKHAM PROPOSALS OUTLINED
ABOVE IS ADVISABLE TO, AND IN THE BEST INTERESTS OF, BOOKHAM AND
ITS STOCKHOLDERS, AND HAS APPROVED EACH SUCH PROPOSAL. THE
BOOKHAM BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT BOOKHAM
STOCKHOLDERS VOTE FOR EACH PROPOSAL.
AVANEX
CORPORATION
40919 Encyclopedia Circle
Fremont, California 94538
(510) 897-4188
NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS
TO BE HELD ON APRIL 27, 2009
To the Stockholders of Avanex Corporation:
On behalf of the board of directors of Avanex Corporation, a
Delaware corporation, we are pleased to deliver this joint proxy
statement/prospectus for the proposed merger combining Bookham,
Inc., a Delaware corporation, and Avanex. A special meeting of
stockholders of Avanex will be held on Monday, April 27,
2009 at 11:00 a.m., local time, at the principal executive
offices of Avanex located at 40919 Encyclopedia Circle, Fremont,
California 94538, for the following purposes:
1. To consider and vote upon the adoption of the Agreement
and Plan of Merger and Reorganization, dated as of
January 27, 2009, by and among Bookham, Inc., a Delaware
corporation, Ultraviolet Acquisition Sub, Inc., a Delaware
corporation and a wholly owned subsidiary of Bookham, and Avanex
Corporation.
2. To consider and vote upon an adjournment of the special
meeting, if necessary, if a quorum is present, to solicit
additional proxies if there are not sufficient votes in favor of
Avanex Proposal No. 1.
3. To transact such other business as may properly come
before the special meeting or any adjournment or postponement
thereof.
The board of directors of Avanex has fixed March 18, 2009
as the record date for the determination of stockholders
entitled to notice of, and to vote at, the special meeting and
any adjournment or postponement thereof. Only holders of record
of shares of Avanex common stock at the close of business on the
record date are entitled to notice of, and to vote at, the
Avanex special meeting. At the close of business on the record
date, Avanex had outstanding and entitled to
vote 15,623,421 shares of common stock.
Your vote is important. The affirmative vote of the holders
of a majority of the voting power of the shares of Avanex common
stock outstanding on the record date for the Avanex special
meeting is required for approval of Avanex
Proposal No. 1 regarding the adoption of the merger
agreement. The affirmative vote of the holders of a majority of
the votes cast in person or by proxy at the Avanex special
meeting is required to approve Avanex Proposal No. 2
regarding an adjournment of the Avanex special meeting, if
necessary, if a quorum is present, to solicit additional proxies
if there are not sufficient votes in favor of Avanex
Proposal No. 1. Even if you plan to attend the special
meeting in person, we request that you sign and return the
enclosed proxy card or vote by telephone or by using the
Internet as instructed on the enclosed proxy card and thus
ensure that your shares will be represented at the special
meeting if you are unable to attend. If you sign, date and mail
your proxy card without indicating how you wish to vote, your
proxy will be counted as a vote in favor of the adoption of the
merger agreement and in favor of an adjournment of the Avanex
special meeting, if necessary, if a quorum is present, to
solicit additional proxies if there are not sufficient votes in
favor of Avanex Proposal No. 1. If you fail to return
your proxy card or vote by telephone or by using the Internet,
the effect will be a vote against the adoption of the merger
agreement and your shares will not be counted for purposes of
determining whether a quorum is present at the Avanex special
meeting. If you do attend the Avanex special meeting and wish to
vote in person, you may withdraw your proxy and vote in
person.
Please do not send any certificates representing your Avanex
common stock at this time.
By Order of the Board of Directors,
Giovanni Barbarossa, Ph.D.
Chief Executive Officer
Fremont, California
,
2009
AVANEXS BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED
AND BELIEVES THAT THE MERGER IS ADVISABLE AND FAIR TO, AND IN
THE BEST INTERESTS OF, AVANEX AND ITS STOCKHOLDERS, AND
UNANIMOUSLY RECOMMENDS THAT AVANEX STOCKHOLDERS VOTE
FOR AVANEX PROPOSAL NO. 1 AND
FOR AVANEX PROPOSAL NO. 2.
ABOUT
THIS DOCUMENT
This document, which forms part of a registration statement on
Form S-4
filed with the U.S. Securities and Exchange Commission by
Bookham (File
No. 333-157528),
constitutes a prospectus of Bookham under Section 5 of the
Securities Act of 1933, as amended, which we refer to as the
Securities Act, with respect to the shares of Bookham common
stock to be issued in the merger contemplated by the merger
agreement.
This document also constitutes a notice of meeting and a proxy
statement under Section 14(a) of the Securities Exchange
Act of 1934, as amended, which we refer to as the Exchange Act,
(i) with respect to the Bookhams special meeting, at
which Bookham stockholders will be asked to consider and vote
upon certain proposals, including a proposal to approve the
issuance of shares of Bookham common stock in the merger
contemplated by the merger agreement, and (ii) with respect
to the Avanex special meeting, at which Avanex stockholders will
be asked to consider and vote upon certain proposals, including
a proposal to adopt the merger agreement.
As used in this joint proxy statement/prospectus, references to
Bookham refer collectively to Bookham, Inc. and all
of its subsidiaries unless the context requires otherwise,
references to Avanex refer to Avanex Corporation and
all of its subsidiaries unless the context requires otherwise,
and references to the combined company refer to
Bookham following the consummation of the proposed merger
described in this joint proxy statement/prospectus.
TABLE OF
CONTENTS
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iv
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F-1
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ANNEXES
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Annex A-1
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Annex B-1
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Annex C-1
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Annex D-1
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Annex E-1
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Annex F-1
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Annex G-1
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EX-5.1 |
EX-8.1 |
EX-8.2 |
EX-99.1 |
EX-99.2 |
v
QUESTIONS
AND ANSWERS ABOUT THE MERGER AND THE STOCKHOLDER
MEETINGS
The following section provides answers to frequently asked
questions about the merger and the effect of the merger on
holders of Bookham common stock and security holders of Avanex,
the Bookham special meeting and the Avanex special meeting. This
section, however, only provides summary information. Bookham and
Avanex urge you to read carefully the remainder of this joint
proxy statement/prospectus, including the annexes to this joint
proxy statement/prospectus, because the information in this
section does not provide all the information that might be
important to you regarding the merger and the other matters
being considered at the Bookham special meeting and the Avanex
special meeting.
Unless specifically stated otherwise, the following
information and all other information contained in this joint
proxy statement/prospectus, including that regarding the
exchange ratio pursuant to the merger agreement, does not give
effect to the proposed reverse stock split discussed in the
section entitled Bookham
Proposal No. 3 Amendments to
Bookhams Restated Certificate of Incorporation to Effect a
Reverse Stock Split and to Reduce the Number of Authorized
Shares of Bookham Common Stock and Preferred Stock.
|
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|
Q: |
|
What is the merger? |
|
A: |
|
Bookham and Avanex have entered into an Agreement and Plan of
Merger and Reorganization, dated January 27, 2009, which is
referred to in this joint proxy statement/prospectus as the
merger agreement, that contains the terms and conditions of the
proposed business combination of Bookham and Avanex. Under the
merger agreement, Ultraviolet Acquisition Sub, Inc., a wholly
owned subsidiary of Bookham, will merge with and into Avanex,
with Avanex surviving as a wholly owned subsidiary of Bookham,
which transaction is referred to as the merger. The shares of
Bookham common stock issued to Avanex stockholders in connection
with the merger are expected to represent approximately 46.75%
of the outstanding shares of Bookham common stock immediately
following the consummation of the merger, based on the number of
shares of Bookham common stock and Avanex common stock that were
outstanding on January 27, 2009, assuming that no Avanex or
Bookham stock options or warrants are exercised after
January 27, 2009 and prior to the effective time of the
merger, and without giving effect to the vesting of any
outstanding Avanex or Bookham restricted stock units prior to
the effective time of the merger. For a more complete
description of the merger, please see the section entitled
Bookham Proposal No. 1 and Avanex
Proposal No. 1 The Merger on
page 71 of this joint proxy statement/prospectus. |
|
Q: |
|
Why are the two companies proposing to merge? |
|
A: |
|
Both Bookham and Avanex believe that the combination will create
significant cost saving synergies and will form a leader in the
metro and long-haul optical markets that will be better
positioned to compete in the market. The companies also believe
that the integration of their product lines, technologies and
research teams will allow the combined company to benefit from
synergies and cost saving opportunities and maximize research
and development resources. For a discussion of the reasons for
the merger, we urge you to read the information in the section
entitled Bookham Proposal No. 1 and Avanex
Proposal No. 1 The Merger
Reasons for the Merger on page 84 of this joint proxy
statement/prospectus. |
|
Q: |
|
Why am I receiving this joint proxy statement/prospectus? |
|
A: |
|
You are receiving this joint proxy statement/prospectus because
you have been identified as a stockholder of either Bookham or
Avanex, and thus you are entitled to vote at such companys
special meeting. This document serves as both a joint proxy
statement of Bookham and Avanex, used to solicit proxies for
each of the companys special meetings, and as a prospectus
of Bookham, used to offer shares of Bookham common stock in
exchange for shares of Avanex common stock pursuant to the terms
of the merger agreement. This document contains important
information about the merger and the special meetings of Bookham
and Avanex, and you should read it carefully. |
1
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|
Q: |
|
When and where will the Avanex special meeting take place? |
|
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A: |
|
The Avanex special meeting will be held on April 27, 2009
at 11:00 a.m., Pacific Time, at 40919 Encyclopedia Circle,
Fremont, CA 94538. |
|
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|
Q: |
|
When and where will the Bookham special meeting take
place? |
|
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A: |
|
The Bookham special meeting will be held on April 27, 2009
at 11:00 a.m., Pacific Time, at 2584 Junction Avenue,
San Jose, CA 95134. |
|
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|
Q: |
|
Who can attend and vote at the stockholders meetings? |
|
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A: |
|
Avanex: All Avanex stockholders of record as of the close
of business on March 18, 2009, the record date for the
Avanex special meeting, are entitled to receive notice of and to
vote at the Avanex special meeting. |
|
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|
Bookham: All Bookham stockholders of record as of the
close of business on March 18, 2009, the record date for
the Bookham special meeting, are entitled to receive notice of
and to vote at the Bookham special meeting. |
|
|
|
Q: |
|
What is required to consummate the merger? |
|
A: |
|
To consummate the merger, Bookham stockholders must approve:
(a) the issuance of shares of Bookham common stock in the
merger, which approval requires the affirmative vote of the
holders of a majority of the voting power of the shares of
Bookham voting in person or by proxy on such matter; and
(b) an amendment to Bookhams restated certificate of
incorporation to increase the number of authorized shares of
Bookham common stock, which approval requires the affirmative
vote of the holders of a majority of the voting power of the
shares of Bookham common stock outstanding on the record date
for the Bookham special meeting. In addition, Avanex
stockholders must adopt the merger agreement, which adoption
requires the affirmative vote of the holders of a majority of
the voting power of the shares of Avanex common stock
outstanding on the record date for the Avanex special meeting.
In addition to the receipt of stockholder approval, each of the
other closing conditions set forth in the merger agreement must
be satisfied or waived. For a more complete description of the
closing conditions under the merger agreement, we urge you to
read the section entitled The Merger Agreement
Conditions to the Merger on page 126 of this joint
proxy statement/prospectus and the merger agreement attached to
this joint proxy statement/prospectus as Annex A. |
|
Q: |
|
Why is Bookham asking to amend its restated certificate of
incorporation to increase the number of authorized shares of its
common stock? |
|
A: |
|
Approval of an amendment to Bookhams restated certificate
of incorporation to increase the number of authorized shares of
Bookham common stock (which is the subject of Bookham
Proposal No. 2) is one of the conditions to the
consummation of the merger. Without an increase in the number of
authorized shares of Bookham common stock, Bookham would not
have a sufficient number of authorized shares to effect the
merger and to issue the Bookham common stock to the Avanex
stockholders in the merger pursuant to the merger agreement. |
|
Q: |
|
What is the reverse stock split of Bookham and why are
Bookhams stockholders being asked to approve it? |
|
A: |
|
Bookhams board of directors has unanimously approved
proposed amendments to Bookhams restated certificate of
incorporation that would effect a reverse stock split of all
outstanding shares of Bookham common stock at a reverse stock
split ratio ranging from one-for-five to one-for-thirty, in
connection with which the total number of shares of Bookham
common stock and preferred stock that Bookham is authorized to
issue would be proportionately reduced. Upon receiving
stockholder approval, the Bookham board of directors will, for a
period of one year from the date of the Bookham special meeting,
have the sole discretion to effect a reverse stock split within
the range described above and the corresponding proportionate
reduction in the authorized shares of Bookham common stock and
preferred stock as it determines to be in the best interests of
Bookham and its stockholders and regardless of whether the
proposed |
2
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|
merger is consummated. Bookham common stock is currently, and
will be following the completion of the merger, listed on the
NASDAQ Global Market. According to applicable NASDAQ rules, in
order for Bookham common stock to continue to be listed on the
NASDAQ Global Market, Bookham must satisfy certain listing
maintenance standards established by the NASDAQ Global Market.
Among other things, if the closing bid price of Bookham common
stock is under $1.00 per share for 30 consecutive trading days
and does not thereafter reach $1.00 per share or higher for a
minimum of ten consecutive trading days during the 180 calendar
days following notification by NASDAQ, NASDAQ may take action to
delist Bookham common stock from trading on the NASDAQ Global
Market. NASDAQ has currently suspended enforcement of the
closing bid price requirement, but according to NASDAQ, the
closing bid requirement will be reinstated on July 20,
2009. As of March 23, 2009, the closing bid price of
Bookham common stock was $0.33, lower than the minimum bid
requirement. Therefore, a reverse stock split may be necessary
in order for Bookham common stock to continue to be listed on
the NASDAQ Global Market. |
|
|
|
Q: |
|
What will Avanex stockholders receive in the merger? |
|
A: |
|
As a result of the merger, Avanex stockholders will receive
5.426 shares of Bookham common stock for each share of
Avanex common stock they own, which we refer to as the exchange
ratio. For example, if you own 1,000 shares of Avanex
common stock, you will receive 5,426 shares of Bookham
common stock (which amount does not give effect to the proposed
reverse stock split discussed in the section entitled
Bookham Proposal No. 3 Amendments to
Bookhams Restated Certificate of Incorporation to Effect a
Reverse Stock Split and to Reduce the Number of Authorized
Shares of Bookham Common Stock and Preferred Stock) in
exchange for your Avanex shares. The number of shares of Bookham
common stock to be issued for each share of Avanex common stock
is fixed and will not be adjusted based upon changes in the
value of Avanex common stock or Bookham common stock before the
merger is consummated (however, the exchange ratio is subject to
adjustments for changes in the number of outstanding shares of
Bookham or Avanex by reason of future stock splits, reverse
stock splits, division of shares, stock dividends or other
similar transactions). As a result, the value of the Bookham
shares Avanex stockholders will receive in the merger will not
be known before the merger, and will go up or down as the market
price of Bookham common stock goes up or down. We encourage you
to obtain current market quotations of Avanex common stock and
Bookham common stock. No fractional shares of Bookham common
stock will be issued in the merger. Instead, each Avanex
stockholder otherwise entitled to a fraction of a share of
Bookham common stock will be entitled to receive in cash the
dollar amount determined by multiplying such fraction by the
average closing price of Bookham common stock over a ten day
period as specified in the merger agreement. For a more complete
description of what Avanex stockholders will receive in the
merger, please see the section entitled The Merger
Agreement Manner and Basis of Converting
Shares on page 111 of this joint proxy
statement/prospectus. |
|
Q: |
|
What will Avanex option holders receive in the merger? |
|
A: |
|
At the effective time of the merger, each Avanex stock option
that is outstanding and unexercised immediately prior to the
effective time will be converted into an option to purchase
Bookham common stock (adjusted to give effect to the exchange
ratio) and Bookham will assume such stock option in accordance
with the terms of the applicable Avanex stock option plan and
terms of the stock option agreement relating to such Avanex
stock option, subject to certain adjustments to the number of
shares subject to such option and the exercise price applicable
to such option. For more information, please see The
Merger Agreement Avanex Stock Options on
page 113. |
|
Q: |
|
What will the holders of Avanex restricted stock units
receive in the merger? |
|
A: |
|
At the effective time of the merger, each Avanex restricted
stock unit that is outstanding and unvested immediately prior to
the effective time will be converted into a restricted stock
unit reflecting Bookham common stock (adjusted to give effect to
the exchange ratio), subject to adjustments to the number of
shares subject to the restricted stock unit, and will remain
subject to the same conditions of the applicable Avanex
restricted stock unit (including the vesting schedule). For more
information, please see The Merger Agreement
Avanex Restricted Stock Units on page 113. |
3
|
|
|
Q: |
|
What will the holders of Avanex warrants receive in the
merger? |
|
A: |
|
At the effective time of the merger, each warrant to purchase
shares of Avanex common stock that is outstanding and
unexercised immediately prior to the effective time will be
converted into and become a warrant to purchase Bookham common
stock (adjusted to give effect to the exchange ratio) and
Bookham will replace such warrant by issuing a reasonably
equivalent replacement warrant in accordance with the terms of
the applicable warrant agreement by which such warrant is
evidenced, subject to certain adjustments to the number of
shares subject to such warrant and the exercise price applicable
to such warrant. For more information, please see The
Merger Agreement Avanex Warrants on
page 113. |
|
Q: |
|
Will there be any changes to the Bookham board of directors
if the merger becomes effective? |
|
|
|
A: |
|
The merger agreement provides that the Bookham board of
directors following the effective time of the merger will be
comprised of three members designated by Avanex (currently
expected to be Giovanni Barbarossa, Greg Dougherty and Joel A.
Smith, III) and four members to be designated by Bookham
(currently expected to be Alain Couder, Bernard Couillaud, Lori
Holland and Edward Collins). For more information, please see
the sections entitled The Merger Agreement The
Board of Directors of Bookham Following the Merger on
page 132 and Management and Other Information of the
Combined Company on page 178. |
|
|
|
Q: |
|
Who will be the executive officers of Bookham immediately
following the merger? |
|
A: |
|
It is currently expected that the executive officers of Bookham
following the merger will be substantially similar to the
current executive officers of Bookham. In addition, following
the effective time of the merger, Bookham contemplates that
certain employees of Avanex will join Bookham as officers of
Bookham and thus may become executive officers of Bookham. In
the event that new personnel become executive officers of
Bookham, certain persons who currently serve as executive
officers of Bookham may no longer serve in such capacity. As of
the date of this joint proxy statement/prospectus it is not
known which Avanex employees, if any, will become executive
officers of Bookham and no determinations by Bookham have been
made in this regard. Similarly, it is not known which of
Bookhams current executive officers, if any, will cease to
serve in such capacity. The current executive officers of
Bookham are: Alain Couder (President and Chief Executive
Officer), Jerry Turin (Chief Financial Officer), James Haynes
(Chief Operating Officer), Adrian Meldrum (Executive Vice
President, Telecom Division) and Kate Rundle (Executive Vice
President, General Counsel and Corporate Secretary). |
|
Q: |
|
How will Bookham stockholders be affected by the merger and
issuance of shares of Bookham common stock? |
|
A: |
|
After the merger each Bookham stockholder will have the same
number of shares of Bookham common stock that the stockholder
held immediately prior to the effective time of the merger.
However, because Bookham will be issuing new shares of Bookham
common stock to Avanex stockholders in the merger, each share of
Bookham common stock outstanding immediately prior to the merger
will represent a smaller percentage of the aggregate number of
shares of Bookham common stock outstanding after the merger. As
a result of the merger, each Bookham stockholder will own a
smaller percentage of the shares of common stock of a larger
company with more outstanding shares and more assets. Based on
the number of shares of Bookham and Avanex that were outstanding
on January 27, 2009, Bookham stockholders would own in the
aggregate approximately 53.25% of Bookham following the merger,
assuming that no Avanex or Bookham stock options or warrants are
exercised after January 27, 2009 and prior to the effective
time of the merger, and without giving effect to the vesting of
any outstanding Avanex or Bookham restricted stock units prior
to the effective time of the merger. |
|
Q: |
|
What are the material federal income tax consequences of the
merger to me? |
|
A: |
|
The merger has been structured to qualify as a tax-free
reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended, and it is a closing
condition to the merger that Bookham and Avanex receive opinions
of their respective outside counsel regarding such
qualification. As a result of the mergers anticipated
qualification as a reorganization, Avanex stockholders will |
4
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|
|
|
|
generally not recognize gain or loss for United States federal
income tax purposes upon the exchange of shares of Avanex common
stock for shares of Bookham common stock, except with respect to
cash received in lieu of fractional shares of Bookham common
stock. |
|
|
|
Tax matters are very complicated, and the tax consequences of
the merger to a particular stockholder will depend in part on
such stockholders circumstances. Accordingly, we urge you
to consult your own tax advisor for a full understanding of the
tax consequences of the merger to you, including the
applicability and effect of federal, state, local and foreign
income and other tax laws. |
|
|
|
For more information, please see the section entitled
Bookham Proposal No. 1 and Avanex
Proposal No. 1 The Merger
Material U.S. Federal Income Tax Consequences of the
Merger on page 107 of this joint proxy
statement/prospectus. |
|
Q: |
|
How does Bookhams board of directors recommend that
Bookham stockholders vote? |
|
A: |
|
After careful consideration, Bookhams board of directors
unanimously recommends that Bookham stockholders vote
FOR Bookham Proposal No. 1 to approve the
issuance of shares of Bookham common stock in the merger;
FOR Bookham Proposal No. 2 to approve an
amendment to Bookhams restated certificate of
incorporation to increase its authorized shares of common stock;
FOR Bookham Proposal No. 3 to approve
amendments to Bookhams restated certificate of
incorporation in order to effect a reverse stock split and to
reduce the number of authorized shares of Bookham common stock
and preferred stock; and FOR Bookham
Proposal No. 4 to adjourn the Bookham special meeting,
if necessary, if a quorum is present, to solicit additional
proxies if there are not sufficient votes in favor of any of
Bookham Proposal Nos. 1, 2 or 3. For a description of the
reasons underlying the recommendations of Bookhams board,
see the sections entitled Bookham Proposal No. 1
and Avanex Proposal No. 1 The
Merger Reasons for the Merger on page 84;
Bookham Proposal No. 2 Amendment to
Bookhams Restated Certificate of Incorporation to Increase
the Authorized Shares of Common Stock on page 135;
Bookham Proposal No. 3 Amendments to
Bookhams Restated Certificate of Incorporation to Effect a
Reverse Stock Split and to Reduce the Number of Authorized
Shares of Bookham Common Stock and Preferred Stock on
page 137; and the section entitled Bookham
Proposal No. 4 Possible Adjournment of
the Bookham Special Meeting on page 147. |
|
Q: |
|
How does the Avanex board of directors recommend that Avanex
stockholders vote? |
|
|
|
A: |
|
After careful consideration, Avanexs board of directors
unanimously recommends that the Avanex stockholders vote
FOR Avanex Proposal No. 1 to adopt the
merger agreement and FOR Avanex
Proposal No. 2 to adjourn the Avanex special meeting,
if necessary, if a quorum is present, to solicit additional
proxies if there are not sufficient votes in favor of Avanex
Proposal No. 1. For a description of the reasons
underlying the recommendations of Avanexs board, see the
section entitled Bookham Proposal No. 1 and
Avanex Proposal No. 1 The
Merger Reasons for the Merger on page 84,
and the section entitled Avanex
Proposal No. 2 Possible Adjournment of the
Avanex Special Meeting on page 148. |
|
|
|
Q: |
|
What risks should I consider in deciding whether to vote in
favor of the share issuance or the adoption of the merger
agreement? |
|
A: |
|
You should carefully review the section of this joint proxy
statement/prospectus entitled Risk Factors beginning
on page 26, which presents risks and uncertainties related
to the merger and risks and uncertainties related to the
operation of each of Bookham and Avanex. |
|
Q: |
|
When do you expect the merger to be consummated? |
|
A: |
|
Bookham and Avanex are working to complete the merger as quickly
as practicable and currently anticipate that the consummation of
the merger will occur by mid-calendar year 2009, but we cannot
predict the exact timing. For more information, please see the
section entitled The Merger Agreement
Conditions to the Merger on page 126. |
5
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|
|
Q: |
|
What do I need to do now? |
|
A: |
|
We urge you to read this joint proxy statement/prospectus
carefully, including its annexes, and to consider how the merger
affects you. |
|
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|
|
If you are a Bookham stockholder, you may provide your proxy
instructions in three different ways. First, you may vote by
completing and signing the Bookham proxy card that accompanies
this joint proxy statement/prospectus and promptly mailing it in
the enclosed postage-prepaid envelope. Alternatively, you may
submit your proxy to vote your shares by telephone by following
the instructions set forth on the enclosed Bookham proxy card.
Finally, you may submit your proxy to vote your shares over the
Internet from any location in the world by following the
instructions set forth on the enclosed Bookham proxy card.
Please provide your proxy instructions only once and as soon as
possible so that your shares can be voted at the special meeting
of Bookham stockholders. |
|
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|
|
If you are an Avanex stockholder, you may provide your proxy
instructions in three different ways. First, you can mail your
signed Avanex proxy card in the enclosed return envelope.
Alternatively, you can provide your proxy instructions via the
toll-free call center set up for this purpose indicated on the
enclosed Avanex proxy card and following the instructions
provided. Please have your Avanex proxy card available when you
call. Finally, you can provide your proxy instructions via the
Internet by accessing the website indicated on the enclosed
proxy card and following the instructions provided. Please have
your Avanex proxy card available when you access the web page.
Please provide your proxy instructions only once and as soon as
possible so that your shares can be voted at the special meeting
of Avanex stockholders. |
|
Q: |
|
What happens if I do not return a proxy card or otherwise
provide proxy instructions? |
|
A: |
|
If you are a Bookham stockholder, the failure to return your
proxy card or otherwise provide proxy instructions could be a
factor in establishing a quorum for the special meeting of
Bookham stockholders, which is required to transact business at
the meeting. If you are a Bookham stockholder and you do not
submit a proxy card or vote at the Bookham special meeting, your
shares will not be counted as present for the purpose of
determining the presence of a quorum and will have no effect on
the approval of Bookham Proposal Nos. 1 and 4, but would
have the same effect as voting against Bookham
Proposal Nos. 2 and 3. Broker non-votes will similarly have
no effect on the approval of Bookham Proposal Nos. 1 and 4,
but would have the same effect as voting against Bookham
Proposal Nos. 2 and 3. If you submit a proxy card and
affirmatively elect to abstain from voting, your proxy will be
counted as present for the purpose of determining the presence
of a quorum for the special meeting of Bookham stockholders, but
will not be voted at the meeting. As a result, your abstention
will have no effect on the approval of Bookham
Proposal Nos. 1 and 4, but would have the same effect as
voting against Bookham Proposal Nos. 2 and 3. |
|
|
|
If you are an Avanex stockholder, the failure to return your
proxy card or otherwise provide proxy instructions will have the
same effect as voting against the adoption of the merger
agreement and could be a factor in establishing a quorum for the
special meeting of Avanex stockholders, which is required to
transact business at the meeting. The failure to submit a proxy
card or vote at the Avanex special meeting, or an abstention,
vote withheld or broker non-votes will have no
effect on the outcome of Avanex Proposal No. 2. |
|
Q: |
|
May I vote in person? |
|
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|
A: |
|
If your shares of Bookham common stock or Avanex common stock
are registered directly in your name with Bookhams or
Avanexs transfer agent, respectively, you are considered,
with respect to those shares, the stockholder of record, and the
proxy materials and proxy card are being sent directly to you by
Bookham or Avanex, respectively. If you are a Bookham
stockholder of record, you may attend the special meeting of
Bookham stockholders to be held on April 27, 2009 and vote
your shares in person, rather than signing and returning your
proxy card or otherwise providing proxy instructions. If you are
an Avanex stockholder of record, you may attend the special
meeting of Avanex stockholders to be held on April 27, 2009
and vote your shares in person, rather than signing and
returning your proxy card or otherwise providing proxy
instructions. |
6
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If your shares of Bookham common stock or Avanex common stock
are held in a brokerage account or by another nominee, you are
considered the beneficial owner of shares held in street
name, and the proxy materials are being forwarded to you
together with a voting instruction card. As the beneficial
owner, you are also invited to attend the special meeting of
Bookham stockholders or the special meeting of Avanex
stockholders, respectively. Since a beneficial owner is not the
stockholder of record, you may not vote these shares in person
at the applicable special meeting unless you obtain a
legal proxy from the broker, trustee or nominee that
holds your shares, giving you the right to vote the shares at
the meeting. |
|
Q: |
|
If my shares are held in street name by my
broker, will my broker vote my shares for me? |
|
A: |
|
Your broker will not be able to vote your shares without
instructions from you. You should instruct your broker to vote
your shares, following the procedure provided by your broker. |
|
Q: |
|
May I change my vote after I have provided proxy
instructions? |
|
A: |
|
Yes. You may change your vote at any time before your proxy is
voted at the Bookham special meeting or Avanex special meeting,
as applicable. You can do this in one of three ways. First, you
can send a written notice stating that you would like to revoke
your proxy. Second, you can submit new proxy instructions either
on a new proxy card, by telephone or via the Internet. Third,
you can attend the Bookham special meeting or Avanex special
meeting, as applicable, and vote in person. Your attendance
alone will not revoke your proxy. If you have instructed a
broker to vote your shares, you must follow directions received
from your broker to change those instructions. |
|
Q: |
|
Should Avanex stockholders send in their stock certificates
now? |
|
A: |
|
No. If you are an Avanex stockholder, after the merger is
consummated, you will receive written instructions from an
exchange agent explaining how to exchange your stock
certificates representing shares of Avanex common stock for
certificates representing shares of Bookham common stock. You
will also receive a cash payment in lieu of any fractional share
of Bookham common stock. Bookham stockholders will not exchange
their stock certificates in connection with the merger. |
|
Q: |
|
When is the Bookham reverse stock split expected to be
effected and should Bookham stockholders send in their stock
certificates now? |
|
A: |
|
If Bookham Proposal No. 3 Amendments
to Bookhams Restated Certificate of Incorporation to
Effect a Reverse Stock Split and to Reduce the Number of
Authorized Shares of Bookham Common Stock and Preferred
Stock is approved, the Bookham board of directors will,
for a period of one year from the date of the Bookham special
meeting, have the sole discretion to effect a reverse stock
split within the range described herein (with the corresponding
proportionate reduction in the authorized shares of Bookham
common stock and preferred stock) as it determines to be in the
best interests of Bookham and its stockholders and regardless of
whether any of the other Bookham Proposals are approved or
whether the proposed merger is consummated. If the Bookham board
of directors determines to effect a reverse stock split, the
Bookham stockholders at the time of such determination will
receive written instructions from an exchange agent explaining
how to exchange their stock certificates, so Bookham
stockholders should not send in their stock certificates now. |
|
Q: |
|
Am I entitled to appraisal rights in connection with the
merger? |
|
A: |
|
No. Under Delaware law, holders of Avanex common stock are
not entitled to appraisal rights in connection with the merger
because both Bookham common stock and Avanex common stock are
listed on the NASDAQ Global Market. Under Delaware law, Bookham
stockholders are not entitled to appraisal rights in connection
with the merger. |
|
Q: |
|
Are Bookham stockholders entitled to appraisal rights in
connection with the reverse stock split, if effected? |
|
A: |
|
No. Under Delaware law, Bookham stockholders are not
entitled to dissenters appraisal rights with respect to
the proposed amendments to the Bookham restated certificate of
incorporation to effect a |
7
|
|
|
|
|
reverse stock split and a corresponding proportionate reduction
in the number of authorized shares of Bookham common stock and
preferred stock. |
|
Q: |
|
Who is paying for this proxy solicitation? |
|
A: |
|
Bookham and Avanex are conducting this proxy solicitation and
will bear the cost of soliciting proxies, including the
preparation, assembly, printing and mailing of this joint proxy
statement/prospectus, the proxy card and any additional
information furnished to stockholders. Bookham has engaged the
services of Okapi Partners LLC to distribute proxy solicitation
materials to brokers, banks and other nominees and to assist in
the solicitation of proxies from Bookham stockholders. Avanex
has retained Morrow & Co., LLC to aid in Avanexs
proxy solicitation process. Bookham estimates that its proxy
solicitor fees will be approximately $15,000 and Avanex
estimates that its proxy solicitor fees will be approximately
$8,000. Bookham and Avanex may also reimburse brokerage houses
and other custodians, nominees and fiduciaries for their costs
of forwarding proxy and solicitation materials to beneficial
owners. |
|
Q: |
|
Who can help answer my questions? |
|
A: |
|
If you are a Bookham stockholder, and would like additional
copies, without charge, of this joint proxy statement/prospectus
or if you have questions about the merger, including the
procedures for voting your shares, you should contact: |
Bookham, Inc.
Attn: Investor Relations
2584 Junction Avenue
San Jose, California 95134
Telephone:
(888) 528-0788
Email: ir@bookham.com
OR
Okapi Partners LLC
780 Third Avenue,
30th
Floor
New York, NY 10017
Telephone: (212) 297- 0720
Toll Free:
(877) 285-5990
Email: info@okapipartners.com
If you are an Avanex stockholder, and would like additional
copies, without charge, of this joint proxy statement/prospectus
or if you have questions about the merger, including the
procedures for voting your shares, you should contact:
Avanex Corporation
Attn: Investor Relations
40919 Encyclopedia Circle
Fremont, California 94538
Telephone:
(510) 897-4188
E-mail:
ir@avanex.com
OR
Morrow & Co., LLC
470 West Avenue
Stamford, CT 06902
Telephone:
(203) 658-9400
Toll Free:
(800) 279-6413
Email: avanex.info@morrowco.com
8
SUMMARY
This summary highlights selected information from this
document. To understand the merger fully, you should read
carefully this entire document and the documents to which we
refer, including the annexes attached hereto. See Where
You Can Find More Information on page 272. The merger
agreement is attached as Annex A to this joint proxy
statement/prospectus. We encourage you to read the merger
agreement as it is the legal document that governs the merger.
We have included page references in parentheses to direct you to
a more detailed description of the topics presented in this
summary.
Unless specifically stated otherwise, the following
information and all other information contained in this joint
proxy statement/prospectus, including that regarding the
exchange ratio pursuant to the merger agreement, does not give
effect to the proposed reverse stock split discussed in the
section entitled Bookham
Proposal No. 3 Amendments to
Bookhams Restated Certificate of Incorporation to Effect a
Reverse Stock Split and to Reduce the Number of Authorized
Shares of Bookham Common Stock and Preferred Stock.
Comparative
Per Share Market Price Information
Bookham common stock and Avanex common stock are listed on the
NASDAQ Global Market under the symbols BKHM and
AVNX, respectively. On January 27, 2009, the
last full trading day prior to the public announcement of the
proposed merger, Bookham common stock closed at $0.40 and Avanex
common stock closed at $1.30.
On ,
2009, Bookham common stock closed at
$ and Avanex common stock closed
at $ .
The
Companies (Page 62)
Bookham, Inc.
2584 Junction Avenue
San Jose, California 95134
(408) 383-1400
Bookham designs, manufactures and markets optical components,
modules and subsystems that generate, detect, amplify, combine
and separate light signals principally for use in
high-performance fiber optics communications networks.
Bookhams primary operating segment, which it refers to as
its telecom segment, addresses the optical communications
market. Bookhams remaining product lines, which comprise
its non-telecom segment, leverage its optical component
technologies and expertise in manufacturing optical subsystems
to address opportunities in other markets, including industrial,
research, semiconductor capital equipment, military and
biotechnology.
Ultraviolet Acquisition Sub, Inc. is a wholly owned subsidiary
of Bookham that was incorporated in Delaware in January 2009.
Ultraviolet Acquisition Sub does not engage in any operations
and exists solely to facilitate the merger.
Avanex Corporation
40919 Encyclopedia Circle
Fremont, California 94538
(510) 897-4188
Avanex is a global provider of high-performance, intelligent,
photonic products including optical components, modules and
subsystems. Its products enable optical communication networks
to regenerate, transmit and manage voice, video and data optical
signals efficiently. Telecommunication system integrators and
their network carrier customers use Avanex products to enhance
system performance and increase network speed and capacity.
Recent
Developments
On February 3, 2009, a purported class action complaint was
filed against Avanex and its directors, Bookham, Inc., and
Ultraviolet Acquisition Sub, Inc. in the Superior Court of
California, Alameda County by
9
two individuals who purport to be shareholders of Avanex.
Plaintiffs purport to bring this action on behalf of all
shareholders of Avanex. On March 3, 2009, these individuals
filed an amended complaint. The amended complaint alleges that
the defendants breached their fiduciary duties by failing to
maximize shareholder value in connection with the contemplated
merger of Avanex and Bookham, and that the joint proxy
statement/prospectus fails to provide stockholders with material
information or contains materially misleading information
thereby rendering the stockholders unable to cast an informed
vote on the proposed merger. The complaint also alleges that
Avanex, Bookham, and Ultraviolet Acquisition Sub aided and
abetted the individual defendants alleged breach of
fiduciary duties. Plaintiffs seek to permanently enjoin the
merger with Bookham, monetary damages in an unspecified amount
attributable to the alleged breach of duties, and legal fees and
expenses. Avanex, Bookham, Ultraviolet Acquisition Sub, Inc. and
the individual defendants intend to defend against the complaint
vigorously.
On February 13, 2009, a lawsuit was filed against Avanex,
its chief executive and chief financial officers, and one of its
secretaries in the Superior Court of California, Los Angeles
County, by an individual claiming to be a former stockholder of
Avanex. Plaintiff claims that defendants made false statements
to him about the reasons for the departure of the prior chief
executive officer of Avanex and about Avanexs business and
prospects, which allegedly caused him to purchase and hold
Avanex stock. Plaintiff asserts claims for intentional
misrepresentation, negligent misrepresentation, deceit
(concealment), and breach of fiduciary duty. Plaintiff seeks
compensatory damages of $5 million, punitive damages,
interest, and costs of suit. Avanex and the individual
defendants intend to defend themselves vigorously.
The
Special Meetings
The
Bookham Special Meeting (Page 63)
Time, Date and Place. A special meeting of the
stockholders of Bookham will be held on Monday, April 27,
2009, at the principal executive offices of Bookham located at
2584 Junction Avenue, San Jose, California 95134 at
11:00 a.m., local time, to vote on: Bookham
Proposal No. 1 to approve the issuance of shares of
Bookham common stock in the merger; Bookham
Proposal No. 2 to approve an amendment to
Bookhams restated certificate of incorporation to increase
the authorized shares of its common stock; Bookham
Proposal No. 3 to approve amendments to Bookhams
restated certificate of incorporation to effect a reverse stock
split and to reduce the number of authorized shares of Bookham
common stock and preferred stock; and Bookham
Proposal No. 4 to adjourn the special meeting, if
necessary, if a quorum is present, to solicit additional proxies
if there are not sufficient votes in favor of any of Bookham
Proposal Nos. 1, 2 or 3.
Record Date and Voting Power for Bookham. You
are entitled to vote at the Bookham special meeting if you owned
shares of Bookham common stock at the close of business on
March 18, 2009, the record date for the Bookham special
meeting. You will have one vote at the Bookham special meeting
for each share of Bookham common stock you owned at the close of
business on the record date. There are 100,959,545 shares
of Bookham common stock entitled to be voted at the Bookham
special meeting.
Bookham Required Vote. The affirmative vote of
the holders of a majority of the voting power of the shares
voting in person or by proxy at the Bookham special meeting is
required for approval of each of Bookham
Proposal No. 1 to approve the issuance of shares of
Bookham common stock in the merger and Bookham
Proposal No. 4 to adjourn the Bookham special meeting,
if necessary, if a quorum is present, to solicit additional
proxies if there are not sufficient votes in favor of any of
Bookham Proposal Nos. 1, 2 or 3. The affirmative vote of
the holders of a majority of the voting power of Bookham common
stock outstanding on the record date for the Bookham special
meeting is required for approval of Bookham
Proposal No. 2 to approve an amendment to
Bookhams restated certificate of incorporation to increase
the number of authorized shares of Bookham common stock and
Bookham Proposal No. 3 to approve amendments to
Bookhams restated certificate of incorporation to effect a
reverse stock split and to reduce the number of authorized
shares of Bookham common stock and preferred stock.
Share Ownership of Management. As of
March 18, 2009, the directors and executive officers of
Bookham beneficially owned approximately 1.63% of the shares
entitled to vote at the Bookham special meeting. The directors
and certain officers of Bookham have agreed to vote their shares
of Bookham common stock in favor of the issuance of shares of
Bookham common stock in the merger.
10
The
Avanex Special Meeting (Page 67)
Time, Date and Place. A special meeting of the
stockholders of Avanex will be held on Monday, April 27,
2009, at the principal executive offices of Avanex located at
40919 Encyclopedia Circle, Fremont, California 94538, at
11:00 a.m., local time, to vote on Avanex
Proposal No. 1 to adopt the merger agreement and
Avanex Proposal No. 2 to adjourn the Avanex special
meeting, if necessary, if a quorum is present, to solicit
additional proxies if there are not sufficient votes in favor of
Avanex Proposal No. 1.
Record Date and Voting Power for Avanex. You
are entitled to vote at the Avanex special meeting if you owned
shares of Avanex common stock at the close of business on
March 18, 2009, the record date for the Avanex special
meeting. You will have one vote at the Avanex special meeting
for each share of Avanex common stock you owned at the close of
business on the record date. There are 15,623,421 shares of
Avanex common stock entitled to be voted at the Avanex special
meeting.
Avanex Required Vote. The affirmative vote of
the holders of a majority of the voting power of the shares of
Avanex common stock outstanding on the record date for the
Avanex special meeting is required to approve Avanex
Proposal No. 1 to adopt the merger agreement. The
affirmative vote of the holders of a majority of the votes cast
in person or by proxy at the Avanex special meeting is required
to approve Avanex Proposal No. 2 to adjourn the Avanex
special meeting, if necessary, if a quorum is present, to
solicit additional proxies if there are not sufficient votes in
favor of Avanex Proposal No. 1.
Share Ownership of Management As of March 18, 2009,
the current directors and executive officers of Avanex
beneficially owned approximately 1.75% of the shares entitled to
vote at the Avanex special meeting. The directors and certain
executive officers of Avanex have agreed to vote their shares of
Avanex common stock in favor of the adoption of the merger
agreement.
Recommendations
to Stockholders
To Bookham Stockholders (Page 63). The Bookham
board of directors has unanimously determined and believes that
each of: (a) the issuance of shares of Bookham common stock
in the merger; (b) the amendment to Bookhams restated
certificate of incorporation to increase the number of
authorized shares of Bookham common stock; (c) amendments
to Bookhams restated certificate of incorporation to
effect a reverse stock split and to reduce the number of
authorized shares of Bookham common stock and preferred stock;
and (d) to adjourn the special meeting, if a quorum is
present, for a period of not more than 30 days for the
purpose of soliciting additional proxies to approve any of
Bookham Proposal Nos. 1, 2 or 3, is advisable to, and in
the best interests of, Bookham and its stockholders. The Bookham
board of directors unanimously recommends that the holders of
Bookham common stock vote FOR Bookham
Proposal No. 1 to approve the issuance of shares of
Bookham common stock in the merger, FOR Bookham
Proposal No. 2 to approve an amendment to
Bookhams restated certificate of incorporation to increase
the number of authorized shares of Bookham common stock,
FOR Bookham Proposal No. 3 to approve
amendments to Bookhams restated certificate of
incorporation to effect a reverse stock split and to reduce the
number of authorized shares of Bookham common stock and
preferred stock, and FOR Bookham
Proposal No. 4 to adjourn the Bookham special meeting,
if necessary, if a quorum is present, to solicit additional
proxies if there are not sufficient votes in favor of any of the
Bookham Proposals Nos. 1, 2 or 3.
To Avanex Stockholders (Page 67). The Avanex
board of directors has unanimously determined and believes that
the merger is advisable and fair to, and in the best interests
of, Avanex and its stockholders. The Avanex board of directors
unanimously recommends that the holders of Avanex common stock
vote FOR Avanex Proposal No. 1 to adopt
the merger agreement and FOR
Proposal No. 2 to adjourn the Avanex special meeting,
if necessary, if a quorum is present, to solicit additional
proxies if there are not sufficient votes in favor of Avanex
Proposal No. 1.
The
Merger (Page 111)
In the merger, Ultraviolet Acquisition Sub, Inc., a wholly owned
subsidiary of Bookham, will merge with and into Avanex, and
Avanex will become a wholly owned subsidiary of Bookham. Holders
of Avanex
11
common stock, options, restricted stock units and warrants will
become holders of Bookham common stock, stock options,
restricted stock units and warrants, respectively, following the
merger. The shares of Bookham common stock issued to Avanex
stockholders in connection with the merger are expected to
represent approximately 46.75% of the outstanding shares of
Bookham common stock immediately following the consummation of
the merger, based on the number of shares of Bookham common
stock and Avanex common stock that were outstanding on
January 27, 2009, assuming that no Avanex or Bookham stock
options or warrants are exercised after January 27, 2009
and prior to the effective time of the merger, and without
giving effect to the vesting of any outstanding Avanex or
Bookham restricted stock units prior to the effective time of
the merger.
Manner
and Basis of Converting Shares (Page 111)
If you are an Avanex stockholder, you will receive
5.426 shares of Bookham common stock in exchange for each
share of Avanex common stock you own. The exchange ratio is
fixed meaning that regardless of fluctuations in the market
price of Bookham common stock or Avanex common stock, the
exchange ratio will not change between now and the date the
merger is consummated. The exchange ratio is, however, subject
to adjustments for changes in the number of outstanding shares
of Bookham or Avanex by reason of future stock splits, reverse
stock splits, division of shares, stock dividends or other
similar transactions.
Fractional
Shares (Page 111)
No fractional shares of Bookham common stock will be issued in
the merger. Instead, each Avanex stockholder otherwise entitled
to a fraction of a share of Bookham common stock will be
entitled to receive in cash the dollar amount determined by
multiplying such fraction by the average closing price of
Bookham common stock over a ten day period as specified in the
merger agreement. For a more complete description of what Avanex
stockholders will receive in the merger, please see the section
entitled The Merger Agreement Manner and Basis
of Converting Shares on page 111 of this joint proxy
statement/prospectus.
Treatment
of Avanex Stock Options (Page 113)
The merger agreement provides that at the effective time of the
merger each Avanex stock option that is outstanding and
unexercised immediately prior to the effective time will be
converted into an option (adjusted to give effect to the
exchange ratio) to purchase Bookham common stock and Bookham
will assume such stock option in accordance with the terms of
the applicable Avanex stock option plan and terms of the stock
option agreement relating to such Avanex stock option (subject
to certain adjustments to the number of shares subject to that
option and the exercise price applicable to such option).
Treatment
of Avanex Restricted Stock Units (Page 113)
The merger agreement provides that at the effective time of the
merger, each restricted stock unit of Avanex common stock that
is outstanding immediately prior to the effective time will be
converted into a restricted stock unit of Bookham common stock
(adjusted to give effect to the exchange ratio) and will remain
subject to the same conditions as the Avanex restricted stock
unit (subject to certain adjustment to the number of shares
subject to the restricted stock unit).
Treatment
of Avanex Warrants (Page 113)
The merger agreement provides that at the effective time of the
merger, each warrant to purchase common stock of Avanex that is
outstanding and unexercised immediately prior to the effective
time of the merger will be converted into and become a warrant
to purchase common stock of Bookham (adjusted to give effect to
the exchange ratio and subject to certain adjustment to the
number of shares subject to such warrant and the exercise price
applicable to such warrant). Bookham will replace each such
Avanex warrant by issuing a reasonably equivalent replacement
warrant in accordance with the terms of such warrant.
12
Risks
Relating to the Merger (Page 26)
In evaluating the merger agreement or the issuance of shares of
Bookham common stock in the merger, you should carefully read
this joint proxy statement/prospectus and especially consider
the factors discussed in the section entitled Risk
Factors Risks Relating to the Merger on
page 26.
Reasons
for the Merger
Mutual Reasons (Page 84). Bookham and Avanex
believe that the combination of the companies product
lines, supply chains, sales teams, administrative functions and
technologies will create significant cost savings synergies and
form a leader in the metro and long-haul optical markets. It is
expected that the two companies together will be able to meet
more of their customers needs by integrating their product
lines and technologies. Both companies believe that the industry
is in a period of consolidation and that the combined company
will have the scale to better compete in this environment. In
addition, there is little overlap between the businesses of
Bookham and Avanex and the companies products and
offerings complement each other. Both companies also believe
that combining the creative and operational capacities of the
two companies will allow them to focus their research and
development efforts and to accelerate innovations. From a
manufacturing standpoint, both companies believe that the
combination of their different manufacturing methods will create
an efficient mix of manufacturing operations. From a geographic
standpoint the combination is expected to enhance the strength
of the geographic footprint of the combined company.
Bookhams Reasons (Page 85). In addition
to the reasons above, the Bookham board of directors considered
in evaluating the merger a number of other factors. See the
section entitled The Merger Agreement Reasons
for the Merger Bookhams Reasons for the
Merger on page 85.
Avanexs Reasons (Page 87). In addition
to the reasons above, the Avanex board of directors considered
in evaluating the merger a number of other factors. See the
section entitled The Merger Agreement Reasons
for the Merger Avanexs Reasons for the
Merger on page 87.
Opinions
of Financial Advisors
Opinion of Bookhams Financial Advisor (Page
90). Citigroup Global Markets Inc., also referred
to as Citi, delivered its opinion to Bookhams board of
directors that, as of January 27, 2009, and based on and
subject to the assumptions, limitations, qualifications and
other matters set forth therein, the exchange ratio of
5.426 shares of Bookham common stock to be issued in
exchange for each share of Avanex common stock pursuant to the
merger agreement was fair to Bookham from a financial point of
view.
The full text of the written opinion of Citigroup Global Markets
Inc., dated January 27, 2009, which sets forth the
assumptions made, procedures followed, matters considered and
limitations on the review undertaken in connection with the
opinion, is attached as Annex D. Citigroup Global
Markets Inc. provided its opinion for the information of
Bookhams board of directors in connection with its
evaluation of the merger. The Citigroup Global Markets Inc.
opinion is not intended to be and does not constitute a
recommendation as to how any holder of Bookham common stock
should vote with respect to the issuance of shares of Bookham
common stock in the merger. Bookham urges you to read the entire
opinion carefully.
Opinion of Avanexs Financial Advisor (Page
96). In connection with the merger, Avanexs
financial advisor, Banc of America Securities LLC, referred to
as Banc of America Securities, delivered to Avanexs board
of directors a written opinion, dated January 27, 2009, as
to the fairness, from a financial point of view and as of the
date of the opinion, to the holders of Avanex common stock of
the exchange ratio provided for in the merger agreement of
5.426 shares of Bookham common stock for each outstanding
share of Avanex common stock. The full text of the written
opinion, dated January 27, 2009, of Banc of America
Securities, which describes, among other things, the assumptions
made, procedures followed, factors considered and limitations on
the review undertaken, is attached as Annex E to this joint
proxy statement/prospectus and is incorporated by reference in
this joint proxy statement/prospectus in its entirety. Banc
of America Securities delivered its opinion to Avanexs
board of directors for the benefit and use of Avanexs
board of directors in connection with and for purposes of its
evaluation of the exchange ratio from a financial
13
point of view. Banc of America Securities opinion does
not address any other aspect of the merger and does not
constitute a recommendation to any stockholder as to how to vote
or act in connection with the proposed merger. Avanex
encourages holders of Avanex common stock to read the opinion
carefully in its entirety.
Interests
of Bookhams Directors in the Merger
(Page 104)
When considering the recommendations by the Bookham board of
directors, you should be aware that a number of Bookhams
directors have interests in the merger that are different from
those of other Bookham stockholders.
Interests
of Avanexs Executive Officers and Directors in the Merger
(Page 105)
When considering the recommendations by the Avanex board of
directors, you should be aware that a number of Avanexs
executive officers and directors have interests in the merger
that are different from those of other Avanex stockholders.
Restrictions
on Resales (Page 110)
All shares of Bookham common stock received by Avanex
stockholders in the merger will be freely tradable, except that
shares of Bookham common stock received by persons who become
affiliates of Bookham for purposes of Rule 144 under the
Securities Act may be resold by them only in transactions
permitted by Rule 144, or as otherwise permitted under the
Securities Act.
Limitation
on the Solicitation, Negotiation and Discussion by Avanex and
Bookham of Other Acquisition Proposals (Page 123)
Each of Avanex and Bookham has agreed to a number of limitations
with respect to soliciting, negotiating and discussing
acquisition proposals involving persons other than Avanex and
Bookham, and to certain related matters.
Change of
Board Recommendation (Page 122)
Subject to limited conditions, the board of directors of Avanex
or Bookham may withdraw or modify its recommendation in the case
of Avanex in support of the adoption of the merger agreement and
in the case of Bookham in support of the issuance of shares of
Bookham common stock in the merger and the amendment to
Bookhams restated certificate of incorporation to increase
the number of authorized shares of Bookham common stock. In the
event that the board of directors of either company withdraws or
modifies its recommendation in a manner adverse to the other
company, the company whose board of directors withdrew or
modified its recommendation may be required to pay a termination
fee of $1.64 million to the other company.
Conditions
to the Merger (Page 126)
The respective obligations of Bookham and Avanex to consummate
the merger are subject to the satisfaction of certain conditions.
Termination
of the Merger Agreement (Page 129)
Either Bookham or Avanex can terminate the merger agreement
under certain circumstances, which would prevent the merger from
being consummated.
Expenses
and Termination Fees (Page 131)
Subject to limited exceptions, all fees and expenses incurred in
connection with the merger agreement will be paid by the party
incurring such expenses; provided, however, that Bookham and
Avanex will share equally all fees and expenses, other than
attorneys fees, incurred in connection with: (a) the
filing, printing
14
and mailing of the registration statement on
Form S-4
and this joint proxy statement/prospectus; and (b) the
filing by the parties of any notice or other document under any
applicable antitrust or competition legal requirement.
A termination fee of $1.64 million may be payable by either
Bookham or Avanex to the other party upon the termination of the
merger agreement under several circumstances. Further, in
certain circumstances, either Bookham or Avanex may be required
to pay to the other party after termination of the merger
agreement the other partys expenses in connection with the
merger in the amount of $1.0 million, which fee will be
credited against the termination fee described above.
Tax
Matters (Page 107)
Cooley Godward Kronish LLP, outside counsel to Bookham, and
Wilson Sonsini Goodrich & Rosati, Professional
Corporation, outside counsel to Avanex, are expected to each
issue a tax opinion to the effect that the merger will
constitute a reorganization under Section 368(a) of the
Internal Revenue Code of 1986, as amended, or the Code. In a
reorganization, an Avanex stockholder generally will not
recognize any gain or loss for U.S. federal income tax
purposes upon the exchange of its shares of Avanex common stock
for shares of Bookham common stock. However, any cash received
for any fractional share will result in the recognition of gain
or loss as if such stockholder sold its fractional share. An
Avanex stockholders tax basis in the shares of Bookham
common stock that it receives in the merger will equal its
current tax basis in its Avanex common stock (reduced by the
basis allocable to any fractional share interest for which it
receives cash).
Tax matters can be complicated, and the tax consequences of
the merger to you will depend on the facts of your own
situation. You should consult your own tax advisors to fully
understand the tax consequences of the merger to you, including
the applicability and effect of federal, state, local and
foreign income and other tax laws.
Regulatory
Approvals (Page 109)
In the United States, Bookham must comply with applicable
federal and state securities laws and the rules and regulations
of the NASDAQ Global Market in connection with the issuance of
shares of Bookham common stock in the merger and the filing of
this joint proxy statement/prospectus with the
U.S. Securities and Exchange Commission, or the SEC.
Although the merger is not subject to reporting obligations
under the
Hart-Scott-Rodino
Act, certain governmental entities may take such actions under
the antitrust laws as such entity deems necessary or desirable
in the public interest, including seeking to enjoin the merger
or seeking divestiture of assets of Bookham or Avanex.
Anticipated
Accounting Treatment (Page 109)
The merger is expected to be accounted for using the purchase
method of accounting pursuant to Statement of Financial
Accounting Standards No. 141, Business Combinations,
or SFAS No. 141, with Bookham as the acquiror. Under
the purchase method of accounting, the total estimated purchase
price is allocated to the assets of Avanex acquired and
liabilities of Avanex assumed in connection with the merger,
based on their estimated fair values. These allocations will be
based upon a valuation that has not yet been finalized. If the
merger is consummated after June 27, 2009, the merger will
be accounted for pursuant to SFAS No. 141 (revised
2007), or SFAS No. 141R. Under SFAS No. 141R
there are significant differences as compared to SFAS No.
141 in determining the purchase price of an acquired entity,
including the requirement to expense transaction costs and to
reflect the fair value of contingent purchase price adjustments
at the date of acquisition.
Appraisal
Rights (Page 109)
Under Delaware law, holders of Avanex common stock are not
entitled to appraisal rights in connection with the merger
because both Bookham common stock and Avanex common stock are
listed on the NASDAQ Global Market. Under Delaware law, holders
of Bookham common stock are not entitled to appraisal rights in
connection with the merger.
15
The Board
of Directors and Executive Officers of the Combined Company
(Page 178)
The board of directors of Bookham following the effective time
of the merger will be composed of three members of Avanexs
current board of directors (currently expected to be Giovanni
Barbarossa, Greg Dougherty and Joel A. Smith, III) and four
members to be determined by the Bookham board of directors
(currently expected to be Alain Couder, Bernard Couillaud, Lori
Holland and Edward Collins). It is currently expected that the
executive officers of Bookham following the merger will be
substantially similar to the current executive officers of
Bookham. In addition, following the effective time of the
merger, Bookham contemplates that certain employees of Avanex
will join Bookham as officers of Bookham and thus may become
executive officers of Bookham. In the event that new personnel
become executive officers of Bookham, certain persons who
currently serve as executive officers of Bookham may no longer
serve in such capacity. As of the date of this joint proxy
statement/prospectus it is not known which Avanex employees, if
any, will become executive officers of Bookham and no
determinations by Bookham have been made in this regard.
Similarly, it is not known which of Bookhams current
executive officers, if any, will cease to serve in such
capacity. The current executive officers of Bookham are: Alain
Couder (President and Chief Executive Officer), Jerry Turin
(Chief Financial Officer), James Haynes (Chief Operating
Officer), Adrian Meldrum (Executive Vice President, Telecom
Division) and Kate Rundle (Executive Vice President, General
Counsel and Corporate Secretary).
Listing
of Bookham Common Stock and Delisting and Deregistration of
Avanex Common Stock
Application will be made to have the shares of Bookham common
stock issued in the merger approved for listing on the NASDAQ
Global Market. If the merger is completed, Avanex common stock
will no longer be listed on the NASDAQ Global Market and will be
deregistered under the Exchange Act, and Avanex will no longer
file periodic reports with the SEC.
Comparison
of Rights of Bookham Stockholders and Avanex Stockholders
(Page 232)
Avanex stockholders, whose rights are currently governed by the
Avanex amended and restated certificate of incorporation, the
Avanex bylaws, as amended, and Delaware law, will, upon
completion of the merger, become stockholders of Bookham and
their rights will be governed by the Bookham restated
certificate of incorporation, the Bookham bylaws, as amended,
and Delaware law.
16
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL DATA OF BOOKHAM
The selected historical consolidated financial data set forth
below is only a summary and should be read in conjunction with
Bookhams consolidated financial statements and related
notes and Managements Discussion and Analysis of
Financial Condition and Results of Operations of Bookham
appearing elsewhere in this joint proxy statement/prospectus.
Prior to June 2004, Bookham Technology plc reported on a
December 31 fiscal year end basis. In June 2004, Bookham
Technology plc approved a change in its fiscal year end from
December 31 to the Saturday closest to June 30. Pursuant to
a scheme of arrangement under the laws of the United Kingdom,
Bookham, Inc. assumed the financial reporting history of Bookham
Technology plc effective September 10, 2004. In addition,
in connection with the scheme of arrangement, Bookham changed
its corporate domicile from the United Kingdom to the United
States and changed its reporting currency from the U.K. pound
sterling to the U.S. dollar effective September 10,
2004. Subsequent to the scheme of arrangement, Bookhams
common stock is traded only on the NASDAQ Global Market whereas,
previously, its ordinary shares had been traded on the London
Stock Exchange and its American Depositary Shares had been
traded on the NASDAQ National Market, which is the former name
of the NASDAQ Global Market.
The selected historical consolidated financial data set forth
below at December 27, 2008 and for the six months ended
December 27, 2008 and December 29, 2007, are derived
from Bookhams unaudited condensed consolidated financial
statements included elsewhere in this joint proxy
statement/prospectus. The selected financial data set forth
below at June 28, 2008 and June 30, 2007, and for the
years ended June 28, 2008, June 30, 2007 and
July 1, 2006, are derived from Bookhams audited
consolidated financial statements included elsewhere in this
joint proxy statement/prospectus. The selected historical
consolidated financial data as of July 1, 2006 and as of
and for the period ended July 2, 2005 are derived from
audited consolidated financial statements not included in this
joint proxy statement/prospectus. The selected financial data as
of and for the period ended July 3, 2004 are derived from
unaudited condensed consolidated financial statements not
included in this joint proxy statement/prospectus.
CONSOLIDATED
STATEMENT OF OPERATIONS DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months
|
|
|
Six Months Ended
|
|
Year Ended
|
|
Ended
|
|
|
December 27,
|
|
December 29,
|
|
June 28,
|
|
June 30,
|
|
July 1,
|
|
July 2,
|
|
July 3,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
(In thousands, except per share data)
|
|
Revenues
|
|
$
|
116,735
|
|
|
$
|
113,238
|
|
|
$
|
235,491
|
|
|
$
|
202,814
|
|
|
$
|
231,649
|
|
|
$
|
200,256
|
|
|
$
|
158,198
|
|
Cost of revenues
|
|
$
|
91,401
|
|
|
$
|
87,467
|
|
|
$
|
182,518
|
|
|
$
|
173,493
|
|
|
$
|
190,085
|
|
|
$
|
193,647
|
|
|
$
|
159,508
|
|
Gross margin
|
|
$
|
25,334
|
|
|
$
|
25,771
|
|
|
$
|
52,973
|
|
|
$
|
29,321
|
|
|
$
|
41,564
|
|
|
$
|
6,609
|
|
|
$
|
(1,310
|
)
|
Total operating expenses
|
|
$
|
45,378
|
|
|
$
|
44,638
|
|
|
$
|
83,240
|
|
|
$
|
109,178
|
|
|
$
|
118,928
|
|
|
$
|
250,596
|
|
|
$
|
125,887
|
|
Operating loss
|
|
$
|
(20,044
|
)
|
|
$
|
(18,867
|
)
|
|
$
|
(30,267
|
)
|
|
$
|
(79,857
|
)
|
|
$
|
(77,364
|
)
|
|
$
|
(243,987
|
)
|
|
$
|
(127,197
|
)
|
Net loss
|
|
$
|
(4,268
|
)
|
|
$
|
(16,141
|
)
|
|
$
|
(23,440
|
)
|
|
$
|
(82,175
|
)
|
|
$
|
(87,497
|
)
|
|
$
|
(247,972
|
)
|
|
$
|
(125,078
|
)
|
Net loss per share (basic and diluted)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.19
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(1.17
|
)
|
|
$
|
(1.87
|
)
|
|
$
|
(7.43
|
)
|
|
$
|
(5.17
|
)
|
Weighted average shares of common stock used in computing net
loss per share (basic and diluted)
|
|
|
100,209
|
|
|
|
86,775
|
|
|
|
93,099
|
|
|
|
70,336
|
|
|
|
46,679
|
|
|
|
33,379
|
|
|
|
24,243
|
|
17
CONSOLIDATED
BALANCE SHEET DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
December 27,
|
|
June 28,
|
|
June 30,
|
|
July 1,
|
|
July 2,
|
|
July 3,
|
|
|
2008
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
(In thousands)
|
|
Cash and cash equivalents
|
|
$
|
35,296
|
|
|
$
|
32,863
|
|
|
$
|
36,631
|
|
|
$
|
37,750
|
|
|
$
|
24,934
|
|
|
$
|
109,682
|
|
Short-term investments
|
|
$
|
8,894
|
|
|
$
|
17,845
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,985
|
|
Total assets
|
|
$
|
180,086
|
|
|
$
|
212,090
|
|
|
$
|
204,526
|
|
|
$
|
236,797
|
|
|
$
|
238,578
|
|
|
$
|
468,025
|
|
Long-term obligations
|
|
$
|
1,821
|
|
|
$
|
1,336
|
|
|
$
|
1,908
|
|
|
$
|
5,337
|
|
|
$
|
76,925
|
|
|
$
|
64,507
|
|
Total liabilities
|
|
$
|
52,487
|
|
|
$
|
63,028
|
|
|
$
|
83,559
|
|
|
$
|
101,656
|
|
|
$
|
147,510
|
|
|
$
|
137,435
|
|
Total stockholders equity
|
|
$
|
127,599
|
|
|
$
|
149,062
|
|
|
$
|
120,967
|
|
|
$
|
135,141
|
|
|
$
|
91,068
|
|
|
$
|
330,590
|
|
18
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL DATA OF AVANEX
The selected historical consolidated financial data set forth
below is only a summary and should be read in conjunction with
Avanexs consolidated financial statements and related
notes and Managements Discussion and Analysis of
Financial Condition and Results of Operations of Avanex
appearing elsewhere in this joint proxy statement/prospectus.
The selected historical consolidated financial data set forth
below at December 31, 2008 and for the six months ended
December 31, 2008 and 2007, are derived from Avanexs
unaudited condensed consolidated financial statements included
elsewhere in this joint proxy statement/prospectus. The selected
historical consolidated financial data set forth below at
June 30, 2008 and 2007, and for the years ended
June 30, 2008, 2007 and 2006, are derived from
Avanexs audited consolidated financial statements included
elsewhere in this joint proxy statement/ prospectus. The
selected historical consolidated financial data as of
June 30, 2006 and for the years ended June 30, 2005
and 2004 are derived from audited consolidated financial
statements not included in this joint proxy statement/prospectus.
CONSOLIDATED
STATEMENT OF OPERATIONS DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Year Ended
|
|
|
Dec. 31,
|
|
Dec. 31,
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
(In thousands, except per share data)
|
|
Revenues
|
|
$
|
83,275
|
|
|
$
|
106,716
|
|
|
$
|
208,094
|
|
|
$
|
212,755
|
|
|
$
|
162,944
|
|
|
$
|
160,695
|
|
|
$
|
106,932
|
|
Cost of revenue
|
|
$
|
69,660
|
|
|
$
|
75,405
|
|
|
$
|
144,509
|
|
|
$
|
174,550
|
|
|
$
|
154,484
|
|
|
$
|
165,258
|
|
|
$
|
133,259
|
|
Gross profit
|
|
$
|
13,615
|
|
|
$
|
31,311
|
|
|
$
|
63,585
|
|
|
$
|
38,205
|
|
|
$
|
8,460
|
|
|
$
|
(4,563
|
)
|
|
$
|
(26,327
|
)
|
Total operating expenses
|
|
$
|
40,464
|
|
|
$
|
32,277
|
|
|
$
|
61,886
|
|
|
$
|
70,673
|
|
|
$
|
55,655
|
|
|
$
|
100,830
|
|
|
$
|
94,985
|
|
Operating income (loss)
|
|
$
|
(26,849
|
)
|
|
$
|
(966
|
)
|
|
$
|
1,699
|
|
|
$
|
(32,468
|
)
|
|
$
|
(47,195
|
)
|
|
$
|
(105,393
|
)
|
|
$
|
(121,312
|
)
|
Net income (loss)
|
|
$
|
(26,455
|
)
|
|
$
|
131
|
|
|
$
|
4,720
|
|
|
$
|
(30,605
|
)
|
|
$
|
(54,692
|
)
|
|
$
|
(108,371
|
)
|
|
$
|
(124,067
|
)
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.71
|
)
|
|
$
|
0.01
|
|
|
$
|
0.31
|
|
|
$
|
(2.16
|
)
|
|
$
|
(5.03
|
)
|
|
$
|
(11.27
|
)
|
|
$
|
(14.25
|
)
|
Diluted
|
|
$
|
(1.71
|
)
|
|
$
|
0.01
|
|
|
$
|
0.31
|
|
|
$
|
(2.16
|
)
|
|
$
|
(5.03
|
)
|
|
$
|
(11.27
|
)
|
|
$
|
(14.25
|
)
|
Weighted-average shares used in computing net income (loss) per
common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
15,460
|
|
|
|
15,176
|
|
|
|
15,242
|
|
|
|
14,196
|
|
|
|
10,882
|
|
|
|
9,616
|
|
|
|
8,704
|
|
Diluted:
|
|
|
15,460
|
|
|
|
15,424
|
|
|
|
15,370
|
|
|
|
14,196
|
|
|
|
10,882
|
|
|
|
9,616
|
|
|
|
8,704
|
|
CONSOLIDATED
BALANCE SHEET DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
Dec. 31,
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
|
2008
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
(In thousands)
|
|
Cash and cash equivalents
|
|
$
|
13,897
|
|
|
$
|
14,839
|
|
|
$
|
14,837
|
|
|
$
|
28,963
|
|
|
$
|
26,811
|
|
|
$
|
21,637
|
|
Short-term investments
|
|
$
|
19,550
|
|
|
$
|
40,590
|
|
|
$
|
28,942
|
|
|
$
|
38,696
|
|
|
$
|
38,929
|
|
|
$
|
46,787
|
|
Total assets
|
|
$
|
106,119
|
|
|
$
|
141,067
|
|
|
$
|
135,000
|
|
|
$
|
165,558
|
|
|
$
|
199,656
|
|
|
$
|
275,196
|
|
Convertible notes
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,569
|
|
|
$
|
29,408
|
|
|
$
|
|
|
Other long-term obligations
|
|
$
|
4,977
|
|
|
$
|
6,563
|
|
|
$
|
9,619
|
|
|
$
|
24,618
|
|
|
$
|
23,511
|
|
|
$
|
26,556
|
|
Total liabilities
|
|
$
|
43,474
|
|
|
$
|
55,672
|
|
|
$
|
62,918
|
|
|
$
|
92,220
|
|
|
$
|
145,908
|
|
|
$
|
117,732
|
|
Total stockholders equity
|
|
$
|
62,645
|
|
|
$
|
85,395
|
|
|
$
|
72,082
|
|
|
$
|
73,338
|
|
|
$
|
53,748
|
|
|
$
|
157,464
|
|
19
SELECTED
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
(in thousands, except per share data)
The following table presents information about the unaudited pro
forma condensed combined financial data after giving effect to
the merger. The selected financial data set forth below at
December 27, 2008, for the six months ended
December 27, 2008 and for the year ended June 28, 2008
should be read together with the historical consolidated
financial statements of Bookham and Avanex, including the
related notes, appearing elsewhere in this joint proxy
statement/prospectus, and the other consolidated historical
financial data of Bookham and Avanex and unaudited pro forma
combined financial statements, including the related notes,
appearing elsewhere in this joint proxy statement/prospectus.
See also Risk Factors beginning on page 26 and
Cautionary Statement Regarding Forward-Looking
Information on page 25 of this joint proxy
statement/prospectus.
The unaudited pro forma condensed combined financial statements
have been prepared by Bookhams management for illustrative
purposes only and are not necessarily indicative of the
condensed combined financial position or results of operations
in future periods or the results that actually would have been
realized had Bookham and Avanex been a combined company during
the specified periods. The pro forma adjustments are based on
the information available at the time of the preparation of this
joint proxy statement/prospectus.
CONSOLIDATED
STATEMENT OF OPERATIONS DATA:
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
Ended
|
|
Year Ended
|
|
|
December 27,
|
|
June 28,
|
|
|
2008
|
|
2008
|
|
Revenues
|
|
$
|
198,295
|
|
|
$
|
439,405
|
|
Cost of revenues
|
|
$
|
159,630
|
|
|
$
|
323,444
|
|
Gross margin
|
|
$
|
38,665
|
|
|
$
|
115,961
|
|
Total operating expenses
|
|
$
|
74,781
|
|
|
$
|
141,963
|
|
Operating loss
|
|
$
|
(36,116
|
)
|
|
$
|
(26,002
|
)
|
Net loss
|
|
$
|
(19,962
|
)
|
|
$
|
(16,186
|
)
|
Net loss per share (basic and diluted)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.09
|
)
|
Weighted average shares of common stock used in computing net
loss per share (basic and diluted)
|
|
|
185,828
|
|
|
|
178,718
|
|
CONSOLIDATED
BALANCE SHEET DATA:
|
|
|
|
|
|
|
December 27,
|
|
|
2008
|
|
Cash and cash equivalents
|
|
$
|
42,783
|
|
Short-term investments
|
|
$
|
28,444
|
|
Total assets
|
|
$
|
268,709
|
|
Long-term obligations
|
|
$
|
6,798
|
|
Total liabilities
|
|
$
|
95,744
|
|
Total stockholders equity
|
|
$
|
172,965
|
|
20
COMPARATIVE
HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA
The following information does not give effect to the
proposed reverse stock split discussed in the section entitled
Bookham Proposal No. 3 Amendments to
Bookhams Restated Certificate of Incorporation to Effect a
Reverse Stock Split and to Reduce the Number of Authorized
Shares of Bookham Common Stock and Preferred Stock.
The following information reflects the historical net loss and
book value per share of Bookham common stock and the historical
net income (loss) and book value per share of Avanex common
stock in comparison with the unaudited pro forma net loss and
book value per share after giving effect to the proposed merger
of Bookham with Avanex on a pro forma combined basis. The
unaudited pro forma combined per common share data are provided
for informational purposes only and are not necessarily
indications of the results that would have been achieved had the
transaction been completed as of the dates indicated or that may
be achieved in the future. We have derived the unaudited pro
forma combined per common share data from the unaudited pro
forma condensed combined financial statements presented
elsewhere in this joint proxy statement/prospectus.
Because of different fiscal period ends, the unaudited pro forma
condensed combined statements of operations data for the six
months ended December 27, 2008 combines Bookhams
historical consolidated statement of operations for the six
months then ended with Avanexs historical consolidated
statement of operations for the six months ended
December 31, 2008. The unaudited pro forma condensed
combined statements of operations data for the fiscal year ended
June 28, 2008 combines Bookhams historical
consolidated statement of operations for the fiscal year then
ended with Avanexs results of operations for the fiscal
year ended June 30, 2008.
You should read the tables below in conjunction with the
respective audited and unaudited consolidated financial
statements and related notes of Bookham and Avanex included
elsewhere in this joint proxy statement/prospectus, and the
unaudited pro forma condensed combined financial statements and
notes related to such unaudited pro forma condensed combined
financial statements included elsewhere in this joint proxy
statement/prospectus.
Bookham
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Fiscal Year Ended
|
|
|
December 27,
|
|
June 28,
|
|
|
2008
|
|
2008
|
|
Historical Per Common Share Data:
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.04
|
)
|
|
$
|
(0.25
|
)
|
Book value per share as of the period end(1)
|
|
$
|
1.27
|
|
|
$
|
1.48
|
|
Avanex
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Fiscal Year Ended
|
|
|
December 31,
|
|
June 30,
|
|
|
2008
|
|
2008
|
|
Historical Per Common Share Data:
|
|
|
|
|
|
|
|
|
Basic and diluted net income (loss) per share
|
|
$
|
(1.71
|
)
|
|
$
|
0.31
|
|
Book value per share as of the period end(1)
|
|
$
|
4.01
|
|
|
$
|
5.57
|
|
Pro Forma
Combined Company
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Fiscal Year Ended
|
|
|
December 27,
|
|
June 28,
|
|
|
2008
|
|
2008
|
|
Unaudited Pro Forma Combined Per Common Share Data:
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.11
|
)
|
|
$
|
(0.09
|
)
|
Book value per share as of the period end(1)
|
|
$
|
0.93
|
|
|
|
N/A
|
|
21
|
|
|
(1) |
|
The historical book value per Bookham share is computed by
dividing stockholders equity by the number of shares of
common stock outstanding at December 27, 2008 and
June 28, 2008. The historical book value per Avanex share
is computed by dividing stockholders equity by the number
of shares of common stock outstanding at December 30, 2008
and June 30, 2008. The unaudited pro forma combined book
value per share as of December 27, 2008 is computed by
dividing the unaudited pro forma combined stockholders
equity by the unaudited pro forma combined number of shares of
Bookham common stock outstanding at December 27, 2008
assuming the merger had occurred as of that date. |
22
MARKET
PRICE AND DIVIDEND INFORMATION
The following information does not give effect to the
proposed reverse stock split discussed in the section entitled
Bookham Proposal No. 3 Amendments to
Bookhams Restated Certificate of Incorporation to Effect a
Reverse Stock Split and to Reduce the Number of Authorized
Shares of Bookham Common Stock and Preferred Stock.
Bookham common stock and Avanex common stock are listed on the
NASDAQ Global Market under the symbols BKHM and
AVNX, respectively. The following tables present,
for the periods indicated, the range of high and low per share
closing sales prices for Bookham common stock and Avanex common
stock as reported on the NASDAQ Global Market. Neither Bookham
nor Avanex has ever declared or paid any cash dividend on shares
of its common stock.
Bookhams fiscal years end on the Saturday closest to
June 30th, and Avanexs fiscal years end on
June 30th.
Bookham
Common Stock
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Fiscal Year 2007
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
3.97
|
|
|
$
|
2.42
|
|
Second quarter
|
|
|
4.30
|
|
|
|
3.08
|
|
Third quarter
|
|
|
4.15
|
|
|
|
2.19
|
|
Fourth quarter
|
|
|
2.54
|
|
|
|
1.98
|
|
Fiscal Year 2008
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
2.97
|
|
|
$
|
2.25
|
|
Second quarter
|
|
|
3.32
|
|
|
|
2.25
|
|
Third quarter
|
|
|
2.58
|
|
|
|
1.21
|
|
Fourth quarter
|
|
|
2.24
|
|
|
|
1.31
|
|
Fiscal Year 2009
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
2.02
|
|
|
$
|
1.12
|
|
Second quarter
|
|
|
1.24
|
|
|
|
0.30
|
|
Third quarter
(through ,
2009)
|
|
|
|
|
|
|
|
|
Avanex
Common Stock
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Fiscal Year 2007
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
28.80
|
|
|
$
|
18.75
|
|
Second quarter
|
|
|
31.65
|
|
|
|
22.35
|
|
Third quarter
|
|
|
34.20
|
|
|
|
26.40
|
|
Fourth quarter
|
|
|
27.45
|
|
|
|
22.35
|
|
Fiscal Year 2008
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
30.75
|
|
|
$
|
22.50
|
|
Second quarter
|
|
|
28.35
|
|
|
|
14.55
|
|
Third quarter
|
|
|
15.45
|
|
|
|
8.70
|
|
Fourth quarter
|
|
|
18.00
|
|
|
|
9.60
|
|
Fiscal Year 2009
|
|
|
|
|
|
|
|
|
First quarter(1)
|
|
$
|
16.20
|
|
|
$
|
4.30
|
|
Second quarter
|
|
|
4.78
|
|
|
|
0.75
|
|
Third quarter
(through ,
2009)
|
|
|
|
|
|
|
|
|
23
|
|
|
(1) |
|
Effective as of August 13, 2008, Avanex effected a
one-for-fifteen reverse stock split of its common stock. |
The following table presents the closing per share price of
Bookham common stock and Avanex common stock, as reported on the
NASDAQ Global Market, and the estimated equivalent per share
price (as explained below) of Avanex common stock on
January 27, 2009, the last full trading day before the
public announcement of the proposed merger, and
on ,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bookham
|
|
Avanex
|
|
Estimated Equivalent
|
|
|
Common Stock
|
|
Common Stock
|
|
Avanex Per Share Price
|
|
January 27, 2009
|
|
$
|
0.40
|
|
|
$
|
1.30
|
|
|
$
|
2.17
|
|
, 2009
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
The estimated equivalent per share price of a share of Avanex
common stock equals the exchange ratio of 5.426 multiplied by
the price of a share of Bookham common stock. You may use this
calculation to estimate what your shares of Avanex common stock
will be worth if the merger is consummated. If the merger had
occurred
on ,
2009, you would have received a number of shares of Bookham
common stock worth $ for each share of Avanex common stock you
owned. The actual equivalent per share price of a share of
Avanex common stock that you will receive if the merger is
consummated may be different from this price because the per
share price of Bookham common stock on the NASDAQ Global Market
fluctuates continuously.
Following the consummation of the merger, Bookham common stock
will continue to be listed on the NASDAQ Global Market, and
there will be no further market for Avanex common stock.
Pursuant to the merger agreement, Bookham and Avanex will take
all actions necessary to ensure that the name of the combined
company following the merger will be the name mutually agreed to
by Bookham and Avanex. The name change has not yet been
determined between the parties; however, when (and if) a name
change is effected, a change in Bookhams trading symbol
may be effected as well.
24
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This joint proxy statement/prospectus includes
forward-looking statements within the meaning of the
safe harbor provisions of the United States Private Securities
Litigation Reform Act of 1995. Words such as
anticipate, believes,
budget, continue, could,
estimate, expect, forecast,
intend, may, plan,
potential, predicts,
project, should, will and
similar expressions are intended to identify such
forward-looking statements. Forward-looking statements in this
joint proxy statement/prospectus include, without limitation,
statements regarding forecasts of market growth, future revenue,
benefits of the proposed merger, potential synergies, cost
savings and costs as a result of the proposed merger, future
expectations concerning available cash and cash equivalents,
assumptions underlying or relating to any of the foregoing, and
other matters that involve known and unknown risks,
uncertainties and other factors that may cause actual results,
levels of activity, performance or achievements to differ
materially from results expressed in or implied by this joint
proxy statement/prospectus. Such risk factors include, among
others: difficulties we may encounter in integrating the merged
businesses; uncertainties as to the consummation of the merger,
and the satisfaction of closing conditions to the merger
(including the receipt of required stockholder approvals);
whether certain markets will grow as anticipated; the
competitive environment in the optical components industry and
competitive responses to the proposed merger; whether the
companies can successfully develop new products on a timely
basis and the degree to which these gain market acceptance;
risks associated with general business and economic conditions;
the performance of financial markets; the impact of the filing
for bankruptcy by Nortel Networks Corporation, or Nortel
Networks or Nortel, on its ability to pay for existing products
and its demand for products in the future; the lack of
availability of credit; changes in inventory and product mix;
degradation in the exchange rate of the Unites States dollar
relative to the currencies of the U.K., China, the European
Union and Thailand; the continued ability of Bookham to maintain
requisite financial resources; the failure to realize synergies
and cost savings from the transaction or delay in realization
thereof; the businesses or employees of Bookham and Avanex not
being combined and integrated successfully, or such combination
taking longer, being more difficult, more time consuming or more
costly to accomplish than expected; operating costs and business
disruption following the merger, including adverse effects on
employee retention, design wins and on the business relationship
with third parties; and the effect of litigation challenging the
merger. Additional risk factors that can cause the actual
results, levels of activity, performance or achievements to
differ materially from results expressed in or implied by this
joint proxy statement/prospectus are described in the section
Risk Factors on page 26.
Actual results may differ materially from those contained in the
forward-looking statements in this joint proxy
statement/prospectus. Additional information concerning these
and other risk factors is contained elsewhere in this joint
proxy statement/prospectus. You are cautioned not to place undue
reliance on these forward-looking statements, which speak only
as of the date of this joint proxy statement/prospectus. All
forward-looking statements are qualified in their entirety by
this cautionary statement. We assume no obligation to update the
forward-looking statements, or to update the reasons why actual
results could differ from those projected in the forward-looking
statements.
25
RISK
FACTORS
You should consider the following factors in evaluating
whether to approve the issuance of shares of Bookham common
stock in the merger or whether to adopt the merger agreement, as
the case may be. These factors should be considered in
conjunction with the other information included by Bookham and
Avanex in this joint proxy statement/prospectus.
Risks
Relating to the Merger
The
combined company may not achieve strategic objectives,
anticipated synergies and cost savings and other potential
benefits of the merger.
Both companies expect to realize strategic and other financial
and operating benefits as a result of the merger, including,
among other things, significant cost savings synergies. However,
neither company can predict with certainty the extent to which
these benefits will actually be achieved or the timing of any
such benefits. The following factors, among others, may prevent
the combined company from realizing these benefits:
|
|
|
|
|
the inability of the combined company to increase product sales;
|
|
|
|
unfavorable customer reaction to the combined companys
products;
|
|
|
|
competitive factors, including technological advances attained
by competitors and patents granted to or contested by
competitors, which would enhance their ability to compete
against the combined company;
|
|
|
|
the failure of key markets for the combined companys
products to develop to the extent or as rapidly as currently
expected;
|
|
|
|
the impact of the current economic and financial downturn and
the extent to which the current adverse economic conditions and
disruptions in the credit and financial markets improve or
ameliorate, if at all;
|
|
|
|
changes in technology that increase the number of competitors
that the combined company faces after the merger or require the
combined company to make significant capital expenditures to
develop competitive products;
|
|
|
|
unfavorable reaction to the merger by the combined
companys third party manufacturers;
|
|
|
|
employment law or regulations or other limitations in foreign
jurisdictions that could have an impact on timing, amounts or
costs of achieving synergies; and
|
|
|
|
the failure to retain key employees.
|
Failure to achieve the strategic objectives of the merger could
have a material adverse effect on the revenues, expenses and the
operating results and cash resources of the combined company and
could result in the combined company not achieving the
anticipated potential benefits of the merger. In addition,
Bookham and Avanex cannot assure you that the growth rate of the
combined company will equal the historical growth rate
experienced by either Bookham or Avanex.
Bookham
and Avanex may not successfully integrate their businesses and
may not realize the anticipated benefits of the
merger.
Achieving the potential benefits of the merger will depend in
substantial part on the successful integration of the two
companies technologies, operations and personnel. Bookham
and Avanex will face significant challenges in integrating their
organizations and operations in a timely and efficient manner.
Some of the challenges involved in this integration include:
|
|
|
|
|
demonstrating to the customers of Bookham and Avanex that the
merger will not result in adverse changes in client service
standards or business focus and helping customers conduct
business easily with the combined company;
|
26
|
|
|
|
|
consolidating and rationalizing corporate information
technology, engineering and administrative infrastructures;
|
|
|
|
integrating product offerings;
|
|
|
|
coordinating sales and marketing efforts to effectively
communicate the capabilities of the combined company;
|
|
|
|
coordinating and integrating the supply chains;
|
|
|
|
coordinating and integrating the manufacturing activities of the
two companies, including with respect to third party
manufacturers;
|
|
|
|
coordinating the international activities of the two companies;
|
|
|
|
coordinating and rationalizing research and development
activities to enhance introduction of new products and
technologies with reduced cost; and
|
|
|
|
preserving important relationships of both Bookham and Avanex
and resolving potential conflicts that may arise.
|
The integration of Bookham and Avanex will be a complex, time
consuming and expensive process. It is not certain that Bookham
and Avanex can be successfully integrated in a timely manner or
at all or that any of the anticipated benefits will be realized.
Failure to do so could have a material adverse effect on the
revenues, expenses and the operating results and cash resources
of the combined company and could result in the combined company
not achieving the anticipated potential benefits of the merger.
Integrating
the companies may divert managements attention away from
our operations.
Successful integration of Bookhams and Avanexs
operations, products and personnel may place a significant
burden on Bookhams management and its internal resources,
following the completion of the merger. The diversion of
management attention and any difficulties encountered in the
transition and integration process could harm Bookhams
business, financial condition, operating results and evaluating
strategic actions.
Bookham
expects to incur significant costs integrating the companies
into a single business, and if such integration is not
successful Bookham may not realize the expected benefits of the
merger.
Bookham expects to incur significant costs integrating
Avanexs operations, products and personnel. These costs
may include costs for:
|
|
|
|
|
employee redeployment, relocation or severance;
|
|
|
|
conversion of information systems;
|
|
|
|
combining research and development teams and processes;
|
|
|
|
reorganization or closures of redundant or excess
facilities; and
|
|
|
|
relocation or disposition of excess equipment.
|
In addition, Bookham expects to incur significant costs in
connection with the merger. Bookham does not know whether it
will be successful in these integration efforts or in
consummating the merger and cannot assure you that it will
realize the expected benefits of the merger. In addition,
Bookham may incur restructuring costs in connection with the
merger that exceed the current expectations. Finally, the board
of directors and employees of the combined entity will consist
of individuals from both Bookham and Avanex, and the new members
of the board of directors and employees of the combined entity,
which have had limited exposure to each other, may not be able
to work together effectively, which also could have an adverse
effect on the business of the combined entity.
27
If
Bookham fails to retain key employees, the benefits of the
merger could be diminished.
The successful combination of Bookham and Avanex will depend in
part on the retention of key personnel. There can be no
assurance that Bookham will be able to retain its or
Avanexs key management, technical, sales and customer
support personnel. If Bookham fails to retain such key
employees, it may not realize the anticipated benefits of the
merger.
The
sales of Bookham and/or Avanex could decline if customer
relationships are disrupted by the merger.
Bookhams and Avanexs customers may not continue
their current buying patterns during the pendency of, and
following, the merger. Any loss of design wins or significant
delay or reduction in orders for Bookhams or Avanexs
products could harm the combined companys business,
financial condition and results of operations. Customers may
defer purchasing decisions as they evaluate the likelihood of
successful integration of Bookhams and Avanexs
products and the combined companys future product
strategy, or consider purchasing products of our competitors.
Customers may also seek to modify or terminate existing
agreements, or prospective customers may delay entering into new
agreements or purchasing our products. In addition, by
increasing the breadth of Bookhams and Avanexs
business, the merger may make it more difficult for the combined
company to enter into relationships, including customer
relationships, with strategic partners, some of whom may view
the combined company as a more direct competitor than either
Bookham or Avanex as an independent company.
Because
Avanex stockholders will receive a fixed number of shares of
Bookham common stock in the merger, rather than a fixed value,
if the market price of Bookham common stock declines, Avanex
stockholders will receive consideration in the merger of lesser
value.
Upon the consummation of the merger, each Avanex share will be
converted into the right to receive 5.426 shares of Bookham
common stock. Since the exchange ratio is fixed, the number of
shares that Avanex stockholders will receive in the merger will
not change, even if the market price of Bookham or Avanex common
stock changes. In recent years, the stock market, in general,
and the securities of technology companies, in particular, have
experienced extreme price and volume fluctuations. These market
fluctuations may adversely affect the market price of Bookham
common stock. The market price of Bookham common stock upon and
after the consummation of the merger could be lower than the
market price on the date of the merger agreement or the current
market price. Avanex stockholders should obtain recent market
quotations of Bookham common stock before they vote on the
merger.
The
ownership and voting interests of Bookham stockholders will be
diluted as a result of the issuance of shares of Bookham common
stock to the security holders of Avanex in the
merger
After the merger, stockholders of Avanex who receive Bookham
common stock in the merger will represent approximately 46.75%
of Bookham common stock as of the date of the merger, based on
the number of shares of Bookham common stock and Avanex common
stock that were outstanding on January 27, 2009, assuming
that no Avanex or Bookham stock options or warrants are
exercised after January 27, 2009 and prior to the effective
time of the merger, and without giving effect to the vesting of
any outstanding Avanex or Bookham restricted stock units after
January 27, 2009 and prior to the effective time of the
merger. After the merger, Bookham stockholders will have the
same number of shares of Bookham common stock held immediately
prior to the merger and will therefore hold a smaller
percentage, approximately 53.25% of the aggregate number of
shares of Bookham common stock outstanding after the merger,
based on the same assumptions as included in the previous
sentence.
As a
result of the merger, the combined company will be a larger and
more geographically diverse organization, and if the combined
companys management is unable to manage the combined
organization efficiently, its operating results will
suffer.
Following the merger, the combined company will have
approximately 2,783 employees in a total of
13 facilities around the world. As a result, the combined
company will face challenges inherent in efficiently
28
managing an increased number of employees over large geographic
distances, including the need to implement appropriate systems,
policies, benefits and compliance programs. The inability to
manage successfully the geographically more diverse (including
from a cultural perspective) and substantially larger combined
organization could have a material adverse effect on the
operating results of the combined company after the merger and,
as a result, on the market price of Bookham common stock.
Certain
governmental authorities may seek to set material restrictions
or conditions in order to consummate the merger, as they deem
necessary or desirable in the public interest.
Although the merger is not subject to reporting obligations
under the Hart-Scott-Rodino Act, each of the Antitrust Division
of the U.S. Department of Justice or the Federal Trade
Commission could take actions under the antitrust laws as it
deems necessary or desirable in the public interest, including
seeking to enjoin the consummation of the merger or seeking
divestiture of substantial assets of Bookham or Avanex. In
addition, any state of the U.S. could take such actions
under the antitrust laws as it deems necessary and desirable.
Such actions can include seeking to enjoin the consummation of
the merger or seeking divestiture of substantial assets of
Bookham or Avanex.
The
proposed merger may not be consummated.
Neither Bookham nor Avanex can provide any assurances that the
proposed merger will be consummated. If the companies are unable
to complete the proposed merger, each will have incurred
substantial expenses and diverted significant management time
and resources from their ongoing business without the intended
benefit.
Bookhams
directors have interests that differ from other Bookham
stockholders interests and may influence them to support
and approve the merger.
The members of the board of directors of Bookham that will not
continue to serve as directors of Bookham following the
effective time of the merger (collectively referred to as the
Bookham departing directors) have certain interests in the
merger that differ from the interests of other Bookham
stockholders. The Bookham departing directors are currently
expected to be Peter F. Bordui, David Simpson, Joe Cook and W.
Arthur Porter; however, a final determination as to who the
Bookham departing directors will be has not been made and the
persons who will be Bookham departing directors may change.
Effective as of the effective time of the merger, the exercise
period of Bookham stock options held by the Bookham departing
directors will be extended and such stock options will be
exercisable for a period of one year following the effective
time of the merger. In addition, the vesting of the Bookham
equity awards granted to the Bookham departing directors will
accelerate in full. Further, each Bookham departing director
will also be entitled to coverage under the current
directors and officers liability insurance for a
period similar to the period during which Avanexs
directors will be entitled to insurance coverage (six years
following the effective time of the merger) for actions and
omissions occurring prior to the effective time of the merger.
Bookham stockholders should review the section titled
Bookham Proposal No. 1 and Avanex
Proposal No. 1 The Merger
Interests of Bookhams Directors in the Merger
beginning on page 104 for a more complete description of
these arrangements.
Avanexs
directors and executive officers have interests that differ from
other Avanex stockholders interests and may influence them
to support and approve the merger.
Avanexs directors and executive officers have certain
interests in the merger that differ from the interests of other
Avanex stockholders. First, as of the effective time of the
merger, each non-employee director of Avanex will be entitled to
accelerated vesting of all of their outstanding options and
restricted stock units issued under Avanexs
1999 Director Option Plan. Second, pursuant to the terms of
the outstanding option awards of those directors of Avanex who
will resign and will not become a director of Bookham in
connection with the merger, the post-termination exercise period
for such options is two years. Third, certain executive
officers of Avanex have entered into change in control
agreements with Avanex providing each of them certain
acceleration of vesting of their equity awards and certain
severance payments under certain circumstances in
29
connection with the merger. In addition, each Avanex director
and officer will also be entitled to continuing indemnification
from Avanex for a period of six years following the merger. As a
result, Avanex directors and officers could be more likely to
vote for the proposal to approve and adopt the merger agreement
and approve the merger than if they did not have these
interests. Avanex stockholders should review the section titled
Bookham Proposal No. 1 and Avanex
Proposal No. 1 The Merger
Interests of Avanexs Executive Officers and Directors in
the Merger beginning on page 105 for a more complete
description of these arrangements.
A
purported class action lawsuit has been filed against Avanex,
its directors, Bookham and Ultraviolet Acquisition Sub
challenging the merger, and an unfavorable judgment or ruling in
this lawsuit could prevent or delay the consummation of the
merger, result in substantial costs or both.
On February 3, 2009, a purported class action complaint was
filed against Avanex and its directors, Bookham, Inc., and
Ultraviolet Acquisition Sub, Inc. in the Superior Court of
California, Alameda County by two individuals who purport to be
shareholders of Avanex. Plaintiffs purport to bring this action
on behalf of all shareholders of Avanex. On March 3, 2009,
these individuals filed an amended complaint. The amended
complaint alleges that the defendants breached their fiduciary
duties by failing to maximize shareholder value in connection
with the contemplated merger of Avanex and Bookham, and that the
joint proxy statement/prospectus fails to provide stockholders
with material information or contains materially misleading
information thereby rendering the stockholders unable to cast an
informed vote on the proposed merger. The complaint also alleges
that Avanex, Bookham, and Ultraviolet Acquisition Sub aided and
abetted the individual defendants alleged breach of
fiduciary duties. Plaintiffs seek to permanently enjoin the
merger with Bookham, monetary damages in an unspecified amount
attributable to the alleged breach of duties, and legal fees and
expenses. Avanex, Bookham, Ultraviolet Acquisition Sub, Inc. and
the individual defendants intend to defend against the complaint
vigorously. However, there can be no assurance that the
defendants will be successful in their defense. An unfavorable
outcome in this lawsuit could prevent or delay the consummation
of the merger, result in substantial costs to Avanex, Bookham or
both.
If the
merger is completed after June 27, 2009, it will be
accounted for under new accounting standards.
In December 2007, the Financial Accounting Standard Board issued
Statement of Financial Accounting Standards No. 141
(revised 2007), Business Combinations
(SFAS No. 141R). SFAS No. 141R
establishes the principles and requirements for how an acquiror
(i) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree; (ii) recognizes
and measures the goodwill acquired in the business combination
or a gain from a bargain purchase; and (iii) determines
what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the
business combination. SFAS No. 141R makes significant
changes to existing accounting practices for acquisitions,
including the requirement to expense transaction costs and to
reflect the fair value of contingent purchase price adjustments
at the date of acquisition. SFAS No. 141R is to be
applied prospectively to business combinations consummated on or
after the beginning of the first annual reporting period on or
after December 15, 2008. If the merger closes after
June 27, 2009, it will be accounted for under
SFAS No. 141R.
Risks
Relating to Bookham
Risks
Related to Our Business
We
have a history of large operating losses and we may not be able
to achieve profitability in the future.
We have historically incurred losses and negative cash flows
from operations since our inception. As of December 27,
2008, we had an accumulated deficit of $1,063.8 million. We
do not expect to be profitable in the quarter ending
March 29, 2009, even if the merger with Avanex is
consummated prior to that time.
Our net loss for the six months ended December 27, 2008 was
$4.3 million. Our net loss for the year ended June 28,
2008 was $23.4 million. Our net loss for the year ended
June 30, 2007 was $82.2 million. We may not be able to
achieve profitability in any future period, and if we are unable
to do so, we may need additional financing to execute on our
current or future business strategies, which may not be
available to us on commercially acceptable terms or at all.
30
We may
not be able to maintain current levels of gross
margins.
We may not be able to maintain a positive gross margin to the
extent that current economic uncertainty affects our overall
revenue, and we are unable to adjust expenses as necessary. We
must, in any event, continue to reduce our costs and improve our
product mix to offset price erosion on certain product
categories. In particular, over the last twelve to eighteen
months we have introduced a family of tunable products that
account for an increasing percentage of our overall product
revenues. In the quarter ended September 27, 2008, we were
capacity constrained in our delivery of these products due to
component supply and production limitations, and we are only
beginning to achieve margins on these products approaching our
long-term target margins as we introduce them into large-scale
production. Although we have plans in place both to address
production constraints, and to maintain and further improve
margins in our tunable products, any failure to do so will
adversely affect our financial results, including our goal to
achieve sustainable cash flow positive operations. Our gross
margins in the three months ended December 27, 2008 were
also adversely impacted by the deferral of revenue for
$5.4 million in products shipped to two customers that were
not reasonably assured of collectability in accordance with our
revenue recognition policy.
Our
business and results of operations may be negatively impacted by
general economic and financial market conditions and such
conditions may increase the other risks that affect our
business.
The worlds financial markets are currently experiencing
significant turmoil, resulting in reductions in available
credit, dramatically increased costs of credit, extreme
volatility in security prices, potential changes to existing
credit terms, rating downgrades of investments and reduced
valuations of securities generally. In light of these economic
conditions, certain of our telecom customers have reduced their
spending plans, leading them to draw down their existing
inventory and reducing anticipated orders for optical
components. Furthermore, it is possible that these customers, or
others, will continue to significantly reduce capital
expenditures in the near term, draw down their inventories,
reduce production levels of existing products, defer
introduction of new products or place orders and accept delivery
for products for which they do not pay us due to their economic
difficulties or other reasons. These actions have, and we expect
that they will continue to have an adverse impact on our own
revenues, which we anticipate will in any event be reduced in
the third quarter of fiscal 2009 as compared to the preceding
quarter. In addition, the financial downturn has affected the
financial strength of certain of our customers, and could
adversely affect others. In particular, Nortel Networks filed
for bankruptcy relief on January 14, 2009, and, as a
consequence, we have deferred $4.1 million in revenues that
might otherwise have been recognized. There can be no assurance
that Nortel Networks will continue to purchase our products at
previously or currently anticipated levels while it is in
insolvency proceedings for reasons including, but not limited
to, Nortels distractions from its core business execution
and the reaction of its own customers.
In addition, our suppliers may also be adversely affected by
economic conditions that may impact their ability to provide
important components used in our manufacturing processes on a
timely basis, or at all.
These conditions could also result in reduced capital resources
because of reduced credit availability, higher costs of credit
and the stretching of payables by creditors seeking to preserve
their own cash resources. We are unable to predict the likely
duration and severity of the current disruption in financial
markets and adverse economic conditions in the U.S. and
other countries, but the longer the duration the greater risks
we face in operating our business.
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. For example, the market for optical components is
currently characterized by a trend toward the adoption of
pluggable components and tunable transmitters that do not
require the customized interconnections of traditional fixed
wavelength gold box devices and the increased integration of
components on subsystems. Our ability to anticipate and respond
to these and other changes in technology, industry standards,
customer requirements and product offerings and to develop and
introduce new and
31
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 or products in development uncompetitive from
a pricing standpoint, obsolete or unmarketable.
The
market for optical components continues to be characterized by
excess capacity and intense price competition which has had, and
will continue to have, a material adverse effect on our results
of operations.
There continues to be excess capacity for many optical
components companies, intense price competition among optical
component manufacturers and continued consolidation in the
industry. As a result of this excess capacity and other industry
factors, pricing pressure remains intense. 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 cost management. Continued uncertain demand for optical
components has had, and will continue to have, a material
adverse effect on our results of operations.
We
depend on a limited number of customers for a significant
percentage of our revenues.
Historically, we have generated most of our revenues from a
limited number of customers. For example, in the six months
ended December 27, 2008, our three largest customers
accounted for 36 percent of our revenues. In the fiscal
year ended June 28, 2008 and the fiscal year ended
June 30, 2007, our three largest customers accounted for
33 percent and 41 percent of our revenues,
respectively. Revenues from any of our major customers may
decline or fluctuate significantly in the future, which could
have an adverse impact on our business and results of
operations. For example, we expect that the revenues that we
receive from the sale of products to Nortel Networks, which
accounted for $5.4 million, or 11 percent, of our
total revenues for the three months ended December 27,
2008, may decline in the future as a result of its bankruptcy
filing on January 14, 2009. We may not be able to offset
any decline in revenues from our existing major customers with
revenues from new customers or other existing customers.
We and
our telecom customers depend upon a limited number of major
telecommunications carriers.
Our dependence on a limited number of customers is due to the
fact that the optical telecommunications systems industry is
dominated by a small number of large companies. These customers
in turn depend primarily on a limited number of major
telecommunications carrier customers to purchase their products
that incorporate our optical components. Many major
telecommunication systems companies and telecommunication
carriers are reducing inventories and experiencing losses from
operations in light of the current economic conditions. The
further consolidation of the industry, coupled with declining
revenues from our major customers, may have a material adverse
impact on our business.
We
typically do not enter into long-term contracts with our
customers and our customers may decrease, cancel or delay their
buying levels at any time with little or no advance notice to
us.
Our customers typically purchase our products pursuant to
individual purchase orders. While our customers generally
provide us with their expected forecasts for our products
several months in advance, in most cases they are not
contractually committed to buy any quantity of products beyond
those in purchase orders previously submitted to us. Our
customers may decrease, cancel or delay purchase orders already
in place. If any of our major customers decrease, stop or delay
purchasing our products for any reason, our business and results
of operations would be harmed. Cancellation or delays of such
orders may cause us to fail to achieve our short-term and
long-term financial and operating goals and result in excess and
obsolete inventory.
32
Our
products may infringe the intellectual property rights of others
which could result in expensive litigation or require us to
obtain a license to use the technology from third parties, or we
may be prohibited from selling certain products in the
future.
Companies in the industry in which we operate frequently receive
claims of patent infringement or infringement of other
intellectual property rights. We have, from time to time,
received such claims, including from competitors and from
companies that have substantially more resources than us.
For example, on March 4, 2008, we filed a declaratory
judgment complaint captioned Bookham, Inc. v. JDS
Uniphase Corp. and Agility Communications, Inc., Civil
Action
No. 5:08-CV-01275-RMW,
in the United States District Court for the Northern District of
California, San Jose Division. Our complaint seeks
declaratory judgments that our tunable laser products do not
infringe any valid, enforceable claim of U.S. Patent Nos.
6,658,035, 6,654,400 and 6,687,278, and that all claims of the
aforementioned patents are invalid and unenforceable. Our
complaint also contains affirmative claims for relief against
JDS Uniphase Corp. and Agility Communications, Inc. for
statutory unfair competition, and for intentional interference
with economic advantage.
On July 21, 2008, JDS Uniphase Corp. and Agility
Communications, Inc. answered our complaint and asserted
counterclaims against Bookham for infringement of
U.S. Patent Nos. 6,658,035, 6,654,400 and 6,687,278, which
JDS Uniphase Corp. acquired from Agility Communications, Inc. On
October 6, 2008, JDS Uniphase Corp. indicated that its
infringement claims are directed at Bookhams
LamdaFlextm
TL500 VCJ; TL5000VLJ; TL3000; TL7000; TL8000 and TL9000
products. JDS Uniphase Corp. seeks unspecified compensatory
damages, treble damages and attorneys fees from Bookham,
and an order enjoining Bookham from future infringement of the
patents-in-suit.
This litigation has been stayed due to JDS Uniphase Corp.s
commencement of a U.S. International Trade Commission
Investigation, which is described below.
On November 7, 2008, JDS Uniphase Corp. petitioned the
U.S. International Trade Commission to commence an
investigation into alleged violations by Bookham of
Section 337 of the Tariff Act of 1930. On December 8,
2008, the U.S. International Trade Commission commenced
investigation
No. 337-TA-662
into Bookhams alleged importation into the United States,
sale for importation, and sale within the United States after
importation of tunable laser chips, assemblies, and products
containing the same that infringe U.S. Patent Nos.
6,658,035 and 6,687,278. JDS Uniphase Corp. seeks a general
exclusion order prohibiting the importation of any Bookham
tunable laser chip, assembly, or product containing the same
that infringes any claim of the aforementioned patents, as well
as an order prohibiting sales after importation into the United
States of any allegedly infringing products. The
U.S. International Trade Commission has adopted a target
completion date of March 19, 2010 for the investigation,
and indicated that a final initial determination should be filed
by November 19, 2009. Any adverse ruling by the
U.S. International Trade Commission, including an exclusion
order that could prohibit us from importing into the United
States tunable laser chips, assemblies, or products containing
the same, or prolonged litigation may have an adverse effect on
our business and any resolution may not be in our favor.
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 those rights relevant to our business.
We have from time to time received notices from third parties
alleging infringement of their intellectual property and where
appropriate have entered into license agreements with those
third parties with respect to that 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 times of economic turmoil, such
as we are currently experiencing, holders of intellectual
property rights have been more aggressive in alleging
infringement of those intellectual property rights and we may be
the subject to such claims asserted by a third party. In the
course of pursuing any of these means or defending against any
lawsuits filed against us, 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
33
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.
We are also subject to additional litigation as described in the
section entitled Risks Related to Regulatory
Compliance and Litigation Litigation regarding
Bookham Technology plcs and New Focus initial and
follow-on public offerings and Bookhams proposed merger
with Avanex, and any other litigation in which we become
involved, including as a result of past or future acquisitions
or the arrangements we have with suppliers and customers, may
substantially increase our costs and harm our business.
As a
result of our global operations, our business is subject to
currency fluctuations that have adversely affected our results
of operations in recent quarters and may continue to do so in
the future.
Our financial results have been materially impacted by foreign
currency fluctuations and our future financial results may also
be materially impacted by foreign currency fluctuations. At
certain times in our history, declines in the value of the
U.S. dollar versus the U.K. pound sterling have had a major
negative effect on our profit margins and our cash flow. Despite
our change in domicile from the United Kingdom to the United
States in 2004 and the transfer of our assembly and test
operations from Paignton, U.K. to Shenzhen, China, a significant
portion of our expenses are still denominated in U.K. pounds
sterling and substantially all of our revenues are denominated
in U.S. dollars. Fluctuations in the exchange rate between
these two currencies and, to a lesser extent, other currencies
in which we collect revenues and or pay expenses will continue
to have a material effect on our operating results. For example,
from the end of our fiscal quarter ended December 29, 2007
to the end of our fiscal quarter ended December 27, 2008,
the U.S. dollar has appreciated 25.9 percent relative
to the U.K. pound sterling, which has favorably impacted our
results. If the U.S. dollar stays the same or depreciates
relative to the U.K. pound sterling in the future, our future
financial results may also be materially impacted. Additional
exposure could also result should the exchange rate between the
U.S. dollar and the Chinese yuan or Swiss franc vary more
significantly than they have to date.
We engage in currency hedging transactions in an effort to cover
some of our exposure to U.S. dollar to U.K. pound sterling
currency fluctuations, and we may be required to convert
currencies to meet our obligations. Under certain circumstances,
these transactions could have an adverse effect on our financial
condition.
We
have significant manufacturing operations in China, which
exposes us to risks inherent in doing business in
China.
We are taking advantage of the comparatively low costs of
operating in China. We have recently transferred substantially
all of our assembly and test operations,
chip-on-carrier
operations and manufacturing and supply chain management
operations to our facility in Shenzhen, China, and have also
transferred certain iterative research and development related
activities from the U.K. to Shenzhen, China. We are also
transferring certain non-telecom manufacturing operations from
our San Jose, California facility to our Shenzhen facility,
which is almost complete. The substantial portions of our
assembly and test and related manufacturing operations are now
concentrated in our single facility in China. To be successful
in China we will need to:
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qualify our manufacturing lines and the products we produce in
Shenzhen, as required by our customers;
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attract qualified personnel to operate our Shenzhen
facility; and
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retain employees at our Shenzhen facility.
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There can be no assurance we will be able to do any of these.
Employee turnover in China is high due to the intensely
competitive and fluid market for skilled labor. To operate the
facility, and to the extent we are unable to retain our existing
workforce, we will need to continue to hire direct manufacturing
personnel, administrative personnel and technical personnel;
obtain and retain
34
required legal authorization to hire such personnel and incur
the time and expense to hire and train such personnel.
Operations in China are subject to greater political, legal and
economic risks than our operations in other countries. In
particular, the political, legal and economic climate in China,
both nationally and regionally, is fluid and unpredictable. Our
ability to operate in China may be adversely affected by changes
in Chinese laws and regulations such as those related to
taxation, import and export tariffs, environmental regulations,
land use rights, intellectual property and other matters. In
addition, we may not obtain or retain the requisite legal
permits to continue to operate in China and costs or operational
limitations may be imposed in connection with obtaining and
complying with such permits.
We have, in the past, been advised that power may be rationed in
the location of our Shenzhen facility, and were power rationing
to be implemented, it could have an adverse impact on our
ability to complete manufacturing commitments on a timely basis
or, alternatively, could require significant investment in
generating capacity to sustain uninterrupted operations at the
facility, which we may not be able to do successfully.
We intend to continue to export the majority of the products
manufactured at our Shenzhen facility. Under current
regulations, upon application and approval by the relevant
governmental authorities, we will not be subject to certain
Chinese taxes and will be exempt from certain duties on imported
materials that are used in the manufacturing process and
subsequently exported from China as finished products. However,
Chinese trade regulations are in a state of flux, and we may
become subject to other forms of taxation and duties in China or
may be required to pay export fees in the future. In the event
that we become subject to new forms of taxation or export fees
in China, our business and results of operations could be
materially adversely affected. We may also be required to expend
greater amounts than we currently anticipate in connection with
increasing production at the Shenzhen facility. Any one of the
factors cited above, or a combination of them, could result in
unanticipated costs, which could materially and adversely affect
our business.
Fluctuations
in operating results could adversely affect the market price of
our common stock.
Our revenues and operating results are likely to fluctuate
significantly in the future. 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. Our lengthy sales cycle, which may extend to more than
one year for our telecom products, 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 by our customers may
increase as we develop new or enhanced products for new markets,
including data communications, industrial, research,
semiconductor capital equipment, military and biotechnology
markets. Our current and anticipated future dependence on a
small number of customers increases the revenue impact of each
such 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, operating results for any quarterly period in which
material orders fail to occur, or are delayed or deferred could
vary significantly.
Because of these and other factors, quarter-to-quarter
comparisons of our results of operations may not be 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 the
market price of our common stock to decline.
The
investment of our cash balance and our investments in marketable
debt securities are subject to risks which may cause losses and
affect the liquidity of these investments.
At December 27, 2008, we had $35.8 million in cash and
cash equivalents (including restricted cash of
$0.5 million) and $8.9 million in investments in
marketable debt securities. We have historically invested these
amounts in U.S. treasury securities and
U.S. government agency securities, corporate debt, money
market funds, commercial paper and municipal bonds. Certain of
these investments are subject to general credit, liquidity,
market and interest rate risks. While we do not hold any
investments whose value is directly
35
correlated to sub-prime debt, the risks associated with holding
certain investments, including some of the investments we hold,
have been and may further be exacerbated by U.S. sub-prime
mortgage defaults, which have affected various sectors of the
financial markets and caused credit and liquidity issues.
In September 2008, Lehman Brothers Holdings Inc., or Lehman,
filed a petition under Chapter 11 of the
U.S. Bankruptcy Code. At December 27, 2008, we held a
Lehman security with par value of $0.8 million. As of
January 30, 2009, we do not have an estimate of the
recovery value of this security, but we have reduced the
carrying value of this security to $0.1 million. For the
three and six months ended December 27, 2008, we have
recorded impairment charges for the Lehman security of
$0.1 million and $0.7 million, respectively, which are
included in other expense in our accompanying condensed
consolidated statement of operations for such periods.
There may be further declines in the value of our short-term
investments, which we may determine to be other-than-temporary.
These market risks associated with our investment portfolio may
have a negative adverse effect on our results of operations,
liquidity and financial condition.
We
have recorded a significant impairment charge and we may record
additional impairment charges which would adversely impact our
results of operations.
We review our goodwill, intangible assets and long-lived assets
for impairment whenever events or changes in circumstances
indicate that the carrying amounts of these assets may not be
recoverable, and also review goodwill annually in accordance
with SFAS No. 142, Goodwill and Other Intangibles.
During the three month period ended December 27, 2008, we
observed indicators of potential impairment of our goodwill,
including the impact of the current general economic downturn on
our future prospects and the continued decline of our current
market capitalization, which caused us to conduct a preliminary
interim goodwill impairment analysis. Our management has
determined, in our preliminary goodwill impairment analysis,
that our goodwill was in fact impaired, and as a result we have
recorded a preliminary estimate of $7.9 million for the
impairment loss in our statements of operations for the three
and six months ended December 27, 2008. The goodwill was
derived from our previous acquisitions. This $7.9 million
is only a preliminary estimate. We are continuing to evaluate
the impairment of our goodwill, and the amount of the actual
impairment charge may vary materially from this initial
estimate. We expect that we will complete the full evaluation of
the impairment analysis during the quarter ending March 28,
2009.
During the year ended June 30, 2007, we designated the
assets underlying our Paignton, U.K. manufacturing site as held
for sale and subsequently sold the site to a third party for
proceeds of £4.8 million (approximately
$9.4 million based on an exchange rate of $1.96 to
£1.00 in effect on the date of sale), net of selling costs.
In connection with this designation we recorded an impairment
charge of $1.9 million during the three month period ended
September 30, 2006. During the fiscal year ended
July 1, 2006, in connection with a review of our long-lived
assets for impairment, we recorded $433,000 of impairment
charges.
In the event that we determine in a future period that
impairment of our intangible assets or long-lived assets exists
for any reason, we would record an impairment charge in the
period such determination is made, which would adversely impact
our financial position and results of operations.
We may
incur additional significant restructuring charges that will
adversely affect our results of operations.
Over the past eight years, we have enacted a series of
restructuring plans and cost reduction plans designed to reduce
our manufacturing overhead and our operating expenses. In 2001,
we reduced manufacturing overhead and our operating expenses in
response to the initial decline in demand in the optical
components industry. In connection with our acquisitions of the
optical components business of Nortel Networks in November 2002
and New Focus in March 2004, we enacted restructuring plans
related to the consolidation of our operations, which we
expanded in September 2004 to include the transfer of our main
corporate functions, including consolidated accounting,
financial reporting, tax and treasury, from Abingdon, U.K. to
our U.S. headquarters in San Jose, California.
36
In May, September and December 2004, we announced restructuring
plans, including the transfer of our assembly and test
operations from Paignton, U.K. to Shenzhen, China, along with
reductions in research and development and selling, general and
administrative expenses. These cost reduction efforts were
expanded in November 2005 to include the transfer of our
chip-on-carrier
assembly from Paignton to Shenzhen. The transfer of these
operations was completed in the quarter ended March 31,
2007. In May 2006, we announced further cost reduction plans,
which included transitioning all remaining manufacturing support
and supply chain management, along with pilot line production
and production planning, from Paignton to Shenzhen. This was
substantially completed in the quarter ended June 30, 2007.
We have spent an aggregate of $32.8 million on these
restructuring programs.
On January 31, 2007, we adopted an overhead cost reduction
plan which included workforce reductions, facility and site
consolidation of our Caswell, U.K. semiconductor operations
within our existing U.K. facilities and the transfer of certain
research and development activities to our Shenzhen facility. We
have incurred expenses of $7.7 million with respect to this
cost reduction plan, the substantial portion being personnel
severance and retention related expenses.
We plan on taking further advantage of the relatively lower
operating costs in our Shenzhen facility by completing the
transfer of most of the manufacturing operations from our
San Jose, California non-telecom facility to Shenzhen over
the next quarter. The substantial portion of the restructuring
charges incurred were for personnel related severance and
retention costs.
We may incur charges in excess of amounts currently estimated
for these restructuring and cost reduction plans. We may incur
additional charges in the future in connection with future
restructurings and cost reduction plans.
Additionally, if the merger with Avanex is completed, we expect
that we will incur an aggregate of approximately
$7.0 million in restructuring expenses. 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.
Our
results of operations may suffer if we do not effectively manage
our inventory, and we may incur inventory-related
charges.
We need to manage our inventory of component parts and finished
goods effectively to meet changing customer requirements.
Accurately forecasting customers product needs is
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 non-saleable 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.
Bookham
Technology plc may not be able to utilize tax losses and other
tax attributes against the receivables that arise as a result of
its transaction with Deutsche Bank.
On August 10, 2005, Bookham Technology plc purchased all of
the issued share capital of City Leasing (Creekside) Limited, a
subsidiary of Deutsche Bank. Creekside was entitled to
receivables of £73.8 million (approximately
$135.8 million, based on an exchange rate of $1.84 to
£1.00 on September 2, 2005) from Deutsche Bank in
connection with certain aircraft subleases and these payments
have been applied over a two-year term to obligations of
£73.1 million (approximately $134.5 million on
September 3, 2005) owed to Deutsche Bank. As a result
of the completion of these transactions, Bookham Technology plc
has had available through Creekside cash of approximately
£6.63 million (approximately $12.2 million on
September 3, 2005). We expect Bookham Technology plc to
utilize certain expected tax losses and other tax attributes to
reduce the taxes that might otherwise be due by Creekside as the
receivables are paid. In the event that Bookham Technology plc
is not able to utilize these tax losses and other tax attributes
when U.K. tax returns are filed for the relevant periods (or
these tax losses and other tax attributes do not arise),
Creekside may have
37
to pay taxes, reducing the cash available from Creekside. In the
event there is a future change in applicable U.K. tax law,
Creekside and in turn Bookham Technology plc, would be
responsible for any resulting tax liabilities, which amounts
could be material to our financial condition or operating
results.
Our
products are complex and may take longer to develop than
anticipated and we may not recognize revenues from new products
until after long field testing and customer acceptance
periods.
Many of our new products must be tailored to customer
specifications. As a result, we are developing new products and
using new technologies in those products. For example, while we
currently manufacture and sell discrete gold box technology, we
expect that many of our sales of gold box technology will soon
be replaced by pluggable modules. New products or modifications
to existing products often take many quarters to develop because
of their complexity and because customer specifications
sometimes change during the development cycle. We often incur
substantial costs associated with the research and development
and sales and marketing activities in connection with products
that may be purchased long after we have incurred the costs
associated with designing, creating and selling such products.
In addition, due to the rapid technological changes in our
market, a customer may cancel or modify a design project before
we begin large-scale manufacture of the product and receive
revenue from the customer. It is unlikely that we would be able
to recover the expenses for cancelled or unutilized design
projects. 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.
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 manufacturing lines have passed our qualification
standards, as well as our technical standards. However, our
customers also require that we pass their specific qualification
standards and that we, and any subcontractors that we may use,
be registered under international quality standards. 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. We may be unable to obtain customer qualification of
our manufacturing lines or we may experience delays in obtaining
customer qualification of our manufacturing lines. Such delays
or failure to obtain qualifications would harm our operating
results and customer relationships.
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 at the time of delivery based on our revenue
recognition policies. For example, at December 27, 2008, we
have deferred an aggregate of $5.4 million in revenue for
products delivered to two of our customers due our uncertainty
about the collectability of these amounts.
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 results 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
38
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,
before, during or after 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
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 us materials and
equipment at any time. Our reliance on a sole supplier 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. In addition, given the current macroeconomic downturn,
some of our suppliers that may be small or undercapitalized may
experience financial difficulties that could prevent them from
supplying us materials and equipment. 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 and our results of operations.
Our
intellectual property rights may not be adequately
protected.
Our future success will depend, in large part, upon our
intellectual property rights, including patents, copyrights,
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 full or in part in
all jurisdictions and any breach of a confidentiality obligation
could have a very serious effect on our business and the remedy
for such breach may be limited.
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 our 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 be issued from any application pending or filed
by us or that, if patents are issued, 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 regions in which our products are or may be developed,
manufactured or sold, including Asia-Pacific, Southeast Asia and
Latin America, may not protect our products and intellectual
property rights to the same extent as the laws of the United
States, the U.K. and continental European countries. This is
especially relevant now that we have transferred certain
non-telecom manufacturing activities from our San Jose,
California facility and transferred all of our assembly and test
operations and
chip-on-carrier
operations, including certain engineering related functions,
from our facilities in the U.K. to Shenzhen, China and as our
competitors establish manufacturing operations in China to take
advantage of comparatively low manufacturing costs.
39
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.
Certain companies in 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, inside or
outside our market, 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 be used to inhibit or
prohibit our production and sale of existing products and 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. In
addition, in the event we are granted such a license it is
likely such license would be non-exclusive and other parties,
including competitors, may be able to utilize such technology.
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.
The
markets in which we operate are highly competitive, which could
result in lost sales and lower revenues.
The market for fiber optic components and modules is highly
competitive and such competition could result in our existing
customers moving their orders to competitors. We are aware of a
number of companies that have developed or are developing
optical component products, including tunable lasers, pluggables
and thin film filter products, among others, that compete
directly with our current and proposed product offerings.
Certain of our competitors may be able to more quickly and
effectively:
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respond to new technologies or technical standards;
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react to changing customer requirements and expectations;
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devote needed resources to the development, production,
promotion and sale of products; and
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deliver competitive products at lower prices.
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Many of our current competitors, as well as a number of our
potential competitors, have longer operating histories, greater
name recognition, broader customer relationships and industry
alliances and substantially greater financial, technical and
marketing resources than we do. In addition, market leaders in
industries such as semiconductor and data communications, who
may also 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 further
consolidate through mergers or other business combinations
between competitors.
We may not be able to compete successfully with our competitors
and aggressive competition in the market may result in lower
prices for our products or decreased gross margins. Any such
development would have a material adverse effect on our
business, financial condition and results of operations.
We
generate a significant portion of our revenues internationally
and therefore are subject to additional risks associated with
the extent of our international operations.
For the six months ended December 27, 2008 and for the
years ended June 28, 2008 and June 30, 2007,
27 percent, 25 percent and 23 percent of our
revenues, respectively, were derived in the United States and
73 percent, 75 percent and 77 percent of our
revenues, respectively, were derived outside the United States.
We are subject to additional risks related to operating in
foreign countries, including:
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currency fluctuations, which could result in increased operating
expenses and reduced revenues;
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greater difficulty in accounts receivable collection and longer
collection periods;
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difficulty in enforcing or adequately protecting our
intellectual property;
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foreign taxes;
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political, legal and economic instability in foreign
markets; and
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foreign regulations.
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Any of these risks, or any other risks related to our foreign
operations, could materially adversely affect our business,
financial condition and results of operations.
We may
be faced with product liability claims.
Despite quality assurance measures, 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,
including consequential damages. Such defects 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 million aggregate
annual limit and errors and omissions insurance with a
$5 million annual limit. We cannot assure investors that
this insurance would adequately cover any or a portion of our
costs arising from any defects in our products or otherwise.
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 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 success 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 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. Accounting rules relating to the expensing of equity
compensation may cause us to substantially reduce, modify, or
even eliminate, all or portions of our equity compensation
programs which may, in turn, prevent us from retaining or hiring
qualified employees and declines in our stock price could reduce
or eliminate the retentive effects of our equity compensation
programs.
We may
not be able to raise capital when desired on favorable terms, or
at all, or without dilution to our stockholders.
The rapidly changing industry in which we operate, the length of
time between developing and introducing a product to market and
frequent changing customer specifications for products, among
other things, makes our prospects difficult to evaluate. It is
possible that we may not generate sufficient cash flow from
operations or otherwise have sufficient capital resources to
meet our future capital needs. If this occurs, we may need
additional financing to execute on our current or future
business strategies.
In the past, we have sold shares of our common stock in public
offerings, private placements or otherwise in order to fund our
operations. On November 13, 2007, we completed a public
offering of 16,000,000 shares of common stock that
generated $40.8 million of cash, net of underwriting
commissions and expenses. On
41
March 22, 2007, pursuant to a private placement, we issued
13,640,224 shares of common stock and warrants to purchase
up to 4,092,066 shares of common stock. In September 2006,
pursuant to a private placement, we issued an aggregate of
11,594,667 shares of common stock and warrants to purchase
an aggregate of 2,898,667 shares of common stock.
If we raise funds through the issuance of equity or convertible
debt securities, our stockholders may be significantly diluted,
and these newly-issued securities may have rights, preferences
or privileges senior to those of securities held by existing
stockholders. We cannot assure you that additional financing
will be available on terms favorable to us, or at all. If
adequate funds are not available or are not available on
acceptable terms, if and when needed, our ability to fund our
operations, develop or enhance our products, or otherwise
respond to competitive pressures could be significantly limited.
Risks
Related to Regulatory Compliance and Litigation
Our
business involves the use of hazardous materials, and we are
subject to environmental and import/export laws and regulations
that may expose us to liability and increase our
costs.
We historically 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 the New Focus division of our non-telecom
segment, the optical components business acquired from Nortel
Networks and the product lines we acquired from Marconi.
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
incur 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, or that we would be subject to extensive
monetary liability. The costs associated with environmental
compliance or remediation efforts or other environmental
liabilities could adversely affect our business. Under
applicable EU regulations, we, along with other electronics
component manufacturers, are prohibited from using lead and
certain other hazardous materials in our products. We have
incurred unanticipated expenses in connection with the related
reconfiguration of our products, and could lose business or face
product returns if we failed to implement these requirements
properly or on a timely basis.
In addition, the sale and manufacture of certain of our products
require on-going compliance with governmental security and
import/export regulations. Our New Focus division has, in the
past, been notified of potential violations of certain export
regulations which on one occasion resulted in the payment of a
fine to the U.S. federal government. We may, in the future,
be subject to investigation which may result in fines for
violations of security and import/export regulations.
Furthermore, any disruptions of our product shipments in the
future, including disruptions as a result of efforts to comply
with governmental regulations, could adversely affect our
revenues, gross margins and results of operations.
Litigation
regarding Bookham Technology plcs and New Focus
initial and follow-on public offerings and Bookhams
proposed merger with Avanex, and any other litigation in which
we become involved, including as a result of past or future
acquisitions or the arrangements we have with suppliers and
customers, may substantially increase our costs and harm our
business.
On June 26, 2001, a putative securities class action
captioned Lanter v. New Focus, Inc. et al., Civil Action
No. 01-CV-5822
was filed against New Focus 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 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
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an Amended Class Action Complaint, described below. The
Amended Class Action 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 Bookham Technology plcs initial
public offering.
Various plaintiffs have filed similar actions asserting
virtually identical allegations against more than 300 other
public companies, their underwriters, and their officers and
directors arising out of each companys initial public
offering. These actions, including the action against New Focus
and the action against Bookham Technology plc, have been
coordinated for pretrial purposes and captioned In re Initial
Public Offering Securities Litigation, 21 MC 92.
On April 19, 2002, plaintiffs filed a Consolidated Amended
Class Action Complaint in the New Focus action and an
Amended Class Action Complaint in the Bookham Technology
plc action (together, the Amended Class Action
Complaints). The Amended Class Action 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 Class Action
Complaints seek unspecified damages (or, in the alternative,
rescission for those class members who no longer hold our or New
Focus common stock), costs, attorneys fees, experts
fees, interest and other expenses. In October 2002, the
Individual Defendants were dismissed, without prejudice, from
the action subject to their execution of tolling agreements. In
July 2002, all defendants filed Motions to Dismiss the Amended
Class Action Complaints. The motions were 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.
The plaintiffs and most of the issuer defendants and their
insurers entered into a stipulation of settlement for the claims
against the issuer defendants, including Bookham Technology plc
and New Focus. This stipulation of settlement was subject to,
among other things, certification of the underlying class of
plaintiffs. Under the stipulation of settlement, the plaintiffs
would 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
District Court issued an Opinion and Order preliminarily
approving the settlement provided that the defendants and
plaintiffs agree to a modification narrowing the scope of the
bar order set forth in the original settlement agreement. The
parties agreed to the modification narrowing the scope of the
bar order, and on August 31, 2005, the District Court
issued an order preliminarily approving the settlement.
On December 5, 2006, following an appeal from the
underwriter defendants the United States Court of Appeals for
the Second Circuit overturned the District Courts
certification of the class of plaintiffs who are pursuing the
claims that would be settled in the settlement against the
underwriter defendants. Plaintiffs filed a Petition for
Rehearing and Rehearing En Banc with the Second Circuit on
January 5, 2007 in response to the Second Circuits
decision and have informed the District Court that they would
like to be heard as to whether the settlement may still be
approved even if the decision of the Court of Appeals is not
reversed. The District Court indicated that it would defer
consideration of final approval of the settlement pending
plaintiffs request for further appellate review.
On April 6, 2007, the Second Circuit denied
plaintiffs petition for rehearing, but clarified that the
plaintiffs may seek to certify a more limited class in the
District Court. In light of the overturned class certification
on June 25, 2007, the District Court signed an Order
terminating the settlement. The actions against Bookham
Technology plc and New Focus remain stayed while litigation
proceeds in six test cases against other companies which involve
claims virtually identical to those that have been asserted
against
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Bookham Technology plc and New Focus. On November 13, 2007,
the issuer defendants in certain designated focus
cases filed a motion to dismiss the second consolidated
amended class action complaints that were filed in those cases.
On March 26, 2008, the District Court issued an Opinion and
Order denying, in large part, the motions to dismiss the amended
complaints in the focus cases.
It is uncertain if the litigations will settle. If settlement of
the litigations do not occur and litigation against Bookham
Technology plc and New Focus continues, we believe that both
Bookham Technology plc and New Focus have meritorious defenses
to the claims made in the Amended Class Action Complaints
and therefore believes that such claims will not have a material
effect on its financial position, results of operations or cash
flows.
As described more fully under Risks Related to the
Merger A purported class action lawsuit has been
filed against Avanex and its directors and Bookham and
Ultraviolet Acquisition Sub, Inc. challenging the merger, and an
unfavorable judgment or ruling in this lawsuit could prevent or
delay the consummation of the merger, result in substantial
costs or both, Bookham and Ultraviolet Acquisition Sub,
Inc. are named as defendants in a purported class action
complaint filed in Alameda County Superior Court. The complaint
seeks to have the action certified as a class action and it also
seeks an accounting from the individual defendants, to enjoin
the proposed transaction, to rescind the transaction if it is
consummated, and attorneys fees. An unfavorable outcome in
this lawsuit could prevent or delay the consummation of the
proposed merger, result in substantial costs to us, or both. It
is also possible that other, similar stockholder lawsuits may be
filed.
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.
Some
anti-takeover provisions contained in our charter, by-laws and
under Delaware law could hinder business combinations with third
parties.
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.
Our restated 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
staggered three year terms and providing that our stockholders
can take action only at a duly called annual or special meeting
of stockholders. In addition, our restated certificate of
incorporation authorizes us to issue up to 5,000,000 shares
of preferred stock with designations, rights and preferences
determined from time-to-time by our board of directors. All of
these 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
shares of our common stock.
These provisions also may have the effect of deterring hostile
takeovers or delaying changes in control or management of us.
Risks
Related to Our Common Stock
A
variety of factors could cause the trading price of our common
stock to be volatile or decline.
The trading price of our common stock has been, and is likely to
continue to be, highly volatile. Many factors could cause the
market price of our common stock to rise and fall. In addition
to the matters discussed in other risk factors included herein,
some of the reasons for the fluctuations in our stock price are:
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fluctuations in our results of operations;
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44
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market reaction and other developments relating to the proposed
merger with Avanex, including any developments related to the
business of Avanex during the pendency of the merger;
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changes in our business, operations or prospects;
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hiring or departure of key personnel;
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new contractual relationships with key suppliers or customers by
us or our competitors;
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proposed acquisitions by us or our competitors;
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financial results that fail to meet public market analysts
expectations and changes in stock market analysts
recommendations regarding us, other optical technology companies
or the telecommunication industry in general;
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future sales of common stock, or securities convertible into or
exercisable for common stock;
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adverse judgments or settlements obligating us to pay damages;
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acts of war, terrorism, or natural disasters;
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industry, domestic and international market and economic
conditions, including the global macroeconomic downturn we are
currently experiencing;
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low trading volume in our stock;
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developments relating to patents or property rights; and
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government regulatory changes.
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Since Bookham Technology plcs initial public offering in
April 2000, Bookham Technology plcs American Depository
Shares, or ADSs, and ordinary shares, our shares of common stock
and the shares of our customers and competitors have 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.
If we
do not meet the NASDAQ Global Market continued listing
requirements, our common stock may be delisted.
As of March 23, 2009, the closing bid price of our common
stock on the NASDAQ Global Market was $0.33, which is below the
minimum $1.00 per share requirement for continued inclusion on
the NASDAQ Global Market pursuant to NASDAQ Marketplace
Rule 4450(a)(5), or the Rule. In accordance with the Rule,
if our closing bid price were to remain below $1.00 for a period
of 30 consecutive business days, NASDAQ would provide written
notification that our securities may be delisted unless the bid
price of our common stock closes at $1.00 per share or more for
a minimum of 10 consecutive business days within 180 calendar
days from such notification.
Given the current extraordinary market conditions, NASDAQ has
determined to suspend the bid price and market value of publicly
held shares requirements through July 19, 2009. In that regard,
on October 16, 2008, NASDAQ filed an immediately effective
rule change with the Securities and Exchange Commission, which
was subsequently extended by NASDAQ on December 18, 2008
and March 18, 2009, such that companies will not be cited for
any new concerns related to bid price or market value of
publicly held shares deficiencies. According to NASDAQ, the bid
price and market value of publicly held shares requirements will
be reinstated on July 20, 2009.
45
Although we are seeking stockholder approval for a series of
amendments to our restated certificate of incorporation that
would effect a reverse stock split of our common stock, even if
the amendments are approved and our board of directors elects to
effect a reverse stock split following such stockholder
approval, there can be no assurance that the bid price of our
common stock will be in excess of $1.00 per share when the Rule
is reinstated on July 20, 2009 or that the bid price of our
common stock will remain in excess of $1.00 per share
thereafter. In addition, there can be no assurance that our
common stock will not be delisted due to a failure to meet other
continued listing requirements even if the bid price of our
common stock after the reverse stock split remains in excess of
$1.00 per share. Failure to maintain the listing of our common
stock on the NASDAQ Global Market would have an adverse effect
on a stockholders ability to sell its shares of our common
stock, which could result in the complete loss of the investment.
We may
incur significant costs from class action litigation due to our
expected stock volatility.
Our stock price may fluctuate for many reasons, including as a
result of public announcements regarding the progress of our
product development efforts, the addition or departure of key
personnel, variations in our quarterly operating results and
changes in market valuations of companies in our industry.
Recently, when the market price of a stock has been volatile, as
our stock price may be, holders of that stock have occasionally
brought securities class action litigation against the company
that issued the stock. If any of our stockholders were to bring
a lawsuit of this type against us, even if the lawsuit were
without merit, we could incur substantial costs defending the
lawsuit. The lawsuit could also divert the time and attention of
our management. In addition, if the suit were resolved in a
manner adverse to us, the damages we could be required to pay
may be substantial and would have an adverse impact on our
ability to operate our business.
Because
we do not intend to pay dividends, stockholders will benefit
from an investment in our common stock only if it appreciates in
value.
We have never declared or paid any dividends on our common
stock. We anticipate that we will retain any future earnings to
support operations and to finance the development of our
business and do not expect to pay cash dividends in the
foreseeable future. As a result, the success of an investment in
our common stock will depend entirely upon any future
appreciation in its value. There is no guarantee that our common
stock will appreciate in value or even maintain the price at
which stockholders have purchased their shares.
We can
issue shares of preferred stock that may adversely affect your
rights as a stockholder of our common stock.
Our restated certificate of incorporation authorizes us to issue
up to 5,000,000 shares of preferred stock with
designations, rights and preferences determined from
time-to-time by our board of directors. Accordingly, our board
of directors is empowered, without stockholder approval, to
issue preferred stock with dividend, liquidation, conversion,
voting or other rights superior to those of holders of our
common stock. For example, an issuance of shares of preferred
stock could:
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adversely affect the voting power of the holders of our common
stock;
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make it more difficult for a third party to gain control of us;
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discourage bids for our common stock at a premium;
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limit or eliminate any payments that the holders of our common
stock could expect to receive upon our liquidation; or
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otherwise adversely affect the market price of our common stock.
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We may in the future issue additional shares of authorized
preferred stock at any time.
46
Risks
Relating to Avanex
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I.
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Financial
and Revenue Risks.
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We
have had a history of negative cash flows and losses, which
could continue if we do not to increase our revenue and/or
further reduce our costs.
Prior to fiscal 2008, we experienced operating losses in each
quarterly and annual period since our inception in 1997. As of
December 31, 2008, we had an accumulated deficit of
$726.8 million. For the six months ended December 31,
2008 and for each of our prior fiscal years except for fiscal
2008, we had negative operating cash flow, and we expect to
incur negative operating cash flow in future periods. For the
six months ended December 31, 2008, our net loss was
$26.5 million which included an impairment charge of
$9.6 million for goodwill and intangible assets. There can
be no assurance that our business will be profitable in the
future or that additional losses and negative cash flows from
operations will not be incurred, which could have a material
adverse affect on our financial condition. These factors may
impair our ability to continue as a going concern.
Due to insufficient cash generated from operations in the past,
we funded our operations primarily through the sale of equity
securities, debt securities, bank borrowings, equipment lease
financings, acquisitions and other capital raising transactions.
Although we implemented cost reduction programs during the past
several years, we continue to have significant fixed expenses,
and we expect to continue to incur considerable manufacturing,
sales and marketing, product development and administrative
expenses. If we fail to generate higher revenues and increase
our gross margins while containing our costs and operating
expenses, our financial position will be harmed significantly.
Our revenues may not grow in the future, and we may never
generate sufficient revenues to achieve profitability again.
This may impair our ability to continue as a going concern.
Our
future profitability depends on our ability to maintain or
improve gross margin and control operating expenses. If we do
not maintain or improve gross margin and control operating
expenses, our financial condition and results of operations will
be adversely impacted.
During the six months ended December 31, 2008, our gross
margin percentage was 16%. During the fiscal years ended
June 30, 2008 and 2007, our gross margin percentage was 31%
and 18%, respectively. Despite our continued efforts to improve
our gross margin, there can be no assurance that our gross
margin will improve or be maintained in the future.
We wrote off excess and obsolete inventory and recorded losses
from purchase commitments of $3.9 million during the six
months ended December 31, 2008 due to lower demand for
certain products and lower expected usage of previously
purchased inventory. During the fiscal years ended June 30,
2008 and 2007, we wrote off $4.7 million and
$12.9 million. Despite our continued efforts to manage our
inventory, there can be no assurance that the write-offs of
excess and obsolete inventory will decline in the future.
We have reduced fixed costs through the extensive reliance on
third party contract manufacturing and the relocation of most of
our manufacturing operations into a central facility in Bangkok,
Thailand. We may further reduce fixed costs by relocating
certain transactional activities to lower cost regions. We have
faced and may face execution issues working with our contract
manufacturers, including difficulties managing our supply chain
and deliveries to our customers. From a financial viewpoint,
should these difficulties occur, we could see negative impacts
to revenue, gross margin and inventory levels.
In addition, over our limited operating history, the average
selling prices of our existing products have decreased and this
trend may continue. However, our overall product mix has shifted
toward products with higher levels of integration, typically
selling at higher unit prices. Future price decreases may be due
to a number of factors, including competitive pricing pressures,
rapid technological change and sales discounts. Therefore, to
maintain or improve our gross margin, we must develop and
introduce new products and product enhancements on a timely
basis and reduce our costs of production. Moreover, as our
average selling prices decline, we must increase our unit sales
volume, or introduce new products, to maintain or increase our
total revenues. If our average selling prices decline more
rapidly than our costs of production, our gross margin will
47
decline. This would adversely impact our business, financial
condition and results of operations. If we are unable to
continue to generate positive gross margin, our cash flows from
operations would be negatively impacted, and we would be unable
to maintain profitability.
Our
future revenues and operating results are inherently
unpredictable, and as a result, we may fail to meet the
expectations of securities analysts or investors, which could
cause our stock price to decline.
Our revenues and operating results have fluctuated significantly
from quarter-to-quarter in the past, and may continue to
fluctuate significantly in the future. Factors that are likely
to cause these fluctuations, some of which are outside of our
control, include without limitation, the factors described
elsewhere in this section and the following:
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the current recessionary macro economic environment, as well as
the current economic environment and other developments in the
telecommunications industry, including severe business setbacks,
such as bankruptcy, of customers or potential customers;
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the average margin of the mix of products we sell;
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fluctuations in demand for and sales of our products, which will
depend upon factors such as the speed and magnitude of the
transition to an all-optical network, the acceptance of our
products in the marketplace, and the general level of spending
on infrastructure projects in the telecommunications industry;
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cancellations of orders and shipment rescheduling;
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changes in product specifications required by customers for
existing and future products;
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satisfaction of contractual customer acceptance criteria and
related revenue recognition issues;
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our ability to maintain appropriate manufacturing capacity
through our contract manufacturers and materials suppliers, from
whom we have no long-term commitments;
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the ability of our outsourced manufacturers to timely produce
and deliver subcomponents, and possibly complete products in the
quantity and of the quality we require;
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the current practice of our customers in the telecommunications
industry of sporadically placing large orders with short lead
times;
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our ability to comply with new rules and regulations;
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competitive factors, including the introduction of new products
and product enhancements by competitors and potential
competitors, pricing pressures, and the competitive environment
in the markets into which we sell our photonic processing
solutions and products, including competitors with substantially
greater resources than we have;
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our ability to effectively develop, introduce, manufacture, and
ship new and enhanced products in a timely manner without
defects;
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the availability and cost of components for our products;
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new product introductions that may result in increased research
and development expenses and sales and marketing expenses that
are incurred in one quarter, with revenues, if any, that are not
recognized until a subsequent quarter;
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the loss of, or significant reduction in, purchases by our
customers, including as a result of industry consolidation,
mergers or divestitures involving our customers;
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the unpredictability of customer demand and difficulties in
meeting such demand;
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revisions to our estimated reserves and allowances, as well as
other accounting provisions or charges;
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costs associated with, and the outcome of, any litigation to
which we are, or may become, a party; and
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48
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customer perception of our financial condition and resulting
effects on our orders and revenue.
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A high percentage of our expenses, including those related to
manufacturing, engineering, sales and marketing, research and
development, and general and administrative functions, are fixed
in the short term. As a result, if we experience delays in
generating and recognizing revenue, our quarterly operating
results are likely to be harmed.
Due to these and other factors, we believe that
quarter-to-quarter comparisons of our operating results may not
be meaningful. Our results for one quarter should not be relied
upon as any indication of our future performance. It is possible
that in future quarters our operating results may be below the
expectations of public market analysts or investors. If this
occurs, the price of our common stock would likely decrease.
We may
not continue to realize the anticipated benefits from our
restructuring efforts.
As part of our cost reduction efforts, over the past several
years we have implemented various restructuring programs to
realign our resources in response to changes in the industry and
customer demand. These efforts have included transferring most
of our manufacturing operations to lower-cost contract
manufacturers and selling our semiconductor fabs and related
product lines in France. In September 2008, we implemented a
workforce reduction of 47 employees and announced the
closure of our Melbourne, Florida facility and the transfer of
the respective product lines, inventory, and fixed assets to
other offices. Our past restructuring programs may have a
material effect on our financial position in the future as we
pay rent for excess facilities. We may initiate future
restructuring actions, which are likely to result in additional
expenses that could affect our results of operations or
financial position. There can be no assurance that we will
realize the benefits we anticipate from our current or future
restructuring programs or that such programs will reduce our
operating expenses and improve our cost structure.
A lack
of effective internal control over financial reporting could
result in an inability to report our financial results
accurately, which could lead to a loss of investor confidence in
our financial reports and have an adverse effect on our stock
price.
Effective internal controls are necessary for us to provide
reliable financial reports. If we cannot provide reliable
financial reports or prevent fraud, our business and operating
results could be harmed. We have in the past discovered, and may
in the future discover, deficiencies, including those considered
to be material weaknesses, in our internal controls. For
example, as more fully described in Item 9A of our Annual
Report on
Form 10-K
filed with the SEC on September 5, 2008, our management
concluded that as of June 30, 2008, we did not maintain
effective internal controls over the following:
Controls over the review of journal entries for inventory and
taxes related to certain foreign subsidiaries were inadequately
designed to prevent or detect a material misstatement of the
consolidated financial statements.
Our management determined that these control deficiencies were
considered a material weakness that could result in a material
misstatement to annual or interim financial statements that
would not be prevented or detected. As a result, our management
concluded that our internal control over financial reporting was
not effective as of June 30, 2008 using the criteria set
forth in the Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). We expect the remediation of this material
weakness to occur during fiscal 2009.
A failure to implement and maintain effective internal control
over financial reporting, including a failure to implement
corrective actions to address the control deficiencies
identified above, could result in a material misstatement of our
financial statements or otherwise cause us to fail to meet our
financial reporting obligations. This, in turn, could result in
a loss of investor confidence in the accuracy and completeness
of our financial reports, which could have an adverse effect on
our business, financial condition, operating results and our
stock price, and we could be subject to stockholder litigation.
49
We
incur increased costs as a result of being a public
company.
As a public company, we incur significant legal, accounting and
other expenses. In addition, the Sarbanes-Oxley Act of 2002, as
well as future accounting rules and regulations subsequently
implemented by the Securities and Exchange Commission and
NASDAQ, have required changes in corporate governance practices
of public companies. These rules and regulations have increased
our legal and financial compliance costs and have made some
activities more time consuming and costly. In addition, we incur
additional costs associated with our public company reporting
requirements.
Our
stock price is highly volatile.
The trading price of our common stock has fluctuated
significantly since our initial public offering in February
2000, and is likely to remain volatile in the future. For
example, since the beginning of fiscal 2007 through
January 30, 2009, our common stock has closed as low as
$0.75 and as high as $34.20 per share. The trading price of our
common stock could be subject to wide fluctuations in response
to many events or factors, including the following:
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quarterly variations in our operating results;
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significant developments in the businesses of telecommunications
companies;
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changes in financial estimates by securities analysts;
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changes in market valuations or financial results of
telecommunications-related companies;
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announcements by us or our competitors of technology
innovations, new products, or significant acquisitions,
strategic partnerships or joint ventures;
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any deviation from projected growth rates in revenues;
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any loss of a major customer or a major customer order;
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additions or departures of key management or engineering
personnel;
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any deviations in our net revenue or in losses from levels
expected by securities analysts;
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activities of short sellers and risk arbitrageurs;
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future sales of our common stock or the availability of
additional financing;
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volume fluctuations, which are particularly common among highly
volatile securities of telecommunications-related
companies; and
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material weaknesses in internal controls.
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In addition, the stock market has experienced volatility that
has particularly affected the market prices of equity securities
of many high technology companies, which often has been
unrelated or disproportionate to the operating performance of
these companies. Market volatility has been particularly acute
in fiscal 2008 and 2009. These broad market fluctuations have in
the past and may in the future adversely affect the market price
of our common stock. There is substantial risk that our
quarterly results will fluctuate.
Sales
of securities by our stockholders or warrant holders could
affect the market price of our common stock or have a dilutive
effect upon our stockholders.
On October 29, 2007, the Pirelli Group acquired all the
shares of our common stock previously held by Alcatel-Lucent. As
of January 30, 2009, the Pirelli Group owned shares of our
common stock representing approximately 12% of the outstanding
shares of our common stock. If the Pirelli Group or our other
large stockholders sell substantial amounts of our common stock
in the public market, it could cause the market price of our
common stock to fall, and could make it more difficult for us to
raise capital through public offerings or other sales of our
capital stock.
50
In addition, we have issued warrants to purchase initially up to
an aggregate of 665,417 shares of common stock to certain
institutional investors that are exercisable through 2011 at
exercise prices ranging from $32.18 to $110.85 per share,
subject to broad-based anti-dilution provisions, including
weighted-average price-based anti-dilution provisions. If these
institutional investors exercise the warrants, we will issue
shares of our common stock and such issuances may be dilutive to
our stockholders. Because the exercise price of the warrants may
be adjusted from time to time in accordance with the provisions
of the warrants, the number of shares that could actually be
issued may be greater than the amount described above. For
example, in connection with our March 1, 2007 financing,
the holders of the warrants we issued on March 9, 2006
received an antidilution adjustment pursuant to the terms of
such warrants resulting in up to 7,815 additional shares being
issued upon the exercise of such warrants and the reduction of
the exercise price of the warrants from $40.95 per share to
$40.30 per share.
We may
have difficulty obtaining additional capital.
Our balance of unrestricted cash, cash equivalents, and
short-term investments decreased from $55.4 million at
June 30, 2008 to $33.4 million at December 31,
2008. We expect that these balances will decline further in
future quarters. Except for fiscal 2008, we have not been
profitable, and there can be no assurance that our business will
be profitable in the future. A failure to be profitable would
have an adverse affect on our financial condition. If we do not
consummate the proposed merger with Bookham, Inc. announced on
January 27, 2009 or a transaction with another third party,
we may need to secure additional funding, and it may be
difficult for us to raise additional capital. If adequate
capital is not available to us as required, or is not available
on favorable terms, our business, operating results and
financial condition would be adversely affected.
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II.
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Market
and Competitive Risks.
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Market
conditions in the telecommunications industry may significantly
harm our financial position.
Worldwide economic conditions generally, and market conditions
in the telecommunications industry specifically, may
significantly harm our financial position. We sell our products
primarily to a few large customers in the telecommunications
industry. Two customers accounted for an aggregate of 33% and
12% of our net revenue, respectively, for the three months ended
December 31, 2008. Two customers accounted for an aggregate
of 25% and 21% of our net revenue, respectively, for the fiscal
year ended June 30, 2008. We expect that the majority of
our revenues will continue to depend on sales of our products to
a small number of customers. If current customers do not
continue to place significant orders, or if they cancel or delay
current orders, we may not be able to replace those orders. In
addition, industry consolidation, mergers or divestitures
involving our existing customers, bankruptcies involving
existing customers, as well as any negative developments in the
business of existing customers could result in significantly
decreased sales to these customers, which could seriously harm
our business, operating results and financial condition. We have
experienced, and in the future we may experience, losses as a
result of the inability to collect accounts receivable, as well
as the loss of ongoing business from customers experiencing
financial difficulties. For example, one of our customers,
Nortel, filed for bankruptcy protection on January 14,
2009. If our customers fail to meet their payment obligations,
we could experience reduced cash flows and losses in excess of
amounts reserved. Because of our reliance on a limited number of
customers, any decrease in revenues from, or loss of, one or
more of these customers without a corresponding increase in
revenues from other customers would harm our business, operating
results and financial condition.
Our
customers may cancel or delay purchases with little or no
advance notice to us.
Our customers typically purchase our products pursuant to
individual purchase orders, and only a small portion of our
orders is non-cancelable. Accordingly, our customers may cancel,
defer or decrease purchases without significant consequence to
them and with little or no advance notice. Further, certain of
our customers have a tendency to purchase our products near the
end of a fiscal quarter. Cancellation or delays of such orders
may cause us to fail to achieve that quarters financial
and operating goals. Decreases in purchases,
51
cancellations of purchase orders, or deferrals of purchases may
significantly harm our business, operating results and financial
condition, particularly if we are not able to anticipate these
events.
We
experience intense competition with respect to our
products.
We believe that our principal competitors in the optical systems
and components industry include Bookham, Inc., EMCORE
Corporation, Finisar Corporation, JDS Uniphase Corporation,
Oplink Communications, Inc., and Opnext Inc. We may also face
competition from companies that expand into our industry in the
future.
A few of our competitors have longer operating histories and
significantly greater financial, technical, marketing and other
resources than we have. As a result, some of these competitors
are able to devote greater resources to the development,
promotion, sale, and support of their products. In addition, our
competitors that have larger market capitalization or cash
reserves are better positioned than we are to acquire other
companies in order to gain new technologies or products that may
displace our product lines. Consolidation in the optical systems
and components industry could intensify the competitive
pressures that we face because these consolidated competitors
may have longer operating histories and significantly greater
financial, technical, marketing and other resources than we have.
Some existing customers and potential customers, as well as,
suppliers and potential suppliers, are also our competitors.
These customers and suppliers may develop or acquire additional
competitive products or technologies in the future, which may
cause them to reduce or cease their purchases from us or their
supply to us, as the case may be. Further, these customers may
reduce or discontinue purchasing our products if they perceive
us as a serious competitive threat with regard to sales of
products to their customers. Additionally, suppliers may reduce
or discontinue selling materials to us if they perceive us as a
serious competitive threat with regard to sales of products to
their customers. As a result of these factors, we expect that
competitive pressures will intensify and may result in price
reductions, reduced margins, and loss of market share.
Competition in the optical systems and components industry has
contributed to substantial price-driven competition. As a
result, sales prices for specific products have decreased over
time at varying rates, in some instances significantly. Pricing
pressure is exacerbated by the rapid emergence of new
technologies and the evolution of technical standards, which can
greatly diminish the value of products relying on older
technologies and standards. In addition, the current economic
and industry environment in the telecommunications sector has
resulted in pressure to reduce prices for our products, and we
expect pricing pressure to continue for the foreseeable future,
which may adversely affect our operating results. Reduced
spending by our customers has caused and may continue to cause
increased price competition, resulting in a decline in the
prices we charge for our products. If our customers and
potential customers continue to constrain their spending, or if
the prices we charge continue to decline, our revenues and
margins may be adversely affected.
We
will lose market share and may not be successful if our
customers do not qualify our products to be designed into their
products and systems or if our customers significantly delay
purchasing our products.
In the telecommunications industry, service providers and
optical systems manufacturers often undertake extensive
qualification processes prior to placing orders for large
quantities of products such as ours, because these products must
function as part of a larger system or network. Once they decide
to use a particular suppliers product or component, these
potential customers design the product into their system, which
is known as a design-in win. Suppliers whose
products or components are not designed in are unlikely to make
sales to that company until the adoption of a future redesigned
system at the earliest, which could occur several years after
the last design-in win. If we fail to achieve design-in wins in
potential customers qualification processes, we may lose
the opportunity for significant sales to such customers for a
significant period of time.
52
The
long sales cycles for sales of our products to customers may
cause operating results to vary from quarter to quarter, which
could continue to cause volatility in our stock price, and may
prevent us from being profitable.
The period of time between our initial contact with certain of
our customers and the receipt of an actual purchase order from
such customers often spans a time period of six to nine months,
or longer. During this time, customers may perform, or require
us to perform, extensive and lengthy evaluation and testing of
our products and our manufacturing processes before purchasing
our products. While our customers are evaluating our products
before they place an order with us, we may incur substantial
sales and marketing and research and development expenses,
expend significant management efforts, increase manufacturing
capacity and order long-lead-time supplies. If we increase
capacity and order supplies in anticipation of an order that
does not materialize, our gross margin will decline, and we will
have to carry and write off excess inventory. Even if we receive
an order, if we are required to add additional internal
manufacturing capacity in order to service the customers
requirements, such manufacturing capacity may be underutilized
in subsequent periods, especially if orders are delayed or
cancelled. Either situation could cause our business, results of
operations, and financial condition to be below the expectations
of public market analysts or investors, which could, in turn,
cause the price of our common stock to decline.
If the
communications industry does not continue to evolve and grow
steadily, our business may not succeed.
Future demand for our products is uncertain and unpredictable,
and will depend to a great degree on the speed of the widespread
adoption of optical networks. If the transition occurs too
slowly or ceases altogether, the market for our products and the
growth of our business will be significantly limited.
Our future success depends on the continued growth and success
of the telecommunications industry, including the continued
growth of the Internet as a widely used medium for commerce and
communication and the continuing demand for increased bandwidth
over communications networks. If the Internet does not continue
to expand as a widespread communication medium and commercial
marketplace, the need for significantly increased bandwidth
across networks and the market for optical transmission products
may not develop. As a result, it would be unlikely that our
products would achieve commercial success.
The rate at which telecommunications service providers and other
optical network users have built new optical networks or
installed new systems in their existing optical networks has
fluctuated in the past, and these fluctuations may continue in
the future. Sales of our components depend on sales of fiber
optic telecommunications systems by our systems-level customers,
which are shipped in quantity when telecommunications service
providers add capacity. Systems manufacturers compete for sales
in each capacity deployment. If systems manufacturers that use
our products in their systems do not win a contract, their
demand for our products will decline, reducing our future
revenues. Similarly, a telecommunications service
providers delay in selecting systems manufacturers for a
deployment could delay our shipments and revenues.
III. Acquisition
and Divestiture Risks.
Acquisitions,
divestitures and other significant transactions may adversely
affect our business.
We regularly review acquisition, divestiture and other strategic
opportunities that would further our business objectives,
complement our existing product offerings, augment our market
coverage, secure supplies of critical materials or enhance our
technological capabilities. The anticipated benefits of our
acquisitions, divestitures and other strategic transactions may
not be realized or may be realized more slowly than we expected.
Acquisitions, divestitures and other strategic opportunities
have resulted in, and in the future could result in, a number of
financial consequences, including without limitation:
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potentially dilutive issuances of equity securities;
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reduced cash balances and related interest income;
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higher fixed expenses, which require a higher level of revenues
to maintain gross margin;
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the incurrence of debt and contingent liabilities, including
indemnification obligations;
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restructuring actions, which could result in charges that have a
material effect on our results of operations and our financial
position;
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loss of customers, suppliers, distributors, licensors or
employees of the acquired company;
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legal, accounting and advisory fees;
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amortization expenses related to intangible assets; and
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one-time write-offs of large amounts.
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For example, in connection with our acquisition of the optical
components businesses of Alcatel and Corning, we issued shares
of our common stock to Alcatel and to Corning representing 28%
and 17%, respectively, of the outstanding shares of our common
stock on a post-transaction basis. In connection with such
acquisitions, we recorded restructuring liabilities at
July 31, 2003 with a fair value of $64.1 million
relating to workforce reductions, which were included in the
purchase price of such acquisitions. Following these
acquisitions, we recorded additional significant restructuring
liabilities that involved the acquired businesses and resulted
in, among other things, a significant reduction in the size of
our workforce, consolidation of our facilities and increased
reliance on outsourced, third-party manufacturing.
In fiscal 2007, we sold ninety percent (90%) of the shares of
Avanex France, the operator of our semiconductor fabs and
associated product lines located in Nozay, France. We agreed to
indemnify the buyers of Avanex France generally for a period of
up to two years in an amount generally not exceeding
5 million for breaches of certain representations,
warranties and covenants relating to the condition of the
business prior to and at the time of sale. Should any such
liabilities or expenses be of a material amount, our finances
could be materially and adversely affected. We may experience a
shortfall in revenue, lose existing or potential customers or
otherwise experience material adverse effects upon our business,
results of operation and financial condition.
Additionally, if any potential acquisitions are not completed,
we are required to expense the frequently significant legal,
accounting, consulting and other costs of pursuing these
transactions in the period in which the activity ceases, which
could adversely affect our operating results and may not be
anticipated. For example, in fiscal 2007, we expensed
approximately $2.1 million in diligence and professional
fees related to a potential acquisition that we decided not to
pursue.
Furthermore, our past acquisition and disposition activity has
involved, and our future acquisition, disposition and other
significant transactions may involve, numerous operational
risks, including:
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difficulties integrating or divesting operations, personnel,
technologies, products and the information systems of the
acquired or divested companies;
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diversion of managements attention from other business
concerns;
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diversion of resources from our existing businesses, products or
technologies;
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risks of entering geographic and business markets in which we
have no or limited prior experience; and
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potential loss of key employees of acquired organizations.
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IV.
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Operations
and Research and Development Risks.
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We
face various risks related to our manufacturing operations that
may adversely affect our business.
We may experience delays, disruptions or quality control
problems in our manufacturing operations or the manufacturing
operations of our third party manufacturers, and, as a result,
product shipments to our customers could be delayed beyond the
shipment schedules requested by our customers, which would
negatively affect our business, results of operations, and
financial condition. In the past, we have experienced
disruptions in the manufacture of some of our products due to
changes in our manufacturing processes, which resulted in
reduced manufacturing yields, delays in the shipment of our
products and deferral of revenue recognition. Any
54
disruptions in the future could adversely affect our revenues,
gross margin, and results of operations. Changes in our
manufacturing processes or those of our third party
manufacturers, or the inadvertent use of defective materials by
our third party manufacturers or us, could significantly reduce
our manufacturing yields and product reliability. Lower than
expected manufacturing yields could delay product shipments and
further impair our gross margin. These operational issues have
included capacity constraints at our contract manufacturers, raw
materials shortages, logistics issues, and manufacturing yield
issues for some of our new products.
We may need to develop new manufacturing processes and
techniques that will involve higher levels of automation, or may
need to further relocate certain manufacturing operations to
lower cost regions to improve our gross margin and achieve the
targeted cost levels of our customers. If we fail to manage this
process effectively, or if we experience delays, disruptions or
quality control problems in our manufacturing operations, our
shipments of products to our customers could be delayed.
We
face risks related to our concentration of research and
development efforts on a limited number of key industry
standards and technologies, and our future success depends on
our ability to develop and introduce new and enhanced products
successfully that meet the needs of our customers in a timely
manner.
In the past, we have concentrated our research and development
efforts on a limited number of technologies that we believed had
the best growth prospects. If we are unable to develop
commercially viable products using these technologies, or these
technologies do not become generally accepted, our business will
likely suffer.
The markets for our products are characterized by rapid
technological change, frequent new product introduction, changes
in customer requirements, and evolving industry standards. Our
future performance will depend upon the successful development,
introduction and market acceptance of new and enhanced products
that address these changes. We may not be able to develop the
underlying core technologies necessary to create new or enhanced
products, or to license or otherwise acquire these technologies
from third parties. Product development delays may result from
numerous factors, including:
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changing product specifications and customer requirements;
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difficulties in hiring and retaining necessary technical
personnel;
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difficulties in reallocating engineering resources and
overcoming resource limitations;
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changing market or competitive product requirements;
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unanticipated engineering complexities, and
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failure to compete with new product releases by our competitors.
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Our industry has increased its focus on products that transmit
voice, video and data traffic over shorter distances and that
are offered at lower cost than the products that we offer to our
telecommunications customers for transmission of information
over longer distances. If we are unable to develop products that
meet the requirements of potential customers of these products,
our business, results of operations, and financial condition
could suffer.
The development of new, technologically advanced products is a
complex and uncertain process requiring high levels of
innovation and highly skilled engineering and development
personnel, as well as the accurate anticipation of technological
and market trends. We cannot assure that we will be able to
identify, develop, manufacture, market or support new or
enhanced products successfully, or on a timely basis. In
addition, the introduction of new and enhanced products may
cause our customers to defer or cancel orders for existing
products. To the extent customers defer or cancel orders for
existing products due to the expectation of a new product
release, or if there is any delay in the development or
introduction of our new products or the enhancements of our
products, our business, results of operations, and financial
condition would suffer. Further, we cannot assure that our new
products will gain market acceptance or that we will be able to
respond
55
effectively to competitive products, technological changes or
emerging industry standards. Any failure to respond effectively
to competitive products, technological change or emerging
industry standards would significantly harm our business,
results of operations and financial condition.
If we
are unable to forecast component and material requirements
accurately or if we are unable to commit to deliver sufficient
quantities of our products to satisfy customers needs, our
results of operations will be adversely affected.
Our customers typically require us to commit to delivering
certain quantities of our products to them (in guaranteed safety
stock, guaranteed capacity or otherwise) without committing
themselves to purchase such products, or any quantity of such
products. Therefore, wide variations between estimates of our
customers needs and their actual purchases may result in:
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a surplus and potential obsolescence of inventory, materials and
capacity, if estimates of our customers requirements are
greater than our customers actual need; or
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a lack of sufficient products to satisfy our customers
needs, if estimates of our customers requirements are less
than our customers actual needs.
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We use a rolling twelve-month demand forecast based on
anticipated and historical product orders to determine our
component and material requirements. It is very important that
we accurately predict both the demand for our products and the
lead times required to obtain the necessary components and
materials. It is very difficult to develop accurate forecasts of
product demand, especially given the current uncertain
conditions in the telecommunications industry. Order
cancellations and lower order volumes by our customers have in
the past created excess inventories. For example, inventory
write-offs are primarily the result of our inability to
anticipate decreases in demand for certain of our products and
variations in product mix ordered by our customers. For the
three months ended December 31, 2008 and 2007, the combined
cost of write-offs was $2.3 million and $1.8 million,
respectively, for excess and obsolete inventory and losses from
purchases commitments. For the fiscal years ended June 30,
2008 and June 30, 2007, we recorded write-offs of
$4.7 million and $12.9 million, respectively, for
excess and obsolete inventory. If we fail to accurately predict
both the demand for our products and the lead times required to
obtain the necessary components and materials in the future, we
could incur additional excess and obsolete inventory
write-downs. If we underestimate our component and material
requirements, we may have inadequate inventory, which could
interrupt our manufacturing and delay delivery of our products
to our customers. Any of these occurrences would negatively
affect our business, results of operations, and financial
condition.
Network carriers and telecommunication system integrators
historically have required that suppliers commit to provide
specified quantities of products over a given period of time. If
we are unable to commit to deliver sufficient quantities of our
products to satisfy a customers anticipated needs, we may
lose the opportunity to make significant sales to that customer
over a lengthy period of time. In addition, we may be unable to
pursue large orders if we do not have sufficient manufacturing
capacity to enable us to provide customers with specified
quantities of products. We rely heavily upon the capacity and
willingness of third party contract manufacturers and materials
suppliers to enable us to fulfill our commitments to our
customers, but we generally do not have the benefit of long term
or other supply or services contracts with our third party
contract manufacturers and materials suppliers, who are
generally not obligated to adhere to our production schedule. If
we cannot deliver sufficient quantities of our products, we may
lose business, which could adversely impact our business,
results of operations and financial condition.
If our
customers do not qualify our manufacturing processes, they may
not purchase our products and our operating results could
suffer.
Certain of our customers will not purchase our products prior to
qualification of our manufacturing processes and approval of our
quality assurance system. The qualification process determines
whether the manufacturing line meets the quality, performance,
and reliability standards of our customers. These customers may
also require that we, and any manufacturer that we may use, be
registered under international quality standards, such as ISO
9001. Our United States, Europe and Asia sites are currently
TL-9000 certified. Delays
56
in obtaining customer qualification of our manufacturing
processes or approval of our quality assurance system may cause
a product to be removed from a long-term supply program and
result in significant lost revenue opportunity over the term of
that program.
We
depend upon a limited number of contract manufacturers and
materials suppliers to manufacture and provide a majority of our
products, and our dependence on these manufacturers and
suppliers may result in product delivery delays, may harm our
operations or have an adverse effect upon our
business.
We rely on a limited number of outsourced manufacturers and
suppliers to manufacture and provide a substantial majority of
our components, subassemblies, and finished products. In
particular, one contract manufacturer, Fabrinet, currently
manufactures products for sale, which constitutes a significant
majority of our net revenue. We intend to develop further our
relationships with Fabrinet and with other manufacturers so that
they will eventually manufacture many of our high volume key
components and subassemblies in the future. The qualification of
these independent manufacturers and materials suppliers under
quality assurance standards is an expensive and time-consuming
process. Our independent manufacturers have a limited history of
manufacturing optical subcomponents. Any interruption in the
operations of these manufacturers, or any deficiency in the
quality or quantity of the subcomponents or products built for
us by these manufacturers, could impede our ability to meet our
scheduled product deliveries to our customers. Operational
issues could result, such as capacity constraints at our
contract manufacturers, raw materials shortages, logistics
issues, and manufacturing yield issues for some of our new
products. As a result, we may lose existing or potential
customers.
We have limited experience in working with outsourced
manufacturers and suppliers. As a result, we may not be able to
manage our relationships with them effectively. If we cannot
manage our manufacturing and supplier relationships effectively,
or if these manufacturers and suppliers fail to deliver
components in a timely manner, we could experience significant
delays in product deliveries, which may have an adverse effect
on our business and results of operations. Increased reliance on
outsourced manufacturing and suppliers, and the ultimate
disposition of our manufacturing capacity in the future, may
result in impairment expense relating to our long-lived assets
in future periods, which would have an adverse impact on our
business, financial condition, and results of operations.
Our
products may have defects that might not be detected until full
deployment of a customers network, which could result in a
loss of customers and revenue and in damage to our
reputation.
Our products are designed to be deployed in large and complex
optical networks and must be compatible with existing and future
components of such networks. Our products can only be fully
tested for reliability when deployed in networks for long
periods of time. Our products may not operate as expected, and
our customers may discover errors, defects, or incompatibilities
in our products only after they have been fully deployed and are
operating under peak stress conditions. If we are unable to fix
errors or other problems, we could experience:
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loss of customers or customer orders;
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loss of or delay in revenues;
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loss of market share;
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loss or damage to our brand and reputation;
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inability to attract new customers or achieve market acceptance;
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diversion of development resources;
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increased service and warranty costs;
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legal actions by our customers; and
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increased insurance costs.
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We may be required to indemnify our customers against certain
liabilities arising from defects in our products, which
liabilities may also include the following costs and
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costs and expenses incurred by our customers or their customers
to fix the problems; and
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costs and expenses incurred by our customers or their customers
to replace our products, or their products which incorporate our
products, with other product solutions.
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While we carry insurance policies covering this type of
liability, these policies may not provide sufficient protection
should a claim be asserted. To date, product defects have not
had a material negative effect on our business, results of
operations, or financial condition; however, we cannot assure
that they will not have a material negative effect on us in the
future.
We
depend on key personnel to manage our business effectively, and
if we are unable to hire, retain, or motivate qualified
personnel, our ability to sell our products could be
harmed.
Our future success depends, in part, on certain key employees
and on our ability to attract and retain highly skilled
personnel. In addition, there have been changes in our executive
management team, and there can be no assurance that these
changes will be successful. The loss of the services of any of
our key personnel, the inability to attract or retain qualified
personnel, or delays in hiring required personnel, particularly
engineering, sales or marketing personnel, may seriously harm
our business, results of operations, and financial condition.
For example, Dr. Jo Major, our former President and Chief
Executive Officer, Marla Sanchez, our former Chief Financial
Officer, and Pat Edsell, our former General Manager, recently
left the Company. None of our officers or key employees has an
employment agreement for a specific term, and these employees
may terminate their employment at any time. We do not have key
person life insurance policies covering any of our employees.
Our ability to continue to attract and retain highly skilled
personnel will be a critical factor in determining whether we
will be successful in the future. Competition for highly skilled
personnel is frequently intense, especially in the
San Francisco Bay area. We may not be successful in
attracting, assimilating or retaining qualified personnel to
fulfill our current or future needs.
In addition, we have implemented restructuring programs designed
to attempt to improve our financial performance. Among other
things, we have moved substantially all of our manufacturing
operations to lower cost locations. As a result, our headcount
in North America and Europe has been substantially reduced and
may be reduced further in the future. To date, such actions have
not resulted in substantial work stoppages. Decreases in labor
productivity, however, whether formalized by a work stoppage or
a strike, or by decreased productivity due to morale issues
could have an adverse effect on our business and operating
results.
We
face various risks that could prevent us from successfully
manufacturing, marketing and distributing our products
internationally.
We have expanded our international operations in Thailand and
China, including the expansion of overseas product
manufacturing, and we may continue to expand internationally in
the future. Further, we have increased international sales and
intend to further increase our international sales and the
number of our international customers. We have also initiated
significant restructuring programs overseas, and may initiate
additional restructuring programs overseas in the future. Our
international operations have required and will continue to
require significant management attention and financial
resources. For instance, we have incurred, and may continue to
incur, startup costs to open our operations center in Thailand
and our research and development office in Shanghai, and may
incur costs in transferring operations to Thailand. We currently
have limited experience in manufacturing, marketing and
distributing our products internationally, particularly from our
new operations center in Thailand. In addition, international
operations are subject to inherent risks, including, without
limitation, the following:
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greater difficulty in accounts receivable collection and longer
collection periods;
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difficulties inherent in managing operations and employees in
remote foreign operations;
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import or export licensing and product certification
requirements;
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tariffs, duties, price controls or other restrictions on foreign
currencies or trade barriers imposed by foreign countries;
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potential adverse tax consequences;
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seasonal reductions in business activity in some parts of the
world;
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burdens of complying with a wide variety of foreign laws and
regulations, particularly with respect to taxes, intellectual
property, license requirements, employment matters and
environmental requirements;
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the impact of recessions in economies outside of the United
States;
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unexpected changes in regulatory or certification requirements
for optical systems or networks; and
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political and economic instability, terrorism and war.
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Some of our suppliers and contract manufacturers, including
Fabrinet, also have international operations and are subject to
the risks described above. Even if we are able to manage the
risks of international operations successfully, our business may
be materially adversely affected if our suppliers or contract
manufacturers are not able to manage these risks successfully.
A portion of our international revenues and expenses are now
denominated in foreign currencies. It has not been our recent
practice to engage in the hedging of foreign currency
transactions to mitigate foreign currency risk. Therefore,
fluctuations in the value of foreign currencies could have a
negative impact on the profitability of our global operations,
which would seriously harm our business, results of operations,
and financial condition.
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V.
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Intellectual
Property and Litigation Risks.
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Current
and future litigation against us could be costly and time
consuming to defend.
We are subject to legal proceedings and claims that arise in the
ordinary course of business. Litigation may result in
substantial costs and may divert managements attention and
resources, which may seriously harm our business, results of
operations, financial condition and liquidity.
We may
be unable to protect our proprietary technology, which could
significantly impair our ability to compete.
We rely on a combination of patent, copyright, trademark and
trade secret laws, confidentiality agreements and other
contractual restrictions on disclosure to protect our
intellectual property rights. We also rely on confidentiality
agreements with our employees, consultants and corporate
partners, and controlled access to and distribution of our
technology, documentation and other confidential information. We
have numerous patents issued or applied for in the United States
and abroad, of which some may be jointly filed or owned with
other parties. Further, we license certain intellectual property
from third parties, including Alcatel-Lucent and Corning, that
is critical to our business, and we also license intellectual
property to other parties. We cannot assure that any patent
applications or issued patents will protect our proprietary
technology effectively, or that any patent applications or
patents issued will not be challenged by third parties. Further,
we cannot assure that parties from whom we license intellectual
property will not violate their agreements with us; that they
will not license their intellectual property to third parties;
that their patent applications, patents and other intellectual
property will protect our technology, products and business; or
that their patent applications, patents, and other intellectual
property will not be challenged by third parties. For example,
Alcatel-Lucent has cross licenses with various third parties,
which, when combined with their own intellectual property, may
permit these third parties to compete with us. Our intellectual
property also consists of trade secrets, requiring more
monitoring and control mechanisms to protect. Despite our
efforts to protect our proprietary rights, unauthorized parties
may attempt to copy or otherwise obtain and use our products or
technology. Monitoring unauthorized use of our products is
difficult, and we cannot be certain that the steps we take will
prevent misappropriation or unauthorized use of our technology.
Further, other parties may
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independently develop similar or competing technology or design
around any patents that may be issued or licensed to us.
We use various methods to attempt to protect our intellectual
property rights. However, we cannot be certain that these
methods will prevent the misappropriation of our intellectual
property. In particular, the laws in foreign countries may not
protect our proprietary rights as fully as the laws in the
United States.
We
face risks with regard to third-party intellectual property
licenses.
From time to time we may be required to license technology or
intellectual property from third parties for our product
offerings or to develop new products or product enhancements. We
cannot assure that third-party licenses will be available to us
on commercially reasonable terms, if at all. The inability to
obtain a necessary third-party license required for our product
offerings or to develop new products and product enhancements
could require us to substitute technology of lower quality or
performance standards or of greater cost, either of which could
prevent us from operating our business. If we are unable to
obtain licenses from third parties if and as necessary, then we
may also be subject to litigation to defend against infringement
claims from these third parties.
We may
become subject to litigation or claims from or against third
parties regarding intellectual property rights, which could
divert resources, cause us to incur significant costs, and
restrict our ability to utilize certain
technology.
We may become a party to litigation in the future to protect our
intellectual property or we may be subject to litigation to
defend against infringement claims of others. These claims and
any resulting lawsuits, if successful, could subject us to
significant liability for damages and invalidation of our
proprietary rights. These lawsuits, regardless of their success,
would likely be time-consuming and expensive to resolve and
would divert managements time and attention. Any potential
intellectual property litigation also could force us to do one
or more of the following:
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stop selling, incorporating, or using our products that use the
challenged intellectual property;
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obtain a license to sell or use the relevant technology from the
owner of the infringed intellectual property right, which
license may not be available on reasonable terms, or at all;
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redesign the products that use the technology; or
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indemnify certain customers and others against intellectual
property claims asserted against them.
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If we are forced to take any of these actions, our business may
be seriously harmed.
We may in the future initiate claims or litigation against third
parties for infringement of our proprietary rights in order to
determine the scope and validity of our proprietary rights or
the proprietary rights of competitors, or we may be required to
grant certain third parties permission to enforce our
intellectual property on our behalf. These claims could result
in us being joined as a party to a lawsuit, counterclaims
against us or our customers, invalidation or narrow
interpretations of our proprietary rights, costly litigation,
and the diversion of our technical and management
personnels time and attention. Although we carry general
liability insurance, our insurance may not cover potential
claims of the above types or may not be adequate to indemnify us
for all liability that may be imposed.
Our
business and future operating results may be adversely affected
by events that are 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 and
uncertainties arising out of terrorist attacks throughout the
world, including the continuation or potential worsening of the
current global economic environment, the economic consequences
of military action and the associated political instability, and
the
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effect of heightened security concerns on domestic and
international travel and commerce. We cannot assure that the
insurance we maintain against fires, floods and general business
interruptions will be adequate to cover our losses for such
events in any particular case.
In addition, we handle hazardous materials as part of our
manufacturing activities and are subject to a variety of
governmental laws and regulations related to the use, storage,
recycling, labeling, reporting, treatment, transportation,
handling, discharge and disposal of such hazardous materials.
Although we believe that our operations conform to presently
applicable environmental laws and regulations, we may incur
costs in order to comply with current or future environmental
laws and regulations, including costs associated with
permitting, investigation and remediation of hazardous
materials, and installation of capital equipment relating to
pollution abatement, production modification
and/or
hazardous materials management. In addition, we currently sell
products that incorporate firmware and electronic components.
The additional level of complexity created by combining firmware
and electronic components with our optical components requires
that we comply with additional regulations, both domestically
and abroad, related to power consumption, electrical emissions
and homologation. Any failure to obtain the necessary permits or
comply with the necessary laws and regulations successfully
could have a material adverse effect on our operations.
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THE
COMPANIES
Bookham
Bookham designs, manufactures and markets optical components,
modules and subsystems that generate, detect, amplify, combine
and separate light signals principally for use in
high-performance fiber optics communications networks. Due to
its advantages of higher capacity and transmission speed,
optical transmission has become the predominant technology for
large-scale communications networks. Bookhams primary
operating segment, which it refers to as the telecom segment,
addresses the optical communications market. Bookhams
remaining product lines, which comprise the non-telecom segment,
leverage its optical component technologies and expertise in
manufacturing optical subsystems to address opportunities in
other markets, including industrial, research, semiconductor
capital equipment, military and biotechnology.
Bookham, Inc., a Delaware corporation, was incorporated on
June 29, 2004. On September 10, 2004, pursuant to a
scheme of arrangement under the laws of the United Kingdom,
Bookham, Inc. 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. Bookham common stock is traded on the
NASDAQ Global Market under the symbol BKHM. Pursuant
to the merger agreement, Bookham and Avanex will take all
actions necessary to ensure that the name of the combined
company following the merger will be the name mutually agreed to
by Bookham and Avanex. The name change has not yet been
determined between the parties; however, when (and if) a name
change is effected, a change in Bookhams trading symbol
may be effected as well.
Merger
Sub
Ultraviolet Acquisition Sub, Inc., or Ultraviolet Acquisition
Sub or merger sub, is a wholly owned subsidiary of Bookham that
was incorporated in Delaware in January 2009. Merger sub does
not engage in any operations and exists solely to facilitate the
merger.
Avanex
Avanex is a global provider of high-performance, intelligent,
photonic products including optical components, modules and
subsystems. Its products enable optical communication networks
to regenerate, transmit and manage voice, video and data optical
signals efficiently. Telecommunication system integrators and
their network carrier customers use Avanex products to enhance
system performance and increase network speed and capacity.
Avanex was incorporated in October 1997 in California and
reincorporated in Delaware in January 2000. Avanex began making
volume shipments of its products during the quarter ended
September 30, 1999. Avanex common stock is traded on the
NASDAQ Global Market under the symbol AVNX.
62
THE
BOOKHAM SPECIAL MEETING
Date,
Time and Place
The special meeting of Bookham stockholders will be held on
Monday, April 27, 2009, at the principal executive offices
of Bookham located at 2584 Junction Avenue, San Jose,
California 95134 commencing at 11:00 a.m. local time. We are
sending this joint proxy statement/prospectus to Bookham
stockholders in connection with the solicitation of proxies by
the Bookham board of directors for use at the Bookham special
meeting and any adjournments or postponements of the special
meeting.
Purposes
of the Bookham Special Meeting
The purposes of the Bookham special meeting are:
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to consider and vote on Bookham Proposal No. 1 to
approve the issuance of shares of Bookham common stock in the
merger;
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to consider and vote on Bookham Proposal No. 2 to
approve an amendment to Bookhams restated certificate of
incorporation to increase the authorized shares of Bookham
common stock to 450,000,000;
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to consider and vote on Bookham Proposal No. 3 to
approve amendments to Bookhams restated certificate of
incorporation that would effect a reverse stock split, pursuant
to which any whole number of issued and outstanding shares of
Bookham common stock between and including five and thirty would
be combined and reclassified into one share of Bookham common
stock, and pursuant to which the total number of authorized
shares of Bookham common stock and preferred stock would be
proportionately reduced, and to authorize the Bookham board of
directors to select and file one such amendment that would
effect the reverse stock split within such range and that would
proportionately reduce the total number of authorized shares of
Bookham common stock and preferred stock;
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to consider and vote on Bookham Proposal No. 4 to
adjourn the Bookham special meeting, if necessary, if a quorum
is present, to solicit additional proxies if there are not
sufficient votes in favor of any of Bookham Proposal Nos.
1, 2 or 3; and
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to transact such other business as may properly come before the
Bookham special meeting or any adjournments or postponements of
the special meeting.
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Recommendation
of Bookhams Board of Directors
BOOKHAMS BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED
AND BELIEVES THAT THE ISSUANCE OF SHARES OF BOOKHAM COMMON STOCK
IN THE MERGER IS ADVISABLE TO, AND IN THE BEST INTERESTS OF
BOOKHAM AND ITS STOCKHOLDERS AND HAS UNANIMOUSLY APPROVED SUCH
ISSUANCE. BOOKHAMS BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT BOOKHAM STOCKHOLDERS VOTE FOR
BOOKHAM PROPOSAL NO. 1 TO APPROVE THE ISSUANCE OF
SHARES OF BOOKHAM COMMON STOCK IN THE MERGER.
BOOKHAMS BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED
AND BELIEVES THAT THE AMENDMENT TO THE RESTATED CERTIFICATE OF
INCORPORATION TO INCREASE ITS AUTHORIZED SHARES OF COMMON STOCK
TO 450,000,000 SHARES IS ADVISABLE TO, AND IN THE BEST INTERESTS
OF BOOKHAM AND ITS STOCKHOLDERS AND HAS UNANIMOUSLY APPROVED
SUCH AMENDMENT. BOOKHAMS BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT BOOKHAM STOCKHOLDERS VOTE FOR
BOOKHAM PROPOSAL NO. 2 TO APPROVE THE AMENDMENT TO THE
RESTATED CERTIFICATE OF INCORPORATION FOR THIS PURPOSE.
BOOKHAMS BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED
AND BELIEVES THAT AMENDMENTS TO THE RESTATED CERTIFICATE OF
INCORPORATION TO EFFECT A
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REVERSE STOCK SPLIT, PURSUANT TO WHICH ANY WHOLE NUMBER OF
OUTSTANDING SHARES OF BOOKHAM COMMON STOCK BETWEEN AND INCLUDING
FIVE AND THIRTY WOULD BE COMBINED AND RECLASSIFIED INTO ONE
SHARE OF BOOKHAM COMMON STOCK, AND PURSUANT TO WHICH THE TOTAL
NUMBER OF AUTHORIZED SHARES OF BOOKHAM COMMON STOCK AND
PREFERRED STOCK WOULD BE PROPORTIONATELY REDUCED, AND THE
RELATED AUTHORIZATION OF THE BOOKHAM BOARD OF DIRECTORS TO
SELECT AND FILE ONE SUCH AMENDMENT THAT WOULD EFFECT THE REVERSE
STOCK SPLIT WITHIN SUCH RANGE AND THAT WOULD PROPORTIONATELY
REDUCE THE TOTAL NUMBER OF AUTHORIZED SHARES OF BOOKHAM COMMON
STOCK AND PREFERRED STOCK, IS ADVISABLE TO, AND IN THE BEST
INTERESTS OF BOOKHAM AND ITS STOCKHOLDERS AND HAS UNANIMOUSLY
APPROVED SUCH AMENDMENTS. BOOKHAMS BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT BOOKHAM STOCKHOLDERS VOTE
FOR BOOKHAM PROPOSAL NO. 3 TO APPROVE
AMENDMENTS TO THE RESTATED CERTIFICATE OF INCORPORATION FOR
THESE PURPOSES.
BOOKHAMS BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED
AND BELIEVES THAT THE PROPOSAL TO ADJOURN THE BOOKHAM
SPECIAL MEETING, IF NECESSARY, IF A QUORUM IS PRESENT, TO
SOLICIT ADDITIONAL PROXIES IF THERE ARE NOT SUFFICIENT VOTES IN
FAVOR OF ANY OF BOOKHAM PROPOSAL NOS. 1, 2 OR 3 IS
ADVISABLE TO, AND IN THE BEST INTERESTS OF, BOOKHAM AND ITS
STOCKHOLDERS AND HAS UNANIMOUSLY APPROVED AND ADOPTED THE
PROPOSAL. ACCORDINGLY, BOOKHAMS BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT ALL BOOKHAM STOCKHOLDERS VOTE
FOR PROPOSAL NO. 4 TO ADJOURN THE BOOKHAM
SPECIAL MEETING, IF NECESSARY, IF A QUORUM IS PRESENT, TO
SOLICIT ADDITIONAL PROXIES IF THERE ARE NOT SUFFICIENT VOTES IN
FAVOR OF ANY OF BOOKHAM PROPOSAL NOS. 1, 2 OR 3.
Record
Date and Voting Power
Only holders of record of Bookham common stock at the close of
business on the record date, March 18, 2009, are entitled
to notice of, and to vote at, the Bookham special meeting. There
were approximately 10,523 holders of record of Bookham
common stock at the close of business on the record date.
Because many of such shares are held by brokers and other
institutions on behalf of stockholders, Bookham is unable to
estimate the total number of stockholders represented by these
record holders. There were 100,959,545 shares of Bookham
common stock issued and outstanding at the close of business on
the record date. Each share of Bookham common stock entitles the
holder thereof to one vote on each matter submitted for
stockholder approval. See Security Ownership of Certain
Beneficial Owners and Management Beneficial
Ownership of Bookham Shares for information regarding
persons known to the management of Bookham to be the beneficial
owners of more than 5% of the outstanding shares of Bookham
common stock.
Voting
and Revocation of Proxies
The proxy accompanying this joint proxy statement/prospectus is
solicited on behalf of the board of directors of Bookham for use
at the Bookham special meeting.
If you are a stockholder of record of Bookham as of the record
date referred to above, you may vote in person at the Bookham
special meeting or vote by proxy over the Internet, by telephone
or using the enclosed proxy card. Whether or not you plan to
attend the Bookham special meeting, Bookham urges you to vote by
proxy to ensure your vote is counted. You may still attend the
Bookham special meeting and vote in person if you have already
voted by proxy.
If your shares are registered directly in your name, you may
deliver your proxy to vote your shares in one of the following
ways or you may vote in person at the Bookham special meeting.
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You may submit your proxy to vote by mail. You
may vote by completing and signing the proxy card that
accompanies this joint proxy statement/prospectus and promptly
mailing it in the enclosed postage-
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prepaid envelope. You do not need to put a stamp on the enclosed
envelope if you mail it in the United States. The shares you own
will be voted according to the instructions on the proxy card
you submit.
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You may submit your proxy to vote over the
Internet. If you have Internet access, you may
submit your proxy to vote your shares over the Internet from any
location in the world by following the instructions set forth on
the enclosed proxy card.
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You may submit your proxy to vote by
telephone. You may submit your proxy to vote your
shares by telephone by following the instructions set forth on
the enclosed proxy card.
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If your shares are held in street name for your
account by a bank broker or other nominee, you may vote:
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By Mail. You will receive instructions from
your broker or other nominee explaining how to vote your shares.
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Over the Internet or By Telephone. You will
receive instructions from your broker or other nominee if you
are permitted to vote over the Internet or by telephone.
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In Person at the Meeting. Contact the bank,
broker or other nominee that holds your shares to obtain a
brokers proxy card and bring it with you to the meeting.
A brokers proxy is not the form of proxy
enclosed with this joint proxy statement/prospectus. You will
not be able to vote shares you hold in street name
at the meeting unless you have a proxy from your broker issued
in your name giving you the right to vote the shares.
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All properly executed proxies that are not revoked will be voted
at the Bookham special meeting and at any adjournments or
postponements of the special meeting in accordance with the
instructions contained in the proxy. If a holder of Bookham
common stock executes and returns a proxy and does not specify
otherwise, the shares represented by that proxy will be voted
FOR each of Bookham Proposal Nos. 1, 2, 3 and 4
in accordance with the recommendation of the Bookham board of
directors.
A Bookham stockholder who has submitted a proxy may revoke it at
any time before it is voted at the Bookham special meeting by
executing and returning a proxy bearing a later date, providing
proxy instructions via the telephone or the Internet (your
latest telephone or Internet proxy is counted), filing written
notice of revocation with the Corporate Secretary of Bookham
stating that the proxy is revoked or attending the special
meeting and voting in person.
Required
Vote
The presence, in person or by proxy, at the Bookham special
meeting of the holders of a majority of the shares of Bookham
common stock outstanding and entitled to vote at the Bookham
special meeting is necessary to constitute a quorum at the
meeting. If Bookham stockholders do not vote by proxy or in
person at the Bookham special meeting, the shares of common
stock of such stockholders will not be counted as present for
the purpose of determining a quorum. Abstentions and broker
non-votes will be counted towards a quorum. The affirmative vote
of the holders of a majority of the voting power of the shares
voting in person or by proxy at the Bookham special meeting is
required for approval of each of Bookham Proposal Nos. 1
and 4, and the affirmative vote of the holders of a majority of
the voting power of Bookham common stock outstanding on the
record date for the Bookham special meeting is required for
approval of Bookham Proposal Nos. 2 and 3.
For Bookham Proposal Nos. 1 and 4, a failure to submit a
proxy card or vote at the Bookham special meeting, or an
abstention, vote withheld or broker non-votes will
have no effect on the outcome of such proposals. For Bookham
Proposal Nos. 2 and 3, a failure to submit a proxy card or
vote at the Bookham special meeting, or an abstention, vote
withheld or broker non-vote for such proposal, will
have the same effect as a vote against the approval of Bookham
Proposal Nos. 2 and 3.
As of the record date for the Bookham special meeting, the
directors and executive officers of Bookham owned approximately
0.70% of the outstanding shares of Bookham common stock entitled
to vote at the
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Bookham special meeting. David Simpson, Jerry Turin, Lori
Holland, Alain Couder, Kate Rundle, Edward Collins, James
Haynes, Yves LeMaitre, Kenneth Ibbs, Kathleen Zwickert, Bernard
Couillaud, Peter Bordui, Joseph Cook, Adrian Meldrum and W.
Arthur Porter, each either an officer
and/or a
director of Bookham have each entered into a voting agreement
with Avanex, dated January 27, 2009. They have agreed in
the voting agreements to vote all shares of Bookham common stock
owned by them as of the record date in favor of the issuance of
shares of Bookham common stock in the merger. They also granted
Avanex irrevocable proxies to vote their shares of Bookham
common stock in favor of the issuance of shares of Bookham
common stock in the merger. Approximately 792,788 shares of
Bookham common stock, which represent approximately 0.79% of the
outstanding shares of Bookham common stock as of the record
date, are subject to the voting agreements and irrevocable
proxies. For more information regarding the voting agreements,
see the section entitled Voting Agreements on
page 133 of this joint proxy statement/prospectus.
Solicitation
of Proxies
In addition to solicitation by mail, the directors, officers,
employees and agents of Bookham may solicit proxies from
Bookhams stockholders by personal interview, telephone,
telegram or otherwise. Bookham will bear the cost of the
solicitation of proxies, except that Bookham and Avanex will
each pay one-half of the costs of filing, printing and mailing
of this joint proxy statement/prospectus, the proxy card and any
additional information furnished to stockholders. Arrangements
will also be made with brokerage firms and other custodians,
nominees and fiduciaries who are record holders of Bookham
common stock for the forwarding of solicitation materials to the
beneficial owners of Bookham common stock. Bookham will
reimburse these brokers, custodians, nominees and fiduciaries
for the reasonable out-of-pocket expenses they incur in
connection with the forwarding of solicitation materials.
Bookham has engaged the services of Okapi Partners LLC to
distribute proxy solicitation materials to brokers, banks and
other nominees and to assist in the solicitation of proxies from
Bookham stockholders for a fee of approximately $15,000 plus
reasonable out-of-pocket expenses.
Other
Matters
As of the date of this joint proxy statement/prospectus, the
Bookham board of directors does not know of any business to be
presented at the Bookham special meeting other than as set forth
in the notice accompanying this joint proxy
statement/prospectus. If any other matters should properly come
before the special meeting, it is intended that the shares
represented by proxies will be voted with respect to such
matters in accordance with the judgment of the persons voting
the proxies.
Stockholder
Proposals for Bookhams 2009 Annual Meeting
If a stockholder intends to submit a proposal for inclusion in
the proxy statement and proxy card for our 2009 annual meeting,
the stockholder must follow the procedures outlined in
Rule 14a-8
under the Securities Exchange Act of 1934, as amended. We must
receive any proposals intended for inclusion in the proxy
statement at our principal executive offices, Bookham, Inc.,
2584 Junction Avenue, San Jose, California 95134,
Attention: Corporate Secretary, no later than June 1, 2009.
If a stockholder wishes to present a proposal at the 2009 annual
meeting, but does not wish to have the proposal considered for
inclusion in our proxy statement and proxy card, the stockholder
must also give written notice to us at the address noted above.
Our bylaws specify the information that must be included in any
such notice, including a brief description of the proposal and
the name of the stockholder proposing such business. We must
receive this notice at least 90 days, but not more than
120 days, prior to October 22, 2009. However, if the
2009 annual meeting is scheduled to be held prior to
October 2, 2009 or after December 21, 2009, the notice
must be received no earlier than the
120th day
prior to the 2009 annual meeting and no later than the close of
business on the later of (1) the
90th day
prior to the 2009 annual meeting and (2) the
10th day
following the date on which notice of the date of the meeting
was mailed or public disclosure was made, whichever occurs
first. If the stockholder fails to provide timely notice of a
proposal to be presented at the 2009 annual meeting, the
chairman of the meeting may exclude the proposal from being
brought before the meeting and the proxies designated by our
board of directors will have discretionary authority to vote on
such proposal should it be allowed to come before the meeting.
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THE
AVANEX SPECIAL MEETING
Date,
Time and Place
The special meeting of Avanex stockholders will be held on
Monday, April 27, 2009, at the principal executive offices
of Avanex located at 40919 Encyclopedia Circle, Fremont,
California 94538, commencing at 11:00 a.m. local time. We
are sending this joint proxy statement/prospectus to Avanex
stockholders in connection with the solicitation of proxies by
the Avanex board of directors for use at the Avanex special
meeting and any adjournments or postponements of the Avanex
special meeting.
Purposes
of the Avanex Special Meeting
The purposes of the Avanex special meeting are:
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to consider and vote upon Avanex Proposal No. 1 to
adopt the merger agreement;
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to consider and vote on Avanex Proposal No. 2 to
adjourn the Avanex special meeting, if necessary, if a quorum is
present, to solicit additional proxies if there are not
sufficient votes in favor of Avanex
Proposal No. 1; and
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to transact such other business as may properly come before the
special meeting or any adjournments or postponements of the
Avanex special meeting.
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Recommendations
of Avanexs Board of Directors
AVANEXS BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED
AND BELIEVES THAT THE MERGER IS ADVISABLE AND FAIR TO, AND IN
THE BEST INTERESTS OF, AVANEX AND ITS STOCKHOLDERS AND HAS
UNANIMOUSLY APPROVED THE MERGER AND THE MERGER AGREEMENT.
AVANEXS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
AVANEX STOCKHOLDERS VOTE FOR AVANEX
PROPOSAL NO. 1 TO ADOPT THE MERGER AGREEMENT.
AVANEXS BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED
AND BELIEVES THAT THE PROPOSAL TO ADJOURN THE AVANEX
SPECIAL MEETING, IF NECESSARY, IF A QUORUM IS PRESENT, TO
SOLICIT ADDITIONAL PROXIES IF THERE ARE NOT SUFFICIENT VOTES IN
FAVOR OF PROPOSAL NO. 1 IS ADVISABLE TO, AND IN THE
BEST INTERESTS OF, AVANEX AND ITS STOCKHOLDERS AND HAS
UNANIMOUSLY APPROVED AND ADOPTED THE PROPOSAL. ACCORDINGLY,
AVANEXS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
AVANEX STOCKHOLDERS VOTE FOR AVANEX
PROPOSAL NO. 2 TO ADJOURN THE AVANEX SPECIAL MEETING,
IF NECESSARY, IF A QUORUM IS PRESENT, TO SOLICIT ADDITIONAL
PROXIES IF THERE ARE NOT SUFFICIENT VOTES IN FAVOR OF AVANEX
PROPOSAL NO. 1.
Record
Date and Voting Power
Only holders of record of Avanex common stock at the close of
business on the record date, March 18, 2009, are entitled
to notice of, and to vote at, the Avanex special meeting. There
were approximately 476 holders of record of Avanex common
stock at the close of business on the record date. There were
15,623,421 shares of Avanex common stock issued and
outstanding at the close of business on the record date. Because
many of such shares are held by brokers and other institutions
on behalf of stockholders, Avanex is unable to estimate the
total number of stockholders represented by these record
holders. Each share of Avanex common stock entitles the holder
thereof to one vote on each matter submitted for stockholder
approval. See Security Ownership of Certain Beneficial
Owners and Management Beneficial Ownership of Avanex
Shares for information regarding persons known to the
management of Avanex to be the beneficial owners of more than 5%
of the outstanding shares of Avanex common stock.
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Voting
and Revocation of Proxies
The proxy accompanying this joint proxy statement/prospectus is
solicited on behalf of the board of directors of Avanex for use
at the Avanex special meeting.
If you are a stockholder of record of Avanex as of the record
date referred to above, you may vote in person at the Avanex
special meeting or vote by proxy over the Internet, by telephone
or using the enclosed proxy card. Whether or not you plan to
attend the Avanex special meeting, Avanex urges you to vote by
proxy to ensure your vote is counted. You may still attend the
special meeting and vote in person if you have already voted by
proxy.
Voting by Proxy Card. All shares entitled to
vote and represented by properly executed proxy cards received
prior to the Avanex special meeting, and not revoked, will be
voted at the Avanex special meeting in accordance with the
instructions indicated on those proxy cards. If no instructions
are indicated on a properly executed proxy card, the shares
represented by that proxy card will be voted as recommended by
the board of directors. If any other matters are properly
presented for consideration at the Avanex special meeting, , the
persons named in the enclosed proxy card and acting thereunder
will have discretion to vote on those matters in accordance with
their best judgment.
Voting by Telephone or the Internet. If you
are a registered stockholder, you may vote your shares by
calling the toll-free number indicated on the enclosed proxy
card and following the recorded instructions or by accessing the
website indicated on the enclosed proxy card and following the
instructions provided. If your shares are registered in the name
of a bank or brokerage firm, you may be able to vote your shares
electronically over the Internet or by telephone; if so, your
voting form will provide instructions. If your voting form does
not reference Internet or telephone information, please complete
and return the paper proxy card in the self-addressed postage
paid envelope provided. When a stockholder votes via the
Internet or by telephone, his or her vote is recorded
immediately. Avanex encourages its stockholders to vote using
these methods whenever possible.
Voting by Attending the Meeting. A stockholder
may vote his or her shares in person at the Avanex special
meeting. A stockholder planning to attend the Avanex special
meeting should bring proof of identification for entrance to the
Avanex special meeting. If a stockholder attends the Avanex
special meeting, he or she may submit his or her vote in person,
and any previous votes that were submitted by the stockholder,
whether by Internet, telephone or mail, will be superseded by
the vote that such stockholder casts at the Avanex special
meeting.
Changing Vote; Revocability of Proxies. If a
stockholder has voted by telephone, over the Internet or by
returning a proxy card, such stockholder may change his or her
vote before the Avanex special meeting.
A stockholder who has voted by telephone or over the Internet
may later change his or her vote by making a timely and valid
telephone or Internet vote, as the case may be, or by following
the procedures in the following paragraph.
A stockholder may revoke any proxy given pursuant to this
solicitation at any time before it is voted by: (1) filing
with the Secretary of Avanex, at or before the taking of the
vote at the Avanex special meeting, a written notice of
revocation or a duly executed proxy card, in either case dated
later than the prior proxy relating to the same shares, or
(2) attending the Avanex special meeting and voting in
person (although attendance at the Avanex special meeting will
not by itself revoke a proxy). Any written notice of revocation
or subsequent proxy card must be received by the Secretary of
Avanex prior to the taking of the vote at the Avanex special
meeting. Such written notice of revocation or subsequent proxy
card should be hand delivered to the Secretary of Avanex or
should be sent to Avanex Corporation, 40919 Encyclopedia Circle,
Fremont, California 94538, Attention: Corporate Secretary.
Required
Vote
The presence, in person or by proxy, at the Avanex special
meeting of the holders of a majority of the shares of Avanex
common stock outstanding and entitled to vote at the Avanex
special meeting is necessary to
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constitute a quorum at the Avanex special meeting. Approval of
Avanex Proposal No. 1 requires the affirmative vote of
the holders of a majority of the voting power of the shares of
Avanex common stock outstanding on the record date for the
Avanex special meeting. Approval of Avanex
Proposal No. 2 requires the affirmative vote of
holders of a majority of the votes cast in person or by proxy at
the Avanex special meeting. Abstentions will be counted towards
a quorum and will have the same effect as negative votes on
Avanex Proposal No. 1, but will not be counted for any
purpose in determining whether Avanex Proposal No. 2
is approved. Broker non-votes will be counted towards a quorum,
but will not be counted for any purpose in determining whether
either proposal is approved.
Each of the current executive officers and directors of Avanex
has entered into a voting agreement with Bookham dated
January 27, 2009. They have agreed in the voting agreements
to vote all shares of Avanex common stock owned by them as of
the record date in favor of the adoption of the merger
agreement. They also granted Bookham irrevocable proxies to vote
their shares of Avanex common stock in favor of the adoption of
the merger agreement. Approximately 98,664 shares of Avanex
common stock, which represent approximately 0.63% of the
outstanding shares of Avanex common stock as of the record date,
are subject to the voting agreements and irrevocable proxies.
For more information regarding the voting agreements, see the
section entitled Voting Agreements on page 133
of this joint proxy statement/prospectus.
Solicitation
of Proxies
In addition to solicitation by mail, the directors, officers,
employees and agents of Avanex may solicit proxies from Avanex
stockholders by personal interview, telephone, telegram or
otherwise. Avanex will bear the costs of the solicitation of
proxies from its stockholders, except that Bookham and Avanex
will each pay one-half of the cost of filing, printing and
mailing of this joint proxy statement/prospectus, the proxy card
and any additional information furnished to stockholders.
Arrangements will also be made with brokerage firms and other
custodians, nominees and fiduciaries who are record holders of
Avanex common stock for the forwarding of solicitation materials
to the beneficial owners of Avanex common stock. Avanex will
reimburse these brokers, custodians, nominees and fiduciaries
for the reasonable out-of-pocket expenses they incur in
connection with the forwarding of solicitation materials. In
connection with this joint proxy statement/prospectus, Avanex
has retained a proxy solicitation firm, Morrow & Co.,
LLC, to aid in the solicitation process and will pay it a fee of
approximately $8,000 for its services, plus any reasonable
expenses incurred in connection with the solicitation.
Other
Matters
As of the date of this joint proxy statement/prospectus, the
Avanex board of directors does not know of any business to be
presented at the Avanex special meeting other than as set forth
in the notice accompanying this joint proxy
statement/prospectus. If any other matters should properly come
before the special meeting, it is intended that the shares
represented by proxies will be voted with respect to such
matters in accordance with the judgment of the persons voting
the proxies.
Procedure
for Submitting Stockholder Proposals
If the merger is completed, we will not have public stockholders
and there will be no public participation in any future meeting
of Avanex stockholders. However, if the merger is not completed
or if we are otherwise required to do so under applicable law,
we will hold a 2009 annual meeting of our stockholders.
Requirements for Stockholder Proposals to be Considered for
Inclusion in Avanexs Proxy Materials. Stockholders may
present proper proposals for inclusion in Avanexs proxy
statement and for consideration at the annual meeting of its
stockholders by submitting their proposals in writing to the
Secretary of Avanex in a timely manner. In order to be included
in Avanexs proxy materials for the 2009 annual meeting of
stockholders, stockholder proposals must be received by the
Secretary of Avanex no later than the Notice Deadline (as
defined below), and must otherwise comply with the requirements
of
Rule 14a-8
of the Exchange Act.
69
Requirements for Stockholder Proposals to be Brought Before
an Annual Meeting. In addition, Avanexs
amended and restated bylaws establish an advance notice
procedure for stockholders who wish to present certain matters
before an annual meeting of stockholders. In general,
nominations for the election of directors may be made by
(1) the board of directors, (2) the corporate
governance and nominating committee or (3) any stockholder
entitled to vote who has delivered written notice to the
Secretary of Avanex no later than the Notice Deadline, which
notice must contain specified information concerning the
nominees and concerning the stockholder proposing such
nominations. If a stockholder wishes only to recommend a
candidate for consideration by the corporate governance and
nominating committee as a potential nominee for Avanexs
board of directors, such recommendations must be received by
June 30 of the year in which the recommended candidate will be
considered for nomination. Stockholder recommendations for
candidates to the board of directors must be directed in writing
to Avanex Corporation, 40919 Encyclopedia Circle, Fremont,
California 94538, Attention: Corporate Secretary, and must
include the candidates name, home and business contact
information, detailed biographical data and qualifications,
information regarding any relationships between the candidate
and Avanex within the last three years and evidence of the
nominating persons ownership of Avanex common stock. Such
recommendations must also include a statement from the
recommending stockholder in support of the candidate,
particularly within the context of the criteria for membership
on the board of directors, including issues of character,
judgment, diversity, age, independence, expertise, corporate
experience, other commitments and the like, personal references,
and an indication of the candidates willingness to serve.
Avanexs bylaws also provide that the only business that
may be conducted at an annual meeting is business that is
(1) specified in the notice of meeting given by or at the
direction of the board of directors, (2) properly brought
before the meeting by or at the direction of the board of
directors, or (3) properly brought before the meeting by a
stockholder who has delivered written notice to the Secretary of
Avanex no later than the Notice Deadline, which notice must
contain specified information concerning the matters to be
brought before such meeting and concerning the stockholder
proposing such matters.
The Notice Deadline is defined as that date which is
120 days prior to the one-year anniversary of the date on
which Avanex first mailed its proxy materials for the previous
years annual meeting of stockholders. As a result, the
Notice Deadline for the 2009 annual stockholder meeting is
June 15, 2009.
If a stockholder who has notified Avanex of his or her intention
to present a proposal at an annual meeting does not appear to
present his or her proposal at such meeting, or does not send a
representative who is qualified under Delaware law to present
the proposal on his or her behalf, Avanex need not present the
proposal for vote at such meeting.
A copy of the full text of the bylaw provisions discussed above
may be obtained by writing to the Secretary of Avanex. All
notices of proposals by stockholders, whether or not included in
Avanexs proxy materials, should be sent to Avanex
Corporation, 40919 Encyclopedia Circle, Fremont, California
94538, Attention: Corporate Secretary.
70
BOOKHAM
PROPOSAL NO. 1 AND AVANEX
PROPOSAL NO. 1 THE MERGER
Unless specifically stated otherwise, the following
information and all other information contained in this joint
proxy statement/prospectus does not give effect to the proposed
reverse stock split discussed in the section entitled
Bookham Proposal No. 3 Amendments to
Bookhams Restated Certificate of Incorporation to Effect a
Reverse Stock Split and to Reduce the Number of Authorized
Shares of Bookham Common Stock and Preferred Stock.
General
Description of the Merger
At the effective time of the merger, Ultraviolet Acquisition
Sub, Inc., or merger sub, will be merged with and into Avanex.
Avanex will be the surviving corporation and will continue as a
wholly owned subsidiary of Bookham. In the merger, each share of
Avanex common stock outstanding at the effective time will
automatically be converted into the right to receive
5.426 shares of Bookham common stock. Each Avanex
stockholder who would otherwise be entitled to receive a
fraction of a share of Bookham common stock (after aggregating
all fractional shares to be received by such stockholder) will
instead of such fraction be paid in cash the dollar amount
(rounded to the nearest whole cent), without interest,
determined by multiplying such fraction by the average closing
price of a share of Bookham common stock on the NASDAQ Global
Market for the ten most recent days that Bookham common stock
has traded ending on the trading day one day prior to the date
the merger becomes effective.
Based on the number of shares of Bookham common stock and Avanex
common stock that were outstanding as of the record date, up to
85,783,567 shares of Bookham common stock will be issuable
pursuant to the merger agreement, representing approximately
45.94% of the total Bookham common stock to be outstanding after
such issuance. This assumes that no Avanex or Bookham stock
options, restricted stock units or warrants are exercised or
vest after the record date and prior to the effective time of
the merger.
Background
From time to time, Avanex and Bookham each has analyzed various
potential business alternatives and strategic transactions. For
example, starting in March 2006 through early January 2007,
Avanex and Bookham engaged in discussions from time to time
regarding a potential business combination, conducted due
diligence and engaged in negotiations of a merger agreement. In
January 2007, the parties ceased discussions regarding a
potential transaction. Thereafter, during the first half of
2007, Avanex and Bookham engaged in discussions from time to
time regarding the fiber optics communications industry
generally and Avanexs interest in possibly acquiring part
of Bookhams business. Bookham decided not to pursue such a
transaction.
In August 2007, Alain Couder joined Bookham as its Chief
Executive Officer. In approximately early September 2007, Jo
Major, Ph.D., who was then the Chief Executive Officer of
Avanex, contacted Alain Couder to introduce himself and
suggested that the two meet. In early September 2007,
Dr. Major and Mr. Couder met for lunch and discussed
the fiber optics communications industry generally. In the
course of this discussion, Dr. Major and Mr. Couder
discussed the possibility of a combination of Bookham and Avanex
and shared their views about such a combination.
Mr. Couder, having just recently joined Bookham at the
time, informed Dr. Major that he needed to spend additional
time learning about Bookham before he would consider whether to
pursue a business combination. Thereafter, Peter Bordui, a
member of Bookhams board of directors, had occasional
discussions with Dr. Major and Greg Dougherty, a member of
Avanexs board of directors, regarding the fiber optics
communications industry generally and a potential business
combination of Bookham and Avanex.
On April
21-22, 2008,
at a meeting of the board of directors of Bookham, which was
also attended by members of Bookhams senior management,
the Bookham board discussed the consolidation that was occurring
in the fiber optics communications industry and the strategic
alternatives available to Bookham, including the possibility of
Bookham entering into a business combination or making one or
more strategic acquisitions. At the conclusion of this meeting,
the Bookham board indicated to management that its primary focus
should be on the financial performance of Bookham; however, the
Bookham board also authorized management to request that a
private equity firm with relationships with representatives of
both Bookham and
71
Avanex contact Avanexs board to determine whether Avanex
would be interested in exploring a possible combination with
Bookham.
In addition to formal meetings of the board of directors of
Bookham, during the entire period from early 2008 through the
signing of the merger agreement with Avanex in January 2009,
Mr. Couder provided the Bookham board with numerous updates
on the status of his interactions with, and obtained guidance
from members of the Bookham board with respect to interactions
with, Avanex.
On July 22, 2008, as part of a series of presentations to
the board of directors of Bookham (and not in the context of any
specific transaction), a representative of Cooley Godward
Kronish, outside M&A counsel to Bookham, discussed with the
board the fiduciary duties of the board, and other legal rights,
privileges and obligations, in connection with the consideration
by the board of various strategic alternatives, including
buy-side M&A transactions.
On July 31, 2008, Giovanni Barbarossa, Ph.D., who was then
Interim Chief Executive Officer of Avanex, and Mr. Couder
spoke by telephone to become better acquainted and to discuss
the fiber optics communications industry. On August 5,
2008, Dr. Barbarossa and Mr. Couder followed up on
their earlier call and arranged to meet in person after
Avanexs first fiscal quarter 2009 earnings call. Also in
August 2008, Mr. Dougherty communicated with
Mr. Bordui, Chairman of the Board of Bookham, regarding the
industry and their respective companies, and they arranged for
Mr. Bordui to meet with Dr. Barbarossa.
On August 28, 2008, at a meeting of the board of directors
of Bookham, attended by members of Bookhams senior
management, Bookhams outside securities counsel and
representatives of an investment bank that was not ultimately
engaged by Bookham, representatives of the investment bank
reviewed with the Bookham board various potential strategic
alternatives available to Bookham, including a possible merger
with Avanex. The Bookham board also discussed the merits of
raising acquisition capital, including through an investment
from a private equity firm.
On September 4, 2008, at a regular Avanex board meeting at
which members of management and representatives of Wilson
Sonsini Goodrich & Rosati, Professional Corporation,
Avanexs outside legal counsel, were present, the board
discussed the consolidation that was occurring in the fiber
optics communications industry, as well as Avanexs
strategic planning and the possibility of exploring potential
strategic alternatives available to Avanex, including continuing
as a stand-alone company or engaging in a potential business
combination transaction. Both during and after the
September 4, 2008 meeting, Dr. Barbarossa provided
Avanexs board of directors with managements views
regarding opportunities for Avanex to participate in the
industry consolidation and the potential synergies that could be
realized with a successful business combination. Avanexs
board of directors has regularly discussed and reviewed
Avanexs strategic goals, performance and prospects as part
of the ongoing evaluation of its business and strategic
planning. In this connection, management evaluated and reviewed
with the board the strategic fit of a range of potential
business combination partners, including Bookham.
In early September 2008, the acquisition committee of the Avanex
board of directors, which was formed in 2006 and has assisted
the Avanex board in the review of strategic transactions,
together with Avanex management, met with representatives of
Banc of America Securities and representatives of another
investment bank. At these meetings, various potential strategic
alternatives for Avanex were discussed, including potential
combination transactions, stand-alone scenarios, and the
possibility of acquiring other businesses complementary to
Avanex. Avanex subsequently engaged Banc of America Securities
as its financial advisor to assist Avanex in exploring potential
strategic alternatives and transactions.
On September 10, 2008, Dr. Barbarossa and
Mr. Couder met, and Mr. Couder raised the possibility
of a potential business combination transaction involving the
two companies.
On September 12, 2008, Mr. Couder delivered a letter
to Dr. Barbarossa expressing, in a non-binding manner, that
Bookham was interested in possibly acquiring all outstanding
shares of the common stock of Avanex at a premium of 30% above
Avanexs then current stock price, using a form of
consideration to be mutually agreed upon, subject to due
diligence and negotiation of definitive agreements. Over the
next several
72
weeks, Mr. Couder and Dr. Barbarossa spoke
occasionally by telephone or in person regarding a potential
strategic transaction.
On September 13, 2008, the Avanex board of directors held a
meeting at which members of management and representatives of
Wilson Sonsini Goodrich & Rosati were present. At the
meeting, the board discussed the letter received from Bookham,
as well as the potential for strategic interest in Avanex from
other parties. The board further discussed potential strategic
alternatives for Avanex, including, among others, remaining an
independent entity as well as business combination alternatives.
The board also discussed the need for refinement and analysis of
Avanexs operating plan and opportunities for organic
growth and growth through acquisition. Both during and after the
September 13, 2008 meeting, Dr. Barbarossa provided
Avanexs board with managements views regarding the
characteristics of a potentially successful business combination
in the consolidating fiber optics communications industry.
On September 19, 2008, the Avanex board of directors held a
meeting at which members of management and representatives of
Avanexs legal and financial advisors were present. At the
meeting, Avanexs financial advisor discussed with the
board the competitive and market position of Avanex and
potential strategic alternatives for Avanex, including potential
combination transactions, stand-alone scenarios, and the
possibility of acquiring other businesses complementary to
Avanex.
On September 23, 2008, Dr. Barbarossa met with
Mr. Bordui and discussed the fiber optics communications
industry and the potential for a business combination
transaction between Avanex and Bookham. Later that day,
Dr. Barbarossa met again with Mr. Couder to discuss
further a potential business combination transaction. Also in
September 2008, Mr. Dougherty and Mr. Bordui had
discussions regarding a possible Bookham and Avanex transaction.
On October 5, 2008, the Avanex board of directors held a
meeting at which members of management and representatives of
Wilson Sonsini Goodrich & Rosati were present.
Dr. Barbarossa updated the board on various aspects of
Avanexs consideration of potential strategic alternatives,
including discussions held to date with Bookham.
On October 7, 2008, Avanex and Bookham entered into a
mutual confidentiality agreement, which was in addition to an
existing mutual confidentiality agreement previously executed by
the parties.
On October 10, 2008, Dr. Barbarossa and
Messrs. Couder, Turin and Weinswig met at
Mr. Couders home to discuss a potential financial
model for a combined company, potential synergies, the relative
ownership of a combined company by the two companies
respective stockholders and the possible management structure,
locations, functions, products and activities of a combined
company. Commencing on this date and continuing until the date
on which the merger agreement was entered into by the parties,
Dr. Barbarossa and Messrs. Couder, Turin and Weinswig
contacted each other periodically by telephone and via email,
and met with each other from time to time (including meetings at
Mr. Couders home on October 30 and 31, 2008 and at
the offices of Citigroup Global Markets, Inc., Bookhams
financial advisor, on November 7, 2008), to discuss a
possible combination of Bookham and Avanex and related matters.
On October
21-22, 2008,
the board of directors of Bookham met in person. At these
meetings, which were also attended by members of Bookhams
senior management and, with respect to part of the meeting on
October 21, Bookhams outside securities counsel, the
Bookham board discussed various potential strategic alternatives
available to Bookham. Mr. Couder updated the board on
discussions between Bookham and Avanex. The Bookham board
authorized management to continue discussions with Avanex.
On October 24, 2008, the Avanex board of directors held a
meeting at which members of management and representatives of
Avanexs legal and financial advisors were present. At the
meeting, Avanexs financial advisor discussed with the
board Avanexs financial and competitive position,
financial projections prepared by Avanexs management, and
potential strategic alternatives for Avanex, including both
stand-alone and combination scenarios. At the conclusion of the
meeting, the board authorized and directed management, with the
assistance of Avanexs advisors, to continue to pursue
discussions with Bookham and to approach other potentially
interested parties regarding a possible combination transaction.
73
In late October 2008, Dr. Barbarossa and senior executives
of a public company which we refer to in this section as Company
A spoke several times by telephone and in person regarding the
possibility of a business combination involving the two
companies.
On October 31, 2008, the acquisition committee of the
Avanex board of directors held a meeting at which the
acquisition committee was updated by Avanexs management
regarding their recent interactions with Bookham and Company A.
At the conclusion of the meeting, the acquisition committee
authorized Dr. Barbarossa to continue working with
management and Avanexs financial advisor to explore
potential strategic opportunities.
In November 2008, at the direction of Avanexs board of
directors, Avanexs financial advisor approached Company A
and two other public companies which we refer to in this section
as Company B and Company C, each of which expressed preliminary
interest in pursuing discussions regarding a potential
combination transaction with Avanex and signed confidentiality
agreements with Avanex to enable further due diligence and
discussions between the parties.
On November 7 and November 9, 2008, the acquisition
committee of the Avanex board of directors held meetings at
which members of management and representatives of Avanexs
legal and financial advisors were present. At the meetings, the
acquisition committee was updated regarding recent interactions
with Bookham and certain other parties regarding potential
alternative business combinations.
On November 10, 2008, Mr. Couder and
Dr. Barbarossa met to discuss a possible non-binding
indication of interest for a business combination between
Bookham and Avanex, and Messrs. Turin and Weinswig spoke by
telephone regarding the pro forma financial model of the
combined company.
On November 11, 2008, in anticipation of an Avanex board
meeting that was scheduled for November 13, 2008 at the
direction of Bookham management, a representative of
Bookhams financial advisor called a representative of
Avanexs financial advisor to discuss proposed terms of a
potential offer for a business combination of Bookham and Avanex
(which when received would be subject to customary conditions,
including completion of due diligence). The terms discussed
reflected a proposed exchange ratio of 4.300x shares of Bookham
common stock for each outstanding share of Avanex common stock,
which corresponded to an estimated implied ownership for Avanex
stockholders of approximately 40% of the combined company. The
terms discussed also proposed a board consisting of four
representatives of Bookham (including its Chief Executive
Officer who would be the Chief Executive Officer of the combined
company) and three representatives of Avanex.
On November 12, 2008, following up on prior discussions
between Mr. Couder and Dr. Barbarossa, Mr. Turin
provided to Mr. Weinswig a list of topics and questions to
be addressed in a possible offsite meeting between management
representatives of Bookham and management representatives of
Avanex.
On November 13, 2008, the acquisition committee of the
Avanex board of directors held a meeting at which several other
directors, members of management, and representatives of
Avanexs legal and financial advisors were present. The
acquisition committee was further updated regarding recent
interactions with Bookham and other parties regarding potential
alternative business combinations, as well as the forward
timeline for additional discussions with such parties.
Later that day, the Avanex board of directors held a meeting at
which members of management and representatives of Avanexs
legal advisor were present. At the meeting, the board discussed
potential business combinations. In addition, at this meeting,
Dr. Barbarossa was appointed President and Chief Executive
Officer and a member of the board of directors.
On November 18, 2008, Bookham sent Avanex a preliminary,
non-binding indication of interest proposing a
stock-for-stock
transaction in which Avanex stockholders would own approximately
40% of the combined company. The indication of interest, which
was subject to customary conditions (including completion of due
diligence), also contemplated a board consisting of four
representatives of Bookham (including its Chief Executive
Officer who would be the Chief Executive Officer of the combined
company) and three representatives of Avanex.
74
Also on November 18, 2008, Dr. Barbarossa and
Mr. Weinswig, together with representatives of
Avanexs financial advisor, met with senior executives of
Company C to exchange information and to discuss the possibility
of a business combination involving the two companies.
On November 18, 2008, at the direction of Avanexs
board, a representative of Avanexs financial advisor
provided initial feedback to a representative of Bookhams
financial advisor with respect to the indication of interest,
noting in particular that the Avanex board was contemplating a
transaction in which the Avanex stockholders would own
approximately 50% of the combined company.
On November 21, 2008, the Avanex board of directors held a
meeting at which members of management and representatives of
Avanexs legal and financial advisors were present. At the
meeting, the board was updated regarding discussions with
Bookham and other parties regarding potential combination
transactions, including the receipt of the non-binding
indication of interest from Bookham. Also at this meeting,
Avanexs financial advisor discussed financial aspects of
Bookhams indication of interest. The board also discussed
various potential strategic alternatives available to Avanex,
including stand-alone scenarios, and authorized management, with
the assistance of Avanexs advisors, to respond to Bookham
that the terms of the indication of interest would need to
improve in order for Avanex to continue discussions with Bookham.
Later on November 21, 2008, Dr. Barbarossa and
Mr. Weinswig, together with representatives of
Avanexs financial advisor, met with senior executives of
Company A to exchange information and to further discuss the
possibility of a business combination involving the two
companies. Dr. Barbarossa and Mr. Weinswig spoke
further by telephone with senior executives at Company A in late
November to explore the potential combination of the two
companies.
On November 23, 2008, in response to Bookhams
indication of interest and at the direction of the Avanex board
of directors, representatives of Avanexs financial advisor
provided to representatives of Bookhams financial advisor
a proposal from Avanex reflecting, among other things, a greater
ownership percentage in the combined company for Avanex
stockholders than reflected in Bookhams proposal (49%
rather than 40%) and a combined company board comprised of eight
directors, including three independent members from each of the
boards of Avanex and Bookham and the then current Chief
Executive Officers of both companies.
Also on November 24, 2008, Dr. Barbarossa and a senior
executive of Company B spoke by telephone regarding the
possibility of a business combination involving the two
companies. Avanex sent Company B information about Avanexs
business, but Company B did not reply.
On November 25, 2008 and December 1, 2008, the
acquisition committee of the Avanex board of directors held
meetings at which members of management and representatives of
Avanexs legal and financial advisors were present. During
these meetings, the acquisition committee was updated on the
recent interactions with Bookham and certain other potential
parties regarding potential combination transactions. At the
conclusion of each of these meetings, the acquisition committee
authorized and directed management, with the assistance of
Avanexs advisors, to continue to pursue discussions with
Bookham and other potentially interested parties regarding a
possible combination.
On November 26, 2008, Mr. Weinswig met with senior
executives of a public company which we refer to in this section
as Company D. During the meeting, the Company D executives
discussed the possibility of a business combination involving
the two companies. The parties determined to meet again when
Dr. Barbarossa could also be present.
Throughout November 2008, Mr. Couder discussed with the
senior members of Avanexs management
Mr. Couders view of the rationale for the
combination. Mr. Couder also obtained input from such
persons regarding their potential roles in the combined company
if the transaction were to be completed.
On November 30 and December 1, 2008, Mr. Dougherty and
Mr. Bordui discussed the status of a potential transaction
between Avanex and Bookham and the meetings held between the
respective management teams and financial advisors of the two
companies.
75
On December 1, 2008, Mr. Weinswig, together with
representatives of Avanexs financial advisor, met with
senior executives of Company C to exchange information and to
discuss the possibility of a business combination involving the
two companies.
On December 3, 2008, Mr. Couder contacted
Dr. Barbarossa and asked whether Dr. Barbarossa had
been able to discuss further with the Avanex board the terms of
a possible combination of Bookham and Avanex, and suggested that
Mr. Couder and Dr. Barbarossa meet on December 5,
2008 to determine whether to proceed with a transaction.
On December 5, 2008, Company A sent Avanex a preliminary,
non-binding indication of interest proposing a
stock-for-stock
combination of the two companies and indicating other terms and
conditions of a proposed transaction.
Also on December 5, 2008, Dr. Barbarossa and
Mr. Weinswig met with senior executives of Company D
regarding the possibility of a business combination involving
the two companies.
Also on December 5, 2008, Dr. Barbarossa and
Mr. Couder spoke regarding the potential combination
transaction, including the potential respective ownership of
Bookham and Avanex stockholders in the combined company.
Following this discussion, the parties agreed that, subject to
approval of each companys board, they would be prepared to
continue discussions regarding a potential combination
transaction based on a Bookham stockholder to Avanex stockholder
ownership ratio of approximately 55% to 45%. Mr. Couder and
Dr. Barbarossa acknowledged that the transaction remained
subject to satisfactory completion of mutual due diligence and
negotiation of a mutually acceptable definitive agreement.
On December 6, 2008, the acquisition committee of the
Avanex board of directors held a meeting at which members of
management and representatives of Avanexs legal and
financial advisors were present. The acquisition committee was
updated on the status of ongoing discussions with Bookham and
other parties regarding potential combination transactions,
including the updated oral indication of interest from Bookham
and the new indication of interest from Company A received the
previous day. At the conclusion of the meeting, the acquisition
committee authorized and directed management, with the
assistance of Avanexs advisors, to pursue further
discussions with these and other interested parties as discussed
at the meeting.
On December 8, 2008, as a
follow-up to
the oral indication of interest communicated on December 5,
2008, Bookham sent Avanex a revised preliminary, non-binding
indication of interest proposing a
stock-for-stock
transaction in which Avanex stockholders would own approximately
45% of the combined company and indicating other terms and
conditions of a proposed transaction. The revised indication of
interest also proposed a board of the combined company
consisting of four representatives of Bookham (including its
Chief Executive Officer) and three representatives of Avanex
(including its Chief Executive Officer).
During December 2008, Dr. Barbarossa and
Messrs. Weinswig, Couder and Turin had several discussions
regarding a potential transaction, including with respect to
potential synergies that may be realized and additional
information to be exchanged regarding each company.
On December 10, 2008, Mr. Couder sent to
Dr. Barbarossa an email setting forth a proposed agenda for
a possible offsite meeting scheduled for December 17 or December
18 between management representatives of Bookham and Avanex,
respectively. The agenda contemplated a discussion of the
operations of both companies (including a separate discussion of
the companies telecom and non-telecom operations), the
technology and products of both companies and various functional
organizations, including sales and marketing, finance,
information services, human resources and legal.
Also on December 10, 2008, a senior executive of Company C
indicated that, due to internal priorities, Company C would not
be submitting a proposal regarding a potential transaction with
Avanex.
On December 11, 2008, Messrs. Turin and Weinswig met
to discuss the process of moving forward jointly with a
potential business combination, and on December 12, 2008
they exchanged emails regarding mutual due diligence.
76
On December 12, 2008, the acquisition committee of the
Avanex board of directors held a meeting at which members of
management and representatives of Avanexs legal and
financial advisors were present. The acquisition committee was
updated on the status of ongoing discussions with Bookham and
other parties regarding potential strategic transactions. At the
conclusion of the meeting, the acquisition committee authorized
and directed management, with the assistance of Avanexs
advisors, to pursue further discussions with such parties as
discussed at the meeting.
On December 15, 2008, the acquisition committee of the
Avanex board of directors held a meeting at which members of
management and representatives of Avanexs financial
advisor were present. Senior executives of Company A also were
present for a portion of the meeting and discussed Company
As preliminary indication of interest for a potential
combination transaction between the two companies with the
acquisition committee. At the conclusion of the meeting, the
acquisition committee authorized and directed management, with
the assistance of Avanexs advisors, to pursue further
discussions with Company A.
On December 16, 2008, Dr. Barbarossa and
Mr. Weinswig, together with representatives of
Avanexs financial advisor, met with senior executives of
Company D to further discuss the possibility of a business
combination involving the two companies.
On December 17, 2008, the Avanex board of directors held a
meeting at which members of management and representatives of
Avanexs legal and financial advisors were present.
Mr. Couder from Bookham also was present for a portion of
the meeting and discussed the merits and potential synergies of
a business combination transaction between Avanex and Bookham.
After Mr. Couder departed from the meeting, the board
discussed the current status of discussions with Bookham,
Company A and other potential parties to alternative combination
transactions. Following such discussion, the board authorized
management to continue discussions with Bookham, to communicate
to Company As financial advisor that Avanex was not
prepared to move forward with Company A based on its initial
proposal, but that it would continue discussion if Company A
indicated it would consider improving its proposal, and to
continue discussions with certain other parties to an
alternative combination transaction.
Later on December 17 and continuing on December 18, 2008,
Dr. Barbarossa, Mr. Weinswig and other members of
Avanex management, together with representatives of
Avanexs financial advisor, met with Mr. Couder,
Mr. Turin and other members of Bookham management and
representatives of Bookhams financial advisor. These
meetings included further evaluation of the operational and
other potential synergies of a combination transaction between
the two companies as well as continuing due diligence.
Thereafter and through the execution of the merger agreement on
January 27, 2009, members of Bookham and Avanex management,
with the assistance of Bookhams and Avanexs
respective advisors, continued to evaluate the potential
business combination, perform due diligence and held numerous
telephonic and in person meetings to discuss the potential
transaction.
After the December 17, 2008 meeting of the Avanex board of
directors, Company A was informed that Avanex was not prepared
to move forward with Company A based on its initial proposal,
but that Avanex would continue discussions if Company A
indicated it would consider improving its proposal.
Dr. Barbarossa subsequently spoke by telephone with senior
executives at Company A in late December 2008.
On December 18, 2008, Company D sent Avanex a preliminary,
non-binding indication of interest proposing a
stock-for-stock
transaction and indicating other terms and conditions of a
proposed combination transaction.
On December 19, 2008, the acquisition committee of the
Avanex board of directors held a meeting at which members of
management and representatives of Avanexs legal and
financial advisors were present. The acquisition committee was
updated on the status of ongoing discussions with Bookham and
other parties regarding potential alternative combination
transactions, including the recent management meetings with
Bookham and the recent indication of interest from Company D. At
the conclusion of the meeting, the acquisition committee
authorized and directed management, with the assistance of
Avanexs advisors, to pursue further discussions with
Bookham and certain other parties as discussed at the meeting.
77
Also on December 19, 2008, at the direction of the
acquisition committee, Mr. Weinswig and representatives of
Avanexs financial advisor spoke with a senior executive of
Company D and indicated that Avanex was open to a further
strategic dialogue.
On December 22, 2008, Dr. Barbarossa and a senior
executive at a public company which we refer to in this section
as Company E met to discuss the fiber optics communications
industry generally as well as the possibility of a business
combination involving the two companies. In late December 2008,
Mr. Dougherty also spoke with a senior executive at Company
E regarding the possibility of a business combination involving
the two companies.
Also on December 22, 2008, Mr. Couder and Paul Smith,
Chairman of the Board of Avanex, met and reviewed the status of
discussions, due diligence and negotiations regarding a
potential transaction. Mr. Couder and Mr. Smith also
discussed the potential composition of the board of directors of
the combined company should a transaction between Bookham and
Avanex be consummated.
Beginning on December 22, 2008, representatives of
Bookhams legal advisor, Cooley Godward Kronish, and
representatives of Avanexs legal advisor exchanged drafts
of a proposed merger agreement and voting agreements with
respect to a combination transaction, and the management teams
of Bookham and Avanex began preparing the disclosure schedules
contemplated by the merger agreement. Thereafter and through the
execution of the merger agreement and the voting agreements on
January 27, 2009, members of Bookham and Avanex
managements, with the assistance of Bookhams and
Avanexs respective advisors, continued to negotiate the
terms and conditions of the merger agreement and the voting
agreements and to discuss the disclosure schedules.
On December 23, 2008, the board of directors of Bookham met
via teleconference to receive an update from management of
Bookham regarding the proposed business combination of Bookham
and Avanex. This meeting was also attended by members of
Bookhams senior management, representatives of
Bookhams financial advisor and a representative of Cooley
Godward Kronish. A representative of Cooley Godward Kronish
reminded the Bookham board of its fiduciary duties in connection
with a possible merger transaction. The Bookham board authorized
management to continue its discussions with Avanex.
On December 26, 2008, the acquisition committee of the
Avanex board of directors held a meeting at which members of
management and representatives of Avanexs legal and
financial advisors were present. The acquisition committee was
updated on the status of ongoing discussions with Bookham and
certain other parties regarding alternative potential
combination transactions, including the receipt of a draft
merger agreement from Bookham. The acquisition committee also
discussed recent interactions with Company A, including that
Company A had indicated a willingness to improve its initial
indication of interest, and interactions with Company E. At the
conclusion of the meeting, the acquisition committee authorized
and directed management, with the assistance of Avanexs
advisors, to pursue further discussions with Bookham and the
other parties as discussed at the meeting.
On December 29, 2008, Avanex and Company E entered into a
confidentiality agreement to enable further due diligence and
discussions between the parties.
On December 30, 2008, the acquisition committee of the
Avanex board of directors held a meeting at which members of
management and representatives of Avanexs legal and
financial advisors were present. The acquisition committee
discussed the potential timing of a transaction with Bookham and
received an update on the status of discussions with Bookham and
certain other interested parties to alternative business
combinations. The representatives of Wilson Sonsini
Goodrich & Rosati discussed certain material terms of
the draft definitive agreement received from Bookham. At the
conclusion of the meeting, the acquisition committee authorized
and directed management, with the assistance of Avanexs
advisors, to pursue further negotiations with Bookham and
certain other parties as discussed at the meeting.
In late December 2008, after separate discussions between
Mr. Couder and each of Mr. Smith and W. Arthur Porter
(the chair of the nominating and corporate governance committee
of the Bookham board of directors) in which Mr. Couder
asked each such person to consider the possible composition of
the board of directors of the combined company,
Messrs. Smith and Porter communicated several times
regarding the
78
composition of the board of directors of the combined company
should a transaction between Bookham and Avanex be consummated.
In addition, Mr. Porter communicated with other members of
the Bookham board about the composition of the board of
directors of the combined company should a transaction between
Bookham and Avanex be consummated.
On December 31, 2008, and continuing until the date on
which the merger agreement was entered into by the parties,
representatives of Bookham and Avanex, respectively,
communicated frequently with each other regarding due diligence,
the terms of the merger agreement and other matters pertinent to
the proposed business combination of Bookham and Avanex.
On January 4, 2009, the acquisition committee of the Avanex
board of directors held a meeting at which members of management
and representatives of Avanexs legal and financial
advisors were present. The acquisition committee received an
update on the status of discussions with Bookham and certain
other parties to alternative potential business combinations.
The acquisition committee also received an update from
representatives of Wilson Sonsini Goodrich & Rosati on
the status of the ongoing negotiations with respect to the draft
merger agreement with Bookham. Management discussed with the
acquisition committee the joint efforts of Avanex and Bookham
with respect to the operating and integration models for the
potential combination with Bookham. At the conclusion of the
meeting, the acquisition committee authorized and directed
management, with the assistance of Avanexs advisors, to
pursue further negotiations with Bookham and the certain other
parties as discussed at the meeting.
On January 5, 2009, Dr. Barbarossa and
Mr. Weinswig, together with representatives of
Avanexs financial advisor, met with senior executives of
Company A to further discuss the possibility of a business
combination involving the two companies.
On January 6, 2009, the acquisition committee of the Avanex
board of directors held a meeting at which members of management
and representatives of Avanexs legal and financial
advisors were present. Dr. Barbarossa provided an overview
of Avanexs due diligence investigation of Bookham to date.
The acquisition committee also received an update from the
representatives of Wilson Sonsini Goodrich & Rosati on
the status of the ongoing negotiations and material terms of the
draft merger agreement with Bookham. The acquisition committee
was further updated on the status of discussions with other
interested parties to a potential business combination. At the
conclusion of the meeting, the acquisition committee authorized
and directed management, with the assistance of Avanexs
advisors, to pursue further discussions with Bookham and certain
other parties as discussed at the meeting.
On January 6, 2009, Avanex and Company D entered into a
confidentiality agreement to enable further due diligence and
discussions between the parties.
On January 7, 2009, Dr. Barbarossa and
Mr. Weinswig, together with representatives of
Avanexs financial advisor, met with senior executives of
Company E to exchange information and discuss the possibility of
a business combination involving the two companies. Also in
early January 2009, Mr. Dougherty spoke again with a senior
executive at Company E regarding the possibility of a business
combination involving the two companies and the potential terms
of such a combination.
On January 9, 2009, the Avanex board of directors held a
meeting at which members of management and representatives of
Avanexs legal and financial advisors were present. The
Board discussed the status of discussions, due diligence and
negotiations regarding the potential strategic transaction with
Bookham. Mr. Couder and Mr. Turin then joined the
meeting and discussed with the board the proposed strategic
transaction with Bookham, including, among other things,
potential business and operational synergies, strategic
rationale, potential combined company financial model, strategic
fit of the combined company by product line, operations,
customer base, and intellectual property portfolio, and proposed
management team. After Mr. Couder and Mr. Turin left
the meeting, the board further discussed the potential
combination with Bookham. The representatives of Wilson Sonsini
Goodrich & Rosati discussed material terms that had
been agreed to and those that were outstanding in the draft
merger agreement with Bookham. At the conclusion of the meeting,
the board authorized and directed management, with the
assistance of Avanexs advisors, to pursue further
discussions with Bookham and certain other parties as discussed
at the meeting.
79
On January 12, 2009, Dr. Barbarossa and
Mr. Weinswig, together with representatives of
Avanexs financial advisor, met separately with senior
executives of Company D and Company E to exchange information
and to further discuss the possibility of a business combination.
Also on January 12, 2009, Dr. Barbarossa and a senior
executive of Company A spoke by telephone to further discuss the
possibility of a business combination involving the two
companies.
On January 13, 2009, Company E sent Avanex a preliminary,
non-binding indication of interest proposing a combination
transaction in which Avanex stockholders would receive a mix of
cash and shares of Company E common stock and indicating other
terms and conditions of a proposed transaction. Also on
January 13, 2009, Company A and Company D separately sent
Avanex revised non-binding indications of interest with respect
to alternative combination transactions.
Also on January 13, 2009, the Avanex board of directors
held a meeting at which members of management and
representatives of Avanexs legal and financial advisors,
including Avanexs outside intellectual property counsel,
were present. The representatives of Wilson Sonsini
Goodrich & Rosati discussed the directors
fiduciary duties in connection with business combination
transactions. The board discussed with management and
Avanexs legal and financial advisors material aspects of,
and other factors regarding, the proposed combination
transaction with Bookham and the other indications of interest
received. Members of Avanex management and representatives of
Avanexs legal advisor also provided due diligence reports
regarding the proposed transaction with Bookham. The
representatives of Wilson Sonsini Goodrich & Rosati
provided a detailed review of the principal terms of the merger
agreement and voting agreements with Bookham and discussed a
number of material open items in the draft merger agreement. The
board then discussed the potential of contacting Company B to
determine its interest in pursuing a strategic transaction since
it had not responded to Avanexs prior contact in November
2008. At the conclusion of the meeting, the board authorized and
directed management, with the assistance of Avanexs
advisors, to pursue further negotiations and discussions with
Bookham and the other parties as discussed at the meeting.
Also on January 13, 2009, a telephonic meeting of the board
of directors of Bookham was held, which was also attended by
members of Bookhams senior management, representatives of
Bookhams financial advisor, a representative of Cooley
Godward Kronish and a representative of Bookhams outside
securities counsel. The board discussed a number of topics
relating to the possible transaction with Avanex, including the
status and results of due diligence and the material outstanding
issues under the draft merger agreement. In addition,
representatives of Bookhams financial advisor made a
preliminary presentation regarding the fairness of the proposed
exchange ratio to Bookham. Management also discussed with the
Bookham board the strategic rationale for the transaction and
the status of discussions with Avanex and reviewed financial
aspects of the proposed transaction. The Bookham board
authorized management to continue its discussions with Avanex.
On January 14, 2009, Nortel, a large customer of Bookham
and Avanex, announced that it would file for bankruptcy
protection in the United States of America, Canada and Europe.
Later that day, the Avanex board of directors held a meeting at
which members of management and representatives of Avanexs
legal and financial advisors were present. The board discussed
the potential impact of the Nortel bankruptcy announcement on
each of Avanex, Bookham and the combined company and directed
that further due diligence be conducted with respect to the
potential impact of the Nortel bankruptcy on the combined
company. Dr. Barbarossa also provided an update regarding
recent discussions with Bookham and other potential parties to
alternative business combinations. At the conclusion of the
meeting, the board authorized pursuing further discussions and
due diligence investigation with Bookham and continuing
negotiations and discussions with the other parties as discussed
at the meeting.
Later on January 14, 2009 and continuing through
January 26, 2009, Avanex and Bookham continued to perform
due diligence on one another, with additional focus on the
potential effect of the Nortel bankruptcy on the combined
company.
Also on January 14, 2009, Dr. Barbarossa and
Mr. Weinswig, together with representatives of
Avanexs financial advisor, and a senior executive of
Company B spoke by telephone regarding the possibility of a
business combination involving the two companies.
80
On January 15, 2009, at the direction of the Avanex board,
representatives of Avanexs financial advisor contacted a
senior executive of Company D and indicated that, unless Company
D could improve its revised non-binding indication of interest,
Avanex would not be able to continue discussions with Company D
and contacted the respective management teams at Company A and
Company E to encourage them to improve their current non-binding
indications of interest with respect to a combination
transaction with Avanex. Company D did not subsequently provide
Avanex with a revised indication of interest.
Also on January 15, 2009, the board of directors of Bookham
met via teleconference to discuss further the topics that had
been discussed at its meeting on January 13. Members of
Bookhams senior management, together with representatives
of Bookhams financial advisor and a representative of
Cooley Godward Kronish, participated in this meeting. The
Bookham board authorized management to continue its discussions
with Avanex.
On January 19, 2009, Dr. Barbarossa and
Mr. Weinswig, together with representatives of
Avanexs financial advisor, met with senior executives of
Company B to exchange information and to further discuss the
possibility of a business combination involving the two
companies.
On January 20, 2009, the Avanex board of directors held a
meeting at which members of management and representatives of
Avanexs legal and financial advisors were present.
Management discussed the companys due diligence
investigation related to the Nortel bankruptcy announcement and
reviewed financial information under several alternative
scenarios for Avanex and Bookham, both as stand-alone entities
and as a combined company, with respect to forward operating
performance and cash requirements in light of the Nortel
bankruptcy. Also at this meeting, Avanexs financial
advisor reviewed with the board certain financial aspects of the
proposed transaction with Bookham, including certain
sensitivities, based on information provided by the managements
of Avanex and Bookham, regarding potential effects of the Nortel
bankruptcy on Avanex and Bookham. The board also was updated on
discussions with certain other parties to potential alternative
combination transactions. At the conclusion of the meeting, the
board authorized and directed management, with the assistance of
Avanexs advisors, to pursue further negotiations,
discussions and due diligence investigation with Bookham, in
particular to pursue revised transaction terms with Bookham to
reflect the impact of the Nortel bankruptcy, and to continue
negotiations and discussions with certain other parties as
discussed at the meeting.
On January 20 and 21, 2009, Dr. Barbarossa,
Mr. Weinswig and other Avanex executives, together with
representatives of Avanexs financial advisor, spoke by
telephone and met in person with senior executives of Company A
to further discuss the possibility of a business combination
involving the two companies. At the meetings, Company A
executives updated Avanex management on Company As
liquidity situation and its need to raise additional financing.
On January 21, 2009, Dr. Barbarossa informed
Mr. Couder that due to the Nortel bankruptcy, Avanex
believed it was necessary to increase the proposed exchange
ratio. Later that same day, a meeting of the board of directors
of Bookham was held via teleconference, which was also attended
by members of Bookhams senior management, representatives
of Bookhams financial advisor and a representative of
Cooley Godward Kronish. The board discussed, among other
matters, the financial aspects of the proposed transaction,
including the impact (and expected impact) of the Nortel
bankruptcy on Bookham and Avanex. The Bookham board authorized
management to continue its discussions with Avanex and to
increase the proposed exchange ratio within certain parameters.
Also on January 21, 2009, Mr. Couder and Kate Rundle,
Bookhams Executive Vice President and General Counsel, met
with Dr. Barbarossa and Mr. Smith. The parties
discussed valuation and possible exchange ratios for the
proposed business combination transaction, as well as certain
other outstanding material terms. Following discussion, the
parties agreed that, subject to reaching agreement on the other
material terms of the merger agreement and satisfactory
completion of due diligence, they would be prepared to recommend
to their respective boards of directors a transaction pursuant
to which Avanexs stockholders would receive
5.426 shares of Bookham common stock for each outstanding
share of Avanex common stock (which corresponded to an
approximate ownership for Avanexs stockholders of 46.75%
of the combined company). Thereafter and through the execution
of the merger agreement and the voting agreements on
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January 27, 2009, Bookham and Avanex continued to perform
due diligence, negotiate the terms and conditions of the merger
agreement and finalize the disclosure schedules.
Also on January 21, 2009, Dr. Barbarossa spoke by
telephone with a senior executive of Company B, who made a
verbal non-binding indication of interest proposing a
stock-for-stock
transaction, subject to further due diligence.
Dr. Barbarossa asked that the offer be provided in writing
and indicated that due diligence would need to be completed
quickly. Although Company B conducted further due diligence on
Avanex in the following days, and discussions continued between
the management team of Company B and the management team of
Avanex and representatives of Avanexs financial advisor,
Company B did not subsequently provide a written indication of
interest.
On January 22, 2009, at a telephonic meeting of the board
of directors of Bookham, which was also attended by members of
Bookhams senior management, representatives of
Bookhams financial advisor and a representative of Cooley
Godward Kronish, the Bookham board discussed further the topics
that had been discussed at its meeting on January 21. In
addition, representatives of Bookhams financial advisor
discussed with the board additional financial analysis related
to the combination based on the revised exchange ratio. The
Bookham board authorized management to seek to finalize its
negotiations with Avanex.
On January 23, 2009, the acquisition committee of the
Avanex board of directors held a meeting at which members of
management and representatives of Avanexs legal and
financial advisors were present. The acquisition committee was
updated on recent discussions with Bookham and other interested
parties to potential alternative combination transactions,
including the companys due diligence review of the Nortel
bankruptcy and its potential impact on each of Avanex, Bookham
and the combined company, and the current status and material
terms of the non-binding indications of interest received from
certain other parties. The representatives of Wilson Sonsini
Goodrich & Rosati discussed material open items under
negotiation in the draft merger agreement with Bookham and
negotiations regarding the exchange ratio. The acquisition
committee discussed the potential transaction with Bookham and
several alternative combination transactions. Following such
discussion, the acquisition committee directed that discussions
with Company A be halted because of the updated information
received concerning its liquidity situation and need for
additional financing. At the conclusion of the meeting, the
acquisition committee authorized and directed management, with
the assistance of Avanexs advisors, to pursue further
discussions and due diligence investigation with Bookham and
continue discussions with certain other parties to alternative
combination transactions as discussed at the meeting.
Subsequently on January 23, 2009, Company A was informed
that Avanex would not be continuing discussions with Company A
until it had improved its liquidity position.
On January 25, 2009, the Avanex board of directors held a
meeting at which members of management and representatives of
Avanexs legal and financial advisors were present to
discuss the status of negotiations with Bookham, as well as
additional due diligence conducted in connection with the Nortel
bankruptcy. Representatives of Wilson Sonsini
Goodrich & Rosati discussed material terms of the
draft merger agreement with Bookham, including a number of open
items that remained under negotiation. The board also was
updated on the current status and material terms of the
non-binding indications of interest received from the other
parties interested in pursuing a combination transaction. The
board discussed the advantages and disadvantages of the Bookham
proposal as well as these other indications of interest. After
discussion, the board authorized and directed management, with
the assistance of Avanexs advisors, to continue
discussions and due diligence with Bookham and certain other
parties as discussed at the meeting.
On January 26, 2009, representatives of Avanex and Bookham
held a telephone due diligence call to discuss the potential
financial impact of the Nortel bankruptcy announcement on each
party and the combined companies.
In late January 2009, discussions between the management team of
Company E and the management team of Avanex and representatives
of Avanexs financial advisor continued, but Company E did
not subsequently provide a revised indication of interest.
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At various times in January 2009, Mr. Couder and
Mr. Smith discussed communications that had occurred
between the management teams and financial representatives of
Bookham and Avanex with respect to a possible combination of
Bookham and Avanex.
On January 27, 2009, the Avanex board of directors held a
meeting at which members of management and representatives of
Avanexs legal and financial advisors were present.
Management discussed the companys due diligence
investigation, particularly regarding the potential effect of
the Nortel bankruptcy on Bookham, Avanex and the combined
company. The board was updated on the current status of
negotiations and discussions with the other parties interested
in pursuing alternative combination transactions with Avanex, as
well as the material terms of the non-binding indications of
interest received from such parties. It was noted that Avanex
had ceased discussions with Company A because of Company
As liquidity situation, that Company D had not provided a
revised indication of interest after being informed that its
January 13, 2009 indication of interest would need to be
improved, that Company E had engaged in additional discussions
with and conducted due diligence on Avanex but had not provided
a revised indication of interest after being informed that its
January 13, 2009 indication of interest would need to be
improved, and that Company Bs verbal, non-binding
indication of interest had not been subsequently confirmed by
Company B in writing. The board discussed the proposed
transaction with Bookham as compared to the alternative
indications of interest received based on a number of factors,
including, without limitation, the implied equity value per
share of the various offers, the implied premium of the various
offers, potential synergies that may be realized by the combined
companies, the strategic fit of the various parties, the status
of negotiations and discussions and perceived interest of the
various parties, the due diligence conducted by the various
parties to date, the strategic rationale and risks of the
various transactions, the histories of the various parties with
Avanex, timing considerations and the relative regulatory risks
of the potential business combinations. Following such
discussion, representatives of Wilson Sonsini
Goodrich & Rosati discussed the material terms of the
merger agreement and voting agreements with Bookham. Also at
this meeting, Avanexs financial advisor reviewed with
Avanexs board its financial analysis of the exchange ratio
provided for in the merger agreement of 5.426 shares of
Bookham common stock for each outstanding share of Avanex common
stock and delivered to Avanexs board an oral opinion,
which was confirmed by delivery of a written opinion dated
January 27, 2009, to the effect that, as of that date and
based on and subject to various assumptions and limitations
described in its opinion, the exchange ratio provided for in the
merger agreement was fair, from a financial point of view, to
the holders of Avanex common stock. Following these discussions,
and after careful consideration, the board determined that it
was advisable, fair to and in the best interests of Avanex and
its stockholders for the board to approve the merger and enter
into the merger agreement with Bookham. The board then, among
other things, unanimously approved the merger agreement with
Bookham, the merger and the related transactions, and
unanimously resolved to recommend that the stockholders vote in
favor of the adoption of the merger agreement.
Also on January 27, 2009, the board of directors of Bookham
held a special telephonic meeting, which was also attended by
members of Bookham senior management, representatives of
Bookhams financial advisor and a representative of Cooley
Godward Kronish. Management reported to the board on its further
business due diligence findings. A representative of Cooley
Godward Kronish discussed with the board certain changes to the
terms of the merger agreement and voting agreements.
Representatives of Bookhams financial advisor presented
the board with its financial analysis of the proposed
transaction and rendered its oral opinion, subsequently
confirmed in writing, to the Bookham board that, as of such date
and based upon and subject to the assumptions, qualifications
and limitations set forth in the opinion, the exchange ratio,
pursuant to the merger agreement, was fair from a financial
point of view, to Bookham. The Bookham board, after considering
the due diligence findings, and the merits, risks and benefits
of the proposed transaction with Avanex, concluded that the
transaction was fair to and in the best interests of
Bookhams stockholders, and voted to approve the merger
agreement and the merger.
Shortly thereafter, Avanex, Bookham and their representatives
finalized the merger agreement and the disclosure schedules to
the merger agreement, and the parties executed the merger
agreement on January 27, 2009. Also, the directors and
executive officers of Bookham and Avanex entered into their
respective voting agreements, each dated as of January 27,
2009.
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After the stock market closed on January 27, 2009, Avanex
and Bookham issued a joint press release announcing the
execution of the merger agreement and the merger.
Reasons
for the Merger
Mutual
Reasons for the Merger
The boards of directors of Bookham and Avanex identified and
considered many factors in evaluating the merger, including the
following:
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Creating Synergies and Cost Saving
Opportunities. The integration of the product
lines, supply chains, administrative functions and sales teams
of the combined companies is expected to result in cost savings
synergies and continuing increases in gross margins, both of
which are expected to improve Bookhams operating results.
Both companies believe that the combination of the two companies
will create synergies that are expected to improve financial
performance faster than either of the two companies could
accomplish on a stand-alone basis. It is expected that the
combination will result in increased earnings before interest,
taxes, depreciation and amortization, or EBITDA, accretive in
the first full quarter after the consummation of the merger and
will generate approximately $7 million of quarterly cost
savings by the end of the fourth full quarter after the
consummation of the merger. Moreover, the combined company is
expected to have a better cash position after 12 months
following the merger than the combination of the cash position
of the two companies on a stand-alone basis at that time.
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Integration of Product Lines Resulting in Scale to Better
Compete. Both companies believe that the
combination of the two companies with their technologies and
capabilities will result in a stronger company with a more
complete and broader product offering than either company would
have on a stand-alone basis. A broader product line is expected
to allow the combined company to better serve a broader customer
base.
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Leader in the metro and long-haul
markets. Both companies believe that the
combination of the two companies will create a leader in the
metro and long-haul markets of the optical industry. As a result
of the merger, the combined company will have a comprehensive
portfolio of terminal and line product technologies that are
critical for the metro and long-haul markets. Individually, each
company has at times lacked scale, but together the combined
company is expected to represent a key supplier within the metro
and long-haul sector of the optical industry.
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Utilizing and Integrating Complementary
Businesses. There is little overlap between the
businesses of Bookham and Avanex. Both companies believe that
each companys strong offerings are complementary to the
other companys products in areas where the other company
is not as strong. Avanex primarily brings leadership in modules
such as controlled amplifiers and integrated subsystems and
Bookham primarily brings leadership in chips and component
excellence and tunable products. Moreover, both companies
believe that integration of more functionality within a single
form factor (be it chip, package, module or system card) will be
a key to driving down production costs while improving product
performance.
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Integration of Technologies and IP. Both
companies possess strong intellectual property portfolios and
together the combined portfolio is even stronger. The companies
expect that the combined companys technological
capabilities will support more rapid development of next
generation products, which could improve the combined
companys competitive position in its target markets.
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Expansion of Sales Opportunities. Since there
is very little overlap between the businesses of the companies
and since the companies have complementary customer bases and
relationships, both companies believe that the combination will
allow them to quickly expand and improve sales opportunities and
service to their customers.
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Maximizing Research and Development
Resources. The combination will allow the
combined company to streamline research and development
resources as opposed to pursuing the same research and
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development projects as stand-alone companies. Both companies
believe that combining the creative and operational capacities
of the two companies will allow Bookham and Avanex to better
serve customers by accelerating innovations. Both companies
believe that the combined company will have significant
opportunity to grow in both new and existing markets.
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Utilizing a Combination of Manufacturing
Methods. Both companies believe that the
combination will allow them to leverage both in-house and
outsourced manufacturing capacity to maximize flexibility,
responsiveness to customers and gross margin opportunities.
Avanexs manufacturing activity is primarily based on
outsourcing. Bookhams manufacturing activities are
vertically integrated and are primarily handled by Bookham. The
combination of these two methods is expected to result in an
efficient combination of outsourcing and vertically integrated
manufacturing.
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Enhanced Geographical Footprint. From a
geographic standpoint, the combination is expected to enhance
the strength of the geographic footprint of the combined
company. For example, Avanex has established sales teams in
Japan and Italy, whereas Bookham has established sales teams in
the United Kingdom and China. Each company will be able to enjoy
the benefits of an established team in countries where the other
company has strong established team.
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Experienced Management Team. It is expected
that the combined company will be led by a combination of
experienced senior management from both Bookham and Avanex,
which will provide management continuity to support the
integration of the two companies.
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Combined Board Representation. The board of
directors of the combined company will also enjoy the experience
and skills of certain members of the board of each of Bookham
and Avanex.
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Bookhams
Reasons for the Merger
In addition to considering the strategic factors outlined above,
the Bookham board of directors consulted with senior management,
outside legal counsel and its financial advisor, reviewed a
significant amount of information, and considered the following
factors in reaching its conclusion to approve the merger and to
recommend that the Bookham stockholders approve the issuance of
shares of Bookham common stock in the merger and the amendment
to Bookhams restated certificate of incorporation to
increase the number of authorized shares of Bookham common
stock, all of which it viewed as generally supporting its
decision to approve the business combination with Avanex:
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the complementary nature of Bookhams and Avanexs
product lines;
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the potential opportunity for the two companies to integrate
their products to meet a wider set of customer needs and to
combine their technological resources to develop new products
with increased functionality and bring them to market faster;
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the boards and managements assessment that the
merger and Avanexs operating strategy are consistent with
Bookhams long-term strategic objectives to grow into new
markets;
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the competitive and market environments in which Bookham and
Avanex operate, and the potential for the merger to enhance
Bookhams ability to compete effectively in those
environments, particularly given current adverse economic
conditions;
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historical and current information about each of the combining
companies and their businesses, prospects, financial performance
and condition, operations, technology, management and
competitive position, before and after giving effect to the
merger and the mergers potential effect on stockholder
value, including public reports filed with the SEC, analyst
estimates, market data and managements knowledge of the
industry;
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the opinion of Bookhams financial advisor that, as of
January 27, 2009 and based on and subject to the
assumptions, limitations, qualifications and other matters set
forth in the opinion, the exchange ratio of 5.426 shares of
Bookham common stock to be issued in exchange for each share of
Avanex common
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stock pursuant to the merger agreement was fair to Bookham from
a financial point of view, and the related financial analyses
and presentations;
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the potential improvement in the share price of Bookham common
stock as a result of the cost savings synergies and improved
operating results, thus enhancing stockholders value;
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the results of discussions and negotiations with other parties
regarding potential alternative combination transactions and the
potential value of such alternatives to the stockholders of
Bookham and the risk of successfully consummating such a
transaction;
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the results of the due diligence review of Avanexs
business and operations by Bookhams management, legal
advisors and financial advisors;
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the terms and conditions of the merger agreement, including the
following related factors:
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the determination that an exchange ratio that is fixed and not
subject to adjustment is appropriate to reflect the strategic
purpose of the merger and consistent with market practice for a
merger of this type and that a fixed exchange ratio fairly
captures the respective ownership interests of the Bookham and
Avanex stockholders in the combined company based on valuations
of Bookham and Avanex at the time of the boards approval
of the merger agreement and avoids fluctuations caused by
near-term market volatility;
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the reciprocal requirement that the merger agreement be
submitted to a vote of the stockholders of Avanex and that the
issuance of shares of Bookham common stock in the merger and the
amendment to Bookhams restated certificate of
incorporation to increase the number of authorized shares of
Bookham common stock be submitted to a vote of the stockholders
of Bookham;
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the fact that the merger agreement is not subject to termination
solely as a result of any change in the trading price of either
Bookhams or Avanexs stock between signing of the
merger agreement and consummation of the merger;
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the nature of the conditions to Avanexs obligation to
consummate the merger and the limited risk of non-satisfaction
of such conditions;
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the no-solicitation provisions governing Avanexs ability
to engage in negotiations with, provide any confidential
information or data to, and otherwise have discussions with, any
person relating to an alternative acquisition proposal;
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the limited ability of the parties to terminate the merger
agreement; and
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the possible effects of the provisions regarding termination
fees and expenses;
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the likelihood that the merger will be consummated on a timely
basis; and
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the likelihood of retaining key Bookham and Avanex employees to
help manage the combined entity.
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The Bookham board of directors also considered the potential
risks of the merger, including the following:
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the risks, challenges and costs inherent in combining the
operations of two major companies and the substantial expenses
to be incurred in connection with the merger, including the
possibility that delays or difficulties in completing the
integration could adversely affect the combined companys
operating results and preclude the achievement of some benefits
anticipated from the merger;
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the possible volatility, at least in the short term, of the
trading price of Bookhams common stock resulting from the
merger announcement;
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the possible loss of key management, technical or other
personnel of either of the combining companies as a result of
the management and other changes that will be implemented in
integrating the businesses;
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the risk of diverting managements attention from other
strategic priorities to implement merger integration efforts;
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the negative impact of any delays in purchase commitments after
the announcement of the merger;
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the potential loss of one or more large customers or partners of
either company as a result of any such customers or
partners unwillingness to do business with the combined
company;
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the possibility that the reactions of existing and potential
competitors to the combination of the two businesses could
adversely impact the competitive environment in which the
companies operate;
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the risk that the merger might not be consummated in a timely
manner, or at all;
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the risk to Bookhams business, sales, operations and
financial results in the event that the merger is not
consummated;
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the risk that the anticipated benefits of product integration
and interoperability and cost savings will not be realized;
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the potential incompatibility of business cultures; and
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various other applicable risks associated with the combined
company and the merger, including those described in the section
of this joint proxy statement/prospectus entitled Risk
Factors.
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The foregoing information and factors considered by the Bookham
board of directors are not intended to be exhaustive but are
believed to include all of the material factors considered by
the Bookham board of directors. In view of the wide variety of
factors considered in connection with its evaluation of the
merger and the complexity of these matters, the Bookham board of
directors did not find it useful, and did not attempt, to
quantify, rank or otherwise assign relative weights to these
factors. In considering the factors described above, individual
members of the Bookham board of directors may have given
different weight to different factors. The Bookham board of
directors conducted an overall analysis of the factors described
above, including thorough discussions with, and questioning of,
Bookhams management and Bookhams legal and financial
advisors, and considered the factors overall to be favorable to,
and to support, its determination.
Avanexs
Reasons for the Merger
The Avanex board of directors consulted with senior management,
outside legal counsel and Avanexs financial advisor in
evaluating the merger. In addition to considering the strategic
factors outlined above, the Avanex board considered a number of
factors in reaching its conclusion to approve the merger and to
recommend that the Avanex stockholders adopt the merger
agreement, including, but not limited to:
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the strategic rationale for the merger and the potential
benefits of the contemplated transaction;
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the possible alternatives to the merger, including the
possibility of continuing to operate as an independent entity
and the perceived risks thereof, and the potential for an
alternative combination transaction to the merger based upon the
discussions held by Avanex and senior management, with the
assistance of Avanexs financial advisor, with a number of
potential strategic partners over a period of several months;
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managements assessment of the potential competitive
advantages and operational and other synergies that potentially
could be realized from a number of alternative strategic
combinations;
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the current and historical market prices of Avanexs and
Bookhams common stock, and the current and historical
market prices of Avanexs and Bookhams common stock
relative to those of other industry participants and general
market indices, including the fact that the 5.426 shares of
Bookham common stock for each share of Avanex common stock
(which, based on the closing price of Bookham on
January 26, 2009, would be equivalent to $35.4 million
in the aggregate or $2.17 per share) to be paid as the
consideration in the merger represented an implied premium over
the implied current and historical exchange ratios over the
30-day,
60-day, and
90-day
trading periods ended January 26, 2009 (the last trading
day prior to the public announcement of the merger);
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managements dealings with other parties regarding
potential alternative combination transactions and the potential
value of such alternatives to the stockholders of Avanex and the
risk of successfully consummating such a transaction;
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the current and prospective environment in which Avanex
operates, including the global macroeconomic recessionary
economy, the competitive environment, reductions in expenditures
by Avanexs customers, the trend toward consolidation in
the optical components industry and the corresponding effect on
Avanexs revenues, the importance of scale in the
increasingly competitive market environments in which Avanex
operates, and the potential for the merger to enhance
Avanexs ability to compete effectively in those
environments, and the likely effect of these factors on
Avanexs potential growth, development, productivity,
profitability and strategic options;
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current and historical information concerning Avanexs and
Bookhams respective businesses, operations, management,
financial performance and conditions, technology, operations,
prospects and competitive position, before and after giving
effect to the merger and the mergers potential effect on
stockholder value;
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the potential business, operational and financial synergies that
may be realized over time by the combined company following the
merger;
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the results of the due diligence review of Bookhams
business and operations;
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the likelihood that the merger will be completed, including the
lack of antitrust review of the merger;
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current financial market conditions and historical market
prices, volatility and trading information with respect to
Avanexs and Bookhams common stock;
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the terms of the merger agreement, including the parties
representations, warranties and covenants, and the conditions to
their respective obligations; and
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the consideration to be received by Avanexs stockholders
in the merger, including the form of such consideration, which
enables Avanexs stockholders to continue to have a
substantial equity interest in the combined company following
the merger, as well as the fact that the shares of Bookham
common stock to be received by Avanexs stockholders will
be received in a tax-free exchange and would be registered on
Form S-4
and will be freely tradable for Avanex stockholders who are not
affiliates of Bookham.
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The Avanex board of directors also identified and considered a
number of positive factors in its deliberations concerning
whether to approve the merger and enter into the merger
agreement, including, but not limited to:
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discussions with Avanexs management team regarding
Avanexs and Bookhams respective businesses,
financial performance and condition, technology, operations,
competitive position, business strategy, strategic objectives
and options and prospects, as well as risks involved in
achieving these objectives; the nature of Avanexs and
Bookhams respective businesses and the industry in which
Avanex and Bookham compete; and current industry, economic and
global market conditions, both on a historical and on a
prospective basis, all of which led the board of directors to
conclude that the merger presented an opportunity for the
stockholders of Avanex to realize greater value than the value
likely to be realized by stockholders in the event Avanex
remained independent;
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a review of the possible alternatives to a sale of Avanex,
including remaining independent and growing the business
organically, pursuing a strategy of growth through acquisitions
or pursuing corporate alliances; the value to the stockholders
of Avanex of such alternatives; and the timing and likelihood of
actually achieving additional value from these alternatives;
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specifically in connection with the potential combination
transaction alternatives with other potential parties that were
considered by Avanex, that such transactions did not clearly
offer greater value to the stockholders of Avanex and would
involve more risk for a successful negotiation and consummation
of the transaction;
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the risks associated with remaining an independent company,
including increased competition, industry consolidation trends,
difficulties of achieving scale, the significant and increasing
cost of complying with obligations as a publicly traded company,
anticipated operating performance and a review of ongoing
product development initiatives;
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the belief by management that the merger would allow for
enhanced products and opportunities for Avanexs partners,
clients and customers, and managements view that the
relatively limited overlap between Avanex and Bookham would
minimize the impact of the merger on the customers and employees
of Avanex;
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the value of the consideration to be paid in connection with the
merger as analyzed through various valuation methodologies,
including among others implied exchange ratio analysis, selected
publicly traded companies analysis, selected precedent
transactions analysis, and contribution analysis, including, in
certain cases, taking into account certain sensitivities implied
by the bankruptcy of Nortel Networks Corporation;
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the assessment, based on managements negotiations and
discussions with other parties to alternative potential
combination transactions during the course of negotiations with
Bookham, of the relative value of such potential combination
transactions and the synergies that may be realized by the
business combinations;
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the opinion of Avanexs financial advisor, dated
January 27, 2009, to Avanexs board of directors as to
the fairness, from a financial point of view and as of the date
of the opinion, of the exchange ratio provided for in the merger
agreement of 5.426 shares of Bookham common stock for each
outstanding share of Avanex common stock, as more fully
described below in the section Opinion of
Avanexs Financial Advisor on page 96;
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the fact that the merger would be subject to the approval of the
stockholders of Avanex and that if an alternative offer
affording greater value to Avanexs stockholders were to be
made to the stockholders prior to the completion of the merger,
the stockholders could elect not to adopt the merger agreement,
and that the board of directors could change its recommendation
regarding the merger in certain circumstances; and
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the belief that the terms and conditions of the merger
agreement, including the parties mutual representations,
warranties and covenants, deal support provisions, and closing
conditions, are reasonable for a transaction of this
nature, and
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the prospects for successful consummation of the transaction are
high.
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The Avanex board of directors also identified and considered a
variety of risks and other countervailing factors in its
deliberations concerning whether to approve the merger and enter
into the merger agreement, including, but not limited to:
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the inability of Avanexs stockholders to realize the
long-term value of the successful execution of Avanexs
current strategy as an independent company;
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the possibility that the merger might not be completed and the
potential effects of the public announcement and pendency of the
merger on management attention, Avanexs ability to retain
employees, Avanexs relationship with certain customers,
suppliers and strategic partners, and Avanexs sales,
operating results and stock price and Avanexs ability to
attract and retain key management and sales, marketing and
technical personnel;
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the risks of integrating the businesses of the combined
companies and management and employee disruption associated with
the merger, including the risks that the integration of the two
companies management and cultures might not be
accomplished quickly or smoothly and that despite the efforts of
the combined company, key personnel might not remain employed by
the combined company;
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the fact that because of the fixed exchange ratio of
5.426 shares of Bookham common stock for each share of
Avanex common stock (which, based on the closing price of
Bookham on January 26, 2009,
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would be equivalent to $35.4 million in the aggregate or
$2.17 per share), if Bookhams share price declines prior
to the consummation of the merger, the consideration to be
received by the stockholders of Avanex would also decline;
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the recent trading values of Avanexs common stock in the
current recessionary environment relative to trading values of
Avanexs common stock in prior periods;
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the restrictions the merger agreement imposes on soliciting
competing bids and the fact that Avanex may be obligated to pay
to Bookham the $1.64 million termination fee under
specified circumstances, or reimburse expenses of Bookham up to
a maximum of $1.0 million in the event that the
stockholders of Avanex do not adopt the merger agreement and the
possibility that this termination fee could discourage a
competing proposal to acquire Avanex or reduce the price in an
alternative transaction;
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the restrictions the merger agreement imposes on the operations
of Avanex during the period between the signing of the merger
agreement and the completion of the merger and the fact that,
should the merger not occur, such restrictions could have had an
adverse effect on the operations of Avanex during such time;
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the fact that the merger agreement precludes Avanex from
actively soliciting alternative proposals;
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the fact that certain of the directors and executive officers of
Avanex may have conflicts of interest in connection with the
merger, as they may receive certain benefits that are different
from, and in addition to, those of the other stockholders of
Avanex;
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that, while the merger is expected to be completed, there can be
no assurance that all conditions to the parties
obligations to complete the merger will be satisfied, and as a
result, it is possible that the merger may not be completed,
even if the merger agreement is adopted by the stockholders of
Avanex; and
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various other applicable risks associated with the combined
company and the merger.
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The foregoing information and factors considered by the Avanex
board of directors are not intended to be exhaustive but are
believed to include all of the material factors considered by
the Avanex board of directors. In view of the wide variety of
factors considered in connection with its evaluation of the
merger and the complexity of these matters, the Avanex board of
directors did not find it useful, and did not attempt, to
quantify, rank or otherwise assign relative weights to these
factors. In considering the factors described above, individual
members of the Avanex board of directors may have given
different weight to different factors. The Avanex board of
directors conducted an overall review of the factors described
above, including discussions with Avanexs management and
legal and financial advisors, and considered the factors overall
to be favorable to, and to support, its determination.
Opinion
of Bookhams Financial Advisor
Citigroup Global Markets Inc., or Citi, was retained to act as
financial adviser to Bookham in connection with the merger.
Pursuant to Bookhams engagement letter agreement with
Citi, dated October 1, 2008, Citi rendered an opinion to
the Bookham board of directors on January 27, 2009 to the
effect that, as of the date of the opinion, and based upon and
subject to the considerations and limitations set forth in the
opinion, Citis work described below and other factors Citi
deemed relevant, the exchange ratio was fair, from a financial
point of view, to Bookham.
The full text of Citis opinion, which sets forth the
assumptions made, general procedures followed, matters
considered and limits on the review undertaken, is included as
Annex D to this document. The summary of Citis
opinion set forth below is qualified in its entirety by
reference to the full text of the opinion. Holders of Bookham
common stock are urged to read the Citi opinion carefully and in
its entirety.
Citis opinion was limited solely to the fairness of the
exchange ratio from a financial point of view as of the date of
the opinion. Neither Citis opinion nor the related
analyses constituted a
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recommendation of the proposed merger to the Bookham board of
directors or any holder of Bookham common stock. Citi makes no
recommendation to any holder of Bookham common stock regarding
how such holder should vote with respect to the merger.
In arriving at its opinion, Citi reviewed the merger agreement
and held discussions with certain senior officers, directors and
other representatives and advisers of Bookham and certain senior
officers and other representatives and advisers of Avanex
concerning the businesses, operations and prospects of Bookham
and Avanex. Citi examined certain publicly available business
and financial information relating to Bookham and Avanex as well
as certain financial forecasts and other information and data
relating to Bookham and Avanex that were provided to, or
otherwise reviewed by or discussed with, Citi by the managements
of Bookham and Avanex. Citi reviewed the financial terms of the
merger as set forth in the merger agreement in relation to,
among other things: current and historical market prices and
trading volumes of Bookham common stock and Avanex common stock;
the historical and projected earnings and other operating data
of Bookham and Avanex; and the capitalization and financial
condition of Bookham and Avanex. Citi considered, to the extent
publicly available, the financial terms of certain other
transactions that Citi considered relevant in evaluating the
merger and analyzed certain financial, stock market and other
publicly available information relating to the businesses of
other companies whose operations Citi considered relevant in
evaluating those of Bookham and Avanex. Citi also evaluated
certain potential pro forma financial effects of the merger. In
addition to the foregoing, Citi conducted such other analyses
and examinations and considered such other information and
financial, economic and market criteria as Citi deemed
appropriate in arriving at its opinion. The issuance of
Citis opinion has been authorized by Citis fairness
opinion committee.
In rendering its opinion, Citi assumed and relied, without
independent verification, upon the accuracy and completeness of
all financial and other information and data publicly available
or provided to or otherwise reviewed by or discussed with it and
upon the assurances of the respective managements of Bookham and
Avanex that they were not aware of any information relevant to
Citis analysis that had been omitted or remained
undisclosed to Citi. With respect to financial forecasts and
other information and data relating to Bookham and Avanex
provided to or otherwise reviewed by or discussed with it, Citi
was advised by the respective managements of Bookham and Avanex
that such forecasts and other information and data were
reasonably prepared on bases reflecting the best currently
available estimates and judgments of the managements of Bookham
and Avanex as to the future financial performance of Bookham and
Avanex. Citi was informed by the respective managements of
Bookham and Avanex that financial projections did not exist for
any period after March 31, 2010 and, therefore, with the
consent of the management of Bookham, Citi did not perform
discounted cash flow analyses with respect to Bookham or Avanex.
Citi assumed, with the consent of the Bookham board of
directors, that the merger will be consummated in accordance
with the terms of the merger agreement reviewed by Citi, without
waiver, modification or amendment of any material term,
condition or agreement and that, in the course of obtaining the
necessary regulatory or third party approvals, consents and
releases for the merger, no delay, limitation, restriction or
condition will be imposed that would have an adverse effect on
Bookham, Avanex or the merger. Citi also assumed, with the
consent of the Bookham board of directors, that the merger will
be treated as a tax-free reorganization for federal income tax
purposes. Citis opinion is related to the relative values
of Bookham and Avanex. Citi did not express any opinion as to
what the value of the Bookham common stock actually will be when
issued pursuant to the merger or the price at which the Bookham
common stock will trade at any time.
Citi did not make and was not provided with an independent
evaluation or appraisal of the assets or liabilities (contingent
or otherwise) of Bookham or Avanex, nor did Citi make any
physical inspection of the properties or assets of Bookham or
Avanex. Citi was not requested to, and did not, solicit
third-party indications of interest in the possible acquisition
of all or a part of Bookham. Citi expresses no view as to, and
Citis opinion does not address, the underlying business
decision of Bookham to effect the merger, the relative merits of
the merger as compared to any alternative business strategies
that might exist for Bookham or the effect of any other
transaction in which Bookham might engage. Citi also expresses
no view as to, and its opinion does not address, the fairness
(financial or otherwise) of the amount or nature or any other
aspect of any compensation to any officers, directors or
employees of any parties to the merger, or any class of such
persons, relative to the exchange ratio. Citis opinion
does not address the terms of any agreement entered into
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in connection with the merger other than the merger agreement to
the extent described herein. Citis opinion was necessarily
based upon information available to it, and financial, stock
market and other conditions and circumstances existing, as of
the date of its opinion.
The following is a summary of the material financial analyses
presented to the Bookham board of directors in connection with
Citis opinion on January 27, 2009. The summary
includes information presented in tabular format. In order to
understand fully the financial analyses used by Citi, these
tables must be read together with the text of each summary. The
tables alone do not constitute a complete description of the
financial analyses.
The following quantitative information, to the extent it is
based on market data, is, except as otherwise indicated, based
on market data as it existed at or prior to January 27,
2009, and is not necessarily indicative of current or future
market conditions.
Historical
Exchange Ratio Analysis
Citi derived implied historical exchange ratios by dividing the
closing price per share of Avanex common stock by the closing
price per share of Bookham common stock for each trading day in
the period from January 26, 2006 through January 26,
2009, the three years prior to announcement of the transaction.
Citi noted the average implied exchange ratios over the
following periods:
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Average Implied
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Time Period
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Exchange Ratio
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1 Year Average Implied Exchange Ratio
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January 25, 2008 January 26, 2009
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5.832
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x
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2 Year Average Implied Exchange Ratio
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January 26, 2007 January 26, 2009
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7.941
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3 Year Average Implied Exchange Ratio
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January 26, 2006 January 26, 2009
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|
|
|
7.513
|
x
|
Citi derived a reference range based on the lowest and highest
implied exchange ratio over the last twelve months prior to
announcement of the transaction, 1.955x to 10.030x.
Relative
Contribution Analysis
Citi performed analyses of the relative revenue and cash
contributions of Bookham and Avanex. The purpose of the relative
contribution analyses was to derive implied exchange ratios by
determining the relative implied contributions of Bookham and
Avanex to the revenue and cash balance of the pro forma combined
entity based on each companys revenue and cash balance.
Citi utilized publicly available information and forecasts
prepared by the managements of Bookham and Avanex for the
revenue and cash metrics.
Citi performed analyses of the relative revenue contributions of
Bookham and Avanex to the pro forma combined company with
respect to the following periods:
|
|
|
|
|
projected revenue for the fiscal quarter ended December 31,
20081;
|
|
|
|
projected revenue for the last twelve months as of
December 31,
20081;
|
|
|
|
projected revenue for the fiscal quarter ending March 31,
2009; and
|
|
|
|
projected revenue for calendar year ending December 31,
2009.
|
Management of Bookham and of Avanex prepared two sets of
financial projections for calendar year 2009, utilizing
different assumptions regarding future market conditions. These
sets of assumptions are referred to as Case 1 and
Case 2.
1 Actual
revenue numbers for the fiscal quarter ended December 31,
2008 were not yet available.
92
The following table sets forth the results of Citis
analyses of the relative contributions of Bookham and Avanex to
the combined pro forma entity:
|
|
|
|
|
|
|
|
|
|
|
Implied
|
|
Implied
|
|
|
Contribution of
|
|
Contribution of
|
Financial Metric
|
|
Bookham
|
|
Avanex
|
|
Projected Revenue for the Fiscal Quarter ended December 31,
2008
|
|
|
57.1
|
%
|
|
|
42.9
|
%
|
Projected Revenue for the Last Twelve Months as of
December 31, 2008
|
|
|
56.5
|
%
|
|
|
43.5
|
%
|
Projected Revenue for the Fiscal Quarter Ending March 31,
2009
|
|
|
61.3
|
%
|
|
|
38.7
|
%
|
Projected Revenue for the Calendar Year ending December 31,
2009 (Case 1)
|
|
|
60.3
|
%
|
|
|
39.7
|
%
|
Projected Revenue for the Calendar Year Ending December 31,
2009 (Case 2)
|
|
|
61.1
|
%
|
|
|
38.9
|
%
|
Based on this analysis, Citi derived a reference range for the
implied exchange ratio of 3.963x to 4.860x.
Citi also performed analyses of the relative cash contributions
of Bookham and Avanex to the cash balance of the pro forma
combined company. For this analysis, Citi utilized the
preliminary cash balances for December 31, 2008 and
projected cash balances as of March 31, 2009, as provided
by the managements of Bookham and Avanex.
The following table sets forth the results of Citis
analyses of the relative cash contributions of Bookham and
Avanex to the combined pro forma entity:
|
|
|
|
|
|
|
|
|
|
|
Implied
|
|
Implied
|
|
|
Contribution of
|
|
Contribution of
|
Financial Metric
|
|
Bookham
|
|
Avanex
|
|
December 31, 2008 Preliminary Cash Balance
|
|
|
54.5
|
%
|
|
|
45.5
|
%
|
Projected March 31, 2009 Cash Balance
|
|
|
55.1
|
%
|
|
|
44.9
|
%
|
Based on this analysis, Citi derived a reference range for the
implied exchange ratio of 4.860x to 5.719x.
Comparable
Companies Valuation
Citi compared stock market and historical and projected
operating and financial data for selected publicly traded
companies that Citi deemed appropriate with similar information
for each of Bookham and Avanex. The selected comparable
companies considered by Citi were:
|
|
|
|
|
JDS Uniphase Corporation;
|
|
|
|
Finisar Corporation;
|
|
|
|
Opnext, Inc.; and
|
|
|
|
Oplink Communications, Inc.
|
The forecasted financial information used by Citi in the course
of this analysis with respect to Bookham and Avanex was based on
forecasts prepared by the managements of the respective
companies and Reuters consensus estimates. The forecasted
financial information used by Citi in the course of this
analysis for each of the comparable companies was based on
information published by Factset and Reuters consensus
estimates. The historical financial information used by Citi in
the course of this analysis was based on publicly available
historical information. Calculations were made based on the
closing price per share of each companys stock as of
January 26, 2009.
For each of the selected comparable companies, Bookham and
Avanex, Citi derived and compared, among other things, equity
value as a multiple of each of:
|
|
|
|
|
revenue for the last quarter annualized;
|
93
|
|
|
|
|
projected revenue for the 2009 calendar year; and
|
|
|
|
cash.
|
Equity value was calculated as the sum of all shares of common
stock, assuming the exercise of all in-the-money options and the
conversion of in-the-money convertible securities, times the
closing share price as of January 26, 2009, less the
proceeds from the exercise of such in-the-money options.
Citi performed this analysis with respect to Avanex based on
both the market value of Avanex common stock and the price of
Avanex common stock price derived using the exchange ratio in
the merger.
The results of this analysis were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Value / Revenue
|
|
Equity Value /
|
|
|
LQA
|
|
CY 2009E
|
|
Cash
|
|
Comparable Companies Median
|
|
|
0.5
|
x
|
|
|
0.4
|
x
|
|
|
1.0
|
x
|
Comparable Companies Mean
|
|
|
0.6
|
x
|
|
|
0.6
|
x
|
|
|
1.6
|
x
|
Bookham
|
|
|
0.2
|
x
|
|
|
0.2
|
x
|
|
|
0.9
|
x
|
Avanex (valued at market)
|
|
|
0.1
|
x
|
|
|
0.1
|
x
|
|
|
0.4
|
x
|
Avanex (value based on exchange ratio)
|
|
|
0.2
|
x
|
|
|
0.2
|
x
|
|
|
0.7
|
x
|
Citi applied the results of this analysis to historical and
projected revenue for Bookham and Avanex to determine implied
equity value and implied value per share for both Bookham and
Avanex. Based on this analysis, Citi derived a reference range
for the implied exchange ratio of 2.521x to 7.437x.
Precedent
Transactions Analysis
Citi reviewed publicly available information for merger and
acquisition transactions in the optical component industry in
two groups: optical components transactions consummated during
the prior economic downturn of
2002-2003
and recent optical components transactions.
The selected precedent transactions considered were:
Transaction
(Announcement Date: Acquiror / Target)
Optical Components Transactions from
2002-2003
Economic Downturn
|
|
|
|
|
05/12/03:
Avanex / Alcatel and Cornings Optical Divisions
|
|
|
|
01/22/03:
Emcore Corporation / Agere Systems Inc. (Ortel
Division)
|
|
|
|
10/22/02:
TriQuint Semiconductor / Agere Systems Inc.
(Optoelectronics Division)
|
|
|
|
10/07/02:
Bookham / Nortel Networks Inc. (HPOCs Division)
|
Recent Optical Components Transactions
|
|
|
|
|
07/09/08:
Opnext, Inc. / StrataLight Communications Inc.
|
|
|
|
05/16/08:
Finisar Corporation / Optium Corporation
|
|
|
|
01/07/08:
JDS Uniphase Corporation / Westover Scientific (Fiber
Division)
|
|
|
|
12/18/07:
Emcore Corporation / Intel Optical Platform (Telecom
Business)
|
|
|
|
05/14/07:
Emerson Electric Co. / Stratos International
|
|
|
|
04/23/07:
Oplink Communications. Inc. / Optical Communications
Products
|
|
|
|
03/26/07:
Finisar Corporation / Kodeos Communications
|
|
|
|
03/26/07:
Finisar Corporation / AZNA
|
|
|
|
02/27/07:
JDS Uniphase Corporation / Picolight, Inc.
|
94
|
|
|
|
|
01/26/07:
MRV Communications, Inc. / Fiberxon, Inc.
|
With respect to the financial information for the companies
involved in the selected precedent transactions, Citi relied on
information available in public filings, company press releases
and publicly available information from Mergermarket. For the
selected transactions noted above Citi derived and compared,
among other things, the ratio of the firm value paid in the
transaction to both the revenue for the last twelve months prior
to announcement of the transaction and to the forecasted revenue
for the twelve months following announcement of the transaction.
The results of these analyses were as follows:
|
|
|
|
|
|
|
|
|
|
|
Firm Value / LTM Rev
|
|
|
Firm Value / NTM Rev
|
|
|
|
|
Optical Components Transactions from 2002-2003 Economic
Downturn
|
High
|
|
|
0.8x
|
|
|
|
Not Available
|
|
Mean
|
|
|
0.4x
|
|
|
|
Not Available
|
|
Median
|
|
|
0.4x
|
|
|
|
Not Available
|
|
Low
|
|
|
0.2x
|
|
|
|
Not Available
|
|
|
|
|
Recent Optical Components Transactions
|
|
|
|
|
|
High
|
|
|
3.3x
|
|
|
|
1.3
|
x
|
Mean
|
|
|
1.8x
|
|
|
|
0.9
|
x
|
Median
|
|
|
1.4x
|
|
|
|
0.8
|
x
|
Low
|
|
|
0.8x
|
|
|
|
0.6
|
x
|
Citi applied the results of this analysis to historical and
projected revenue for Avanex to determine: the ranges of implied
firm value, the ranges of implied equity value, and the ranges
of implied value per share for Avanex. The projected revenue for
Avanex used in these analyses was based on forecasts prepared by
management and Reuters consensus estimates.
Based on these analyses, Citi derived a reference range of
implied exchange ratios of 4.664x to 10.714x.
Citis advisory services and opinion were provided for
the information of the Bookham board of directors in its
evaluation of the merger and did not constitute a recommendation
of the merger to Bookham or a recommendation to any holder of
Bookham common stock as to how that holder should vote on any
matters relating to the merger.
The preceding discussion is a summary of the material financial
analyses furnished by Citi to the Bookham board of directors,
but it does not purport to be a complete description of the
analyses performed by Citi or of its presentation to the Bookham
board of directors. The preparation of financial analyses and
fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to partial analysis
or summary description. Citi made no attempt to assign specific
weights to particular analyses or factors considered, but rather
made qualitative judgments as to the significance and relevance
of all the analyses and factors considered and determined to
give its fairness opinion as described above. Accordingly, Citi
believes that its analyses, and the summary set forth above,
must be considered as a whole, and that selecting portions of
the analyses and of the factors considered by Citi, without
considering all of the analyses and factors, could create a
misleading or incomplete view of the processes underlying the
analyses conducted by Citi and its opinion. With regard to the
comparable companies and precedent transaction analyses
summarized above, Citi selected comparable public companies and
precedent transactions on the basis of various factors,
including size and similarity of the line of business of the
relevant entities and the general economic climate in which the
precedent transaction was consummated; however, no company
utilized in this analysis is identical to Bookham or Avanex and
no precedent transaction is identical to the merger. As a
result, these analyses are not purely mathematical, but also
take into account differences in financial and operating
characteristics of the subject companies and other factors that
could affect the transaction or the public trading value of the
subject companies to which Bookham or Avanex is being compared.
In its analyses, Citi made numerous assumptions with respect to
Bookham, Avanex, industry performance, general business,
economic, market and financial conditions and other matters,
many of which are beyond the control of Bookham and Avanex. Any
estimates contained in Citis analyses are not necessarily
indicative of
95
actual values or predictive of future results or values, which
may be significantly more or less favorable than those suggested
by these analyses. Estimates of values of companies do not
purport to be appraisals or necessarily to reflect the prices at
which companies may actually be sold. Because these estimates
are inherently subject to uncertainty, none of Bookham, Avanex,
the Bookham board of directors, the Avanex board of directors,
Citi or any other person assumes responsibility if future
results or actual values differ materially from the estimates.
Citis analyses were prepared solely as part of Citis
analysis of the fairness of the exchange ratio and were provided
to the Bookham board of directors in that connection. The
opinion of Citi was only one of the factors taken into
consideration by the Bookham board of directors in making its
determination to approve the merger agreement and the merger.
See Bookham Proposal No. 1 and Avanex
Proposal No. 1 The Merger
Reasons for the Merger.
Citi is an internationally recognized investment banking firm
engaged in, among other things, the valuation of businesses and
their securities in connection with mergers and acquisitions,
restructurings, leveraged buyouts, negotiated underwritings,
competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for
estate, corporate and other purposes. Bookham selected Citi to
act as its financial adviser to Bookham in connection with the
proposed merger on the basis of Citis international
reputation.
Pursuant to its engagement letter with Citi, Bookham agreed to
pay $250,000 earned by Citi upon delivery of its opinion. The
engagement letter also provides for a fee contingent upon the
consummation of the merger equal to $1,750,000 (less any amounts
paid or payable, including amounts earned upon delivery of an
opinion) and, in the sole discretion of Bookham, a potential
additional $250,000 incentive fee. Citi also is entitled to 10%
of any termination,
break-up,
topping or similar fee or payment received by Bookham in
connection with the termination of transactions contemplated
under the merger agreement. Any fees paid in respect of any
termination, topping or similar fee will not exceed
$2 million, less any fees previously paid. Bookham has also
agreed to reimburse Citi for reasonable travel and other
expenses incurred by Citi in performing its services, provided
such expenses do not exceed $100,000, and to indemnify Citi
against specific liabilities and expenses relating to or arising
out of its engagement, including liabilities under the federal
securities laws. Citi and its affiliates in the past have
provided services to Bookham unrelated to the merger, for which
services Citi
and/or its
affiliates have received compensation, including, without
limitation, serving as sole bookrunner in November 2007 for a
secondary offering of sixteen million shares of common stock of
Bookham, for an aggregate public offering of $44 million.
In the ordinary course of its business, Citi and its affiliates
may actively trade or hold the securities of Bookham and Avanex
for its own account or for the account of its customers and,
accordingly, may at any time hold a long or short position in
such securities. In addition, Citi and its affiliates (including
Citigroup Inc. and its affiliates) may maintain relationships
with Bookham, Avanex and their respective affiliates.
The exchange ratio was determined by arms-length negotiations
between Bookham and Avanex, in consultation with their
respective financial advisors and other representatives, and was
not established by such financial advisors.
Opinion
of Avanexs Financial Advisor
Avanex has retained Banc of America Securities to act as
Avanexs financial advisor in connection with the merger.
Banc of America Securities is an internationally recognized
investment banking firm which is regularly engaged in providing
financial advisory services in connection with mergers and
acquisitions. Avanex selected Banc of America Securities to act
as Avanexs financial advisor in connection with the merger
on the basis of Banc of America Securities experience in
transactions similar to the merger, its reputation in the
investment community and its familiarity with Avanex and its
business.
On January 27, 2009, at a meeting of Avanexs board of
directors held to evaluate the merger, Banc of America
Securities delivered to Avanexs board of directors an oral
opinion, which was confirmed by delivery of a written opinion
dated January 27, 2009, to the effect that, as of the date
of the opinion and based on and subject to various assumptions
and limitations described in its opinion, the exchange ratio
provided for in the
96
merger agreement of 5.426 shares of Bookham common stock
for each outstanding share of Avanex common stock was fair, from
a financial point of view, to the holders of Avanex common stock.
The full text of Banc of America Securities written
opinion to Avanexs board of directors, which describes,
among other things, the assumptions made, procedures followed,
factors considered and limitations on the review undertaken, is
attached as Annex E to this joint proxy
statement/prospectus and is incorporated by reference in this
joint proxy statement/prospectus in its entirety. The following
summary of Banc of America Securities opinion is qualified
in its entirety by reference to the full text of the opinion.
Banc of America Securities delivered its opinion to
Avanexs board of directors for the benefit and use of
Avanexs board of directors in connection with and for
purposes of its evaluation of the exchange ratio from a
financial point of view. Banc of America Securities
opinion does not address any other aspect of the merger and does
not constitute a recommendation to any stockholder as to how to
vote or act in connection with the proposed merger.
In connection with rendering its opinion, Banc of America
Securities:
|
|
|
|
|
reviewed certain publicly available business and financial
information relating to Avanex and Bookham;
|
|
|
|
reviewed certain internal financial and operating information
with respect to Avanexs business, operations and prospects
furnished to or discussed with Banc of America Securities by
Avanexs management, including certain financial forecasts
relating to Avanex prepared by Avanexs management through
the period ending March 31, 2010, which forecasts are
referred to in this joint proxy statement/prospectus as the
Avanex forecasts, and an alternative version of the Avanex
forecasts prepared by Avanexs management reflecting lower
growth assumptions, which adjusted forecasts are referred to in
this joint proxy statement/prospectus as the adjusted Avanex
forecasts, and discussed with Avanexs management its
assessments as to the relative likelihood of achieving the
future financial results reflected in the Avanex forecasts and
the adjusted Avanex forecasts;
|
|
|
|
reviewed certain internal financial and operating information
with respect to Bookhams business, operations and
prospects furnished to or discussed with Banc of America
Securities by Bookhams management, including certain
financial forecasts relating to Bookham prepared by
Bookhams management through the period ending
March 31, 2010, which forecasts are referred to in this
joint proxy statement/prospectus as the Bookham forecasts, and
an alternative version of the Bookham forecasts prepared by
Bookhams management reflecting lower growth assumptions,
which adjusted forecasts are referred to in this joint proxy
statement/prospectus as the adjusted Bookham forecasts, and
discussed with Bookhams management its assessments as to
the relative likelihood of achieving the future financial
results reflected in the Bookham forecasts and the adjusted
Bookham forecasts;
|
|
|
|
discussed with members of senior managements of, and
representatives of legal, bankruptcy and accounting advisors to,
Avanex and Bookham certain matters pertaining to the bankruptcy
filing of Nortel, including, without limitation, their
assessments as to the potential impact of Nortels
bankruptcy on Avanex, Bookham and the combined company;
|
|
|
|
reviewed certain sensitivities to the Avanex forecasts prepared
by Avanexs management and certain sensitivities to the
Bookham forecasts prepared by the managements of Bookham and
Avanex, in each case excluding, in light of Nortels
bankruptcy, revenues, accounts receivables and certain other
items attributable to Nortel, which forecasts are referred to in
this joint proxy statement/prospectus as the Nortel
sensitivities;
|
|
|
|
reviewed certain estimates as to the amount and timing of cost
savings, which are referred to in this joint proxy
statement/prospectus as cost savings, anticipated by the
managements of Avanex and Bookham to result from the merger;
|
|
|
|
discussed the past and current business, operations, financial
condition and prospects of Avanex and Bookham with members of
senior managements of Avanex and Bookham;
|
|
|
|
discussed with members of senior managements of Avanex and
Bookham their assessments as to (a) existing and future
relationships, agreements and arrangements with, and the
combined companys
|
97
|
|
|
|
|
ability to retain, key employees, suppliers and customers of
Avanex and Bookham, including, without limitation, Nortel, and
(b) the products and technology of Avanex and Bookham,
including, without limitation, the validity of, risks associated
with, and integration by the combined company of, such products
and technology;
|
|
|
|
|
|
reviewed the trading histories for Avanex common stock and
Bookham common stock and a comparison of such trading histories
with each other and with the trading histories of other
companies Banc of America Securities deemed relevant;
|
|
|
|
compared certain financial and stock market information of
Avanex and Bookham with similar information of other companies
Banc of America Securities deemed relevant;
|
|
|
|
compared certain financial terms of the merger to financial
terms, to the extent publicly available, of other transactions
Banc of America Securities deemed relevant;
|
|
|
|
reviewed the relative financial contributions of Avanex and
Bookham to the future financial performance of the combined
company on a pro forma basis;
|
|
|
|
reviewed certain financial data of Avanex on a standalone basis
relative to that of the combined company after giving effect to
potential cost savings based on the pro forma equity ownership
of Avanexs stockholders upon consummation of the merger;
|
|
|
|
reviewed various public filings and announcements of Bookham
with respect to, and discussed with Bookhams senior
management its assessments regarding, outstanding patent
infringement litigation pertaining to certain of Bookhams
products, including the status and possible consequences of such
litigation;
|
|
|
|
considered the results of Banc of America Securities
efforts to solicit, at Avanexs direction, indications of
interest from third parties with respect to a possible
transaction with Avanex;
|
|
|
|
reviewed the merger agreement; and
|
|
|
|
performed such other analyses and studies and considered such
other information and factors as Banc of America Securities
deemed appropriate.
|
In arriving at its opinion, Banc of America Securities assumed
and relied on, without independent verification, the accuracy
and completeness of the financial and other information and data
publicly available or provided to or otherwise reviewed by or
discussed with Banc of America Securities and relied on the
assurances of the managements of Avanex and Bookham that they
were not aware of any facts or circumstances that would make
such information or data inaccurate or misleading in any
material respect. Although Banc of America Securities requested
financial forecasts with respect to Avanex and Bookham, Banc of
America Securities was advised by the managements of Avanex and
Bookham that such managements had not prepared, and were unable
to prepare, current and reliable financial forecasts beyond
March 31, 2010 and that there were no publicly available
financial forecasts with respect to Avanex or Bookham beyond
June 30, 2010. Accordingly, upon the advice of Avanex and
Bookham, Banc of America Securities did not perform a financial
analysis of the future cash flows of either Avanex or Bookham in
connection with its opinion. With respect to the Avanex
forecasts and the adjusted Avanex forecasts, Banc of America
Securities was advised by Avanex, and assumed, that such
forecasts were reasonably prepared on bases reflecting the best
currently available estimates and good faith judgments of
Avanexs management as to Avanexs future financial
performance under the alternative growth scenarios reflected in
such forecasts and, based on the assessments of Avanexs
management as to the relative likelihood of achieving the future
financial results reflected in the Avanex forecasts and the
adjusted Avanex forecasts, Banc of America Securities relied, at
Avanexs direction, on the Avanex forecasts for purposes of
its opinion. With respect to the Bookham forecasts and the
adjusted Bookham forecasts, Banc of America Securities was
advised by Bookham, and assumed, with Avanexs consent,
that such forecasts were reasonably prepared on bases reflecting
the best currently available estimates and good faith judgments
of Bookhams management as to Bookhams future
financial performance under the alternative growth scenarios
reflected in such forecasts and, based on the assessments of
Bookhams management as to the relative likelihood of
achieving the future financial results reflected in the Bookham
98
forecasts and the adjusted Bookham forecasts, Banc of America
Securities relied, at Bookhams direction and with
Avanexs consent, on the Bookham forecasts for purposes of
its opinion. With respect to the Nortel sensitivities and cost
savings, Banc of America Securities was advised by Avanex and
Bookham, and assumed, with Avanexs consent, that such
forecasts were reasonably prepared on bases reflecting the best
currently available estimates and good faith judgments of the
managements of Avanex and Bookham as to such Nortel
sensitivities and cost savings and that the cost savings would
be realized in the amounts and at the times projected.
Banc of America Securities relied, at Avanexs direction,
on the assessments of senior managements of Avanex and Bookham
as to existing and future relationships, agreements and
arrangements with, and the combined companys ability to
retain, key employees, suppliers and customers of Avanex and
Bookham, including, without limitation, Nortel, and assumed, at
Avanexs direction, that such relationships, agreements or
arrangements with such employees, suppliers and customers would
not be adversely impacted by the merger. Banc of America
Securities also relied, at Avanexs direction, on the
assessments of senior managements of Avanex and Bookham as to
the products and technology of Avanex and Bookham, including,
without limitation, the validity of, risks associated with, and
integration by the combined company of, such products and
technology. Banc of America Securities further relied, at
Avanexs direction, on the assessments of senior
managements of, and legal, bankruptcy and accounting advisors
to, Avanex and Bookham as to the potential impact of
Nortels bankruptcy on Avanex, Bookham and the combined
company and assumed, at Avanexs direction, that
Nortels bankruptcy would not adversely impact Banc of
America Securities opinion. With respect to outstanding
patent infringement litigation pertaining to certain of
Bookhams products, Banc of America Securities assumed,
with Avanexs consent and without independent verification,
that such litigation would not adversely affect Bookham or the
combined company. Banc of America Securities did not make, and
was not provided with, any independent evaluation or appraisal
of the assets or liabilities, contingent or otherwise, of Avanex
or Bookham, nor did Banc of America Securities make any physical
inspection of the properties or assets of Avanex or Bookham.
Banc of America Securities did not evaluate the solvency of
Avanex or Bookham under any state, federal or other laws
relating to bankruptcy, insolvency or similar matters. Banc of
America Securities assumed, at Avanexs direction, that the
merger would be consummated in accordance with its terms,
without waiver, modification or amendment of any material term,
condition or agreement and that, in the course of obtaining the
necessary governmental, regulatory and other approvals,
consents, releases and waivers for the merger, no delay,
limitation, restriction or condition would be imposed that would
have an adverse effect on Avanex, Bookham or the contemplated
benefits of the merger. Banc of America Securities also assumed,
at Avanexs direction, that the merger would qualify for
federal income tax purposes as a reorganization under the
provisions of Section 368(a) of the Code.
Banc of America Securities expressed no view or opinion as to
any terms or other aspects of the merger (other than the
exchange ratio to the extent expressly specified in its
opinion), including, without limitation, the form or structure
of the merger. Banc of America Securities opinion was
limited to the fairness, from a financial point of view, of the
exchange ratio to the holders of Avanex common stock and no
opinion or view was expressed with respect to any consideration
received in connection with the merger by the holders of any
other class of securities, creditors or other constituencies of
Avanex. In addition, no opinion or view was expressed with
respect to the fairness of the amount, nature or any other
aspect of any compensation to any of the officers, directors or
employees of any party to the merger, or class of such persons,
relative to the exchange ratio. Furthermore, no opinion or view
was expressed as to the relative merits of the merger in
comparison to other strategies or transactions that might be
available to Avanex or in which Avanex might engage or as to the
underlying business decision of Avanex to proceed with or effect
the merger. Banc of America Securities expressed no opinion as
to what the value of Bookham common stock actually would be when
issued or the prices at which Bookham common stock or Avanex
common stock would trade at any time. In addition, Banc of
America Securities expressed no opinion or recommendation as to
how any stockholder should vote or act in connection with the
merger.
Banc of America Securities opinion was necessarily based
on financial, economic, monetary, market and other conditions
and circumstances as in effect on, and the information made
available to Banc of America Securities as of, the date of its
opinion. It should be understood that subsequent developments
may affect its
99
opinion, and Banc of America Securities does not have any
obligation to update, revise, or reaffirm its opinion. The
issuance of Banc of America Securities opinion was
approved by Banc of America Securities fairness opinion
review committee. Except as described above, Avanex imposed no
other limitations on the investigations made or procedures
followed by Banc of America Securities in rendering its opinion.
The following represents a brief summary of the material
financial analyses presented by Banc of America Securities to
Avanexs board of directors in connection with its opinion.
The financial analyses summarized below include information
presented in tabular format. In order to fully understand the
financial analyses performed by Banc of America Securities, the
tables must be read together with the text of each summary. The
tables alone do not constitute a complete description of the
financial analyses performed by Banc of America Securities.
Considering the data set forth in the tables below without
considering the full narrative description of the financial
analyses, including the methodologies and assumptions underlying
the analyses, could create a misleading or incomplete view of
the financial analyses performed by Banc of America
Securities.
Financial
Analyses
Implied Exchange Ratio Analysis. Banc of
America Securities calculated implied exchange ratios based on a
selected publicly traded companies analysis and selected
precedent transactions analysis of Avanex and a selected
publicly traded companies analysis of Bookham as described
below. For purposes of the selected publicly traded companies
analysis and selected precedent transactions analysis described
below, financial data of Avanex were based on the Avanex
forecasts, the adjusted Avanex forecasts and the Avanex
forecasts taking into account the Nortel sensitivities with
respect to Avanex (which excluded 100% of revenues, accounts
receivables and certain other items attributable to Nortel in
calendar year 2009). For purposes of the selected publicly
traded companies analysis described below, financial data of
Bookham were based on the Bookham forecasts, the adjusted
Bookham forecasts and the Bookham forecasts taking into account
the Nortel sensitivities with respect to Bookham (which excluded
100% of revenues, accounts receivables and certain other items
attributable to Nortel in calendar year 2009). As directed by
the managements of Avanex and Bookham, Banc of America
Securities assumed, for purposes of such analyses, that each
companys cash on its balance sheet was required for
operations and, therefore, such cash amount was not considered
excess cash and was not deducted in calculating the enterprise
values of Avanex and Bookham, respectively.
Selected Publicly Traded Companies
Analysis. Banc of America Securities performed
separate selected publicly traded companies analyses of Avanex
and Bookham in which Banc of America Securities reviewed
publicly available financial and stock market information for
Avanex, Bookham and the following five selected publicly traded
companies in the fiber optic communications industry, which is
the industry in which Avanex and Bookham operate:
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|
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EMCORE Corporation
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|
|
|
Finisar Corporation
|
|
|
|
JDS Uniphase Corporation
|
|
|
|
Oplink Communications, Inc.
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|
|
|
Opnext, Inc.
|
Avanex. In performing a selected publicly
traded companies analysis of Avanex, Banc of America Securities
reviewed financial and stock market information of the selected
publicly traded companies referred to above and Bookham,
referred to as the Avanex selected companies. Banc of America
Securities reviewed, among other things, enterprise values of
the Avanex selected companies, calculated as equity values based
on closing stock prices on January 26, 2009, plus total
debt, minority interests and preferred stock, less cash and cash
equivalents, as a multiple of calendar years 2008 and 2009
estimated revenue.
Bookham. In performing a selected publicly
traded companies analysis of Bookham, Banc of America Securities
reviewed financial and stock market information of the selected
publicly traded companies referred to above and Avanex, referred
to as the Bookham selected companies. Banc of America Securities
reviewed,
100
among other things, enterprise values of the Bookham selected
companies, calculated as equity values based on closing stock
prices on January 26, 2009, plus total debt, minority
interests and preferred stock, less cash and cash equivalents,
as a multiple of calendar years 2008 and 2009 estimated revenue.
Estimated financial data of the selected publicly traded
companies, Avanex (for purposes of the Bookham selected publicly
traded companies analysis) and Bookham (for purposes of the
Avanex selected publicly traded companies analysis) were based
on publicly available research analysts estimates. Based
on implied per share equity reference ranges for Avanex and
Bookham calculated by applying a range of selected multiples of
calendar years 2008 and 2009 estimated revenue derived from the
Avanex selected companies and the Bookham selected companies to
corresponding data of Avanex and Bookham, respectively, these
analyses indicated the following implied exchange ratio
reference ranges, as compared to the exchange ratio provided for
in the merger agreement:
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|
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|
Implied Exchange Ratio Reference Ranges Based on
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|
Calendar Year 2008E Revenue
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|
Calendar Year 2009E Revenue
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|
Merger
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|
Utilizing Avanexs and Bookhams
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|
Utilizing Avanexs and Bookhams
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|
Exchange
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|
Forecasts
|
|
Adjusted Forecasts
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|
|
Forecasts
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|
Adjusted Forecasts
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|
Nortel Sensitivities
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Ratio
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2.396x 9.585x
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|
2.396x 9.585
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x
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2.045x 8.182
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x
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1.982x 7.930
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x
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2.195x 10.570
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x
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5.426x
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|
No company used in these analyses is identical to Avanex or
Bookham. Accordingly, an evaluation of the results of these
analyses is not entirely mathematical. Rather, these analyses
involve complex considerations and judgments concerning
differences in financial and operating characteristics and other
factors that could affect the public trading or other values of
the companies to which Avanex and Bookham were compared.
Selected Precedent Transactions Analysis. Banc
of America Securities performed, among other things, a selected
precedent transactions analysis of Avanex in which Banc of
America Securities reviewed, to the extent publicly available,
financial information relating to the following 13 selected
transactions involving companies in the fiber optic
communications industry, which is the industry in which Avanex
operates:
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Announcement
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|
Date
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|
Acquiror
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|
Target
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|
7/9/08
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|
StrataLight Communications, Inc.
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|
Opnext, Inc.
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5/15/08
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|
Finisar Corporation
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|
Optium Corporation
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4/23/07
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|
Oplink Communications, Inc.
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|
Optical Communication Products, Inc.
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3/23/07
|
|
Finisar Corporation
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|
AZNA, LLC
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2/27/07
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|
JDS Uniphase Corporation
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|
Picolight, Inc.
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1/26/07
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|
MRV Communications, Inc.
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|
Fiberxon, Inc.
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7/13/06
|
|
Optical Communication Products,
Inc.
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|
GigaComm Corporation
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9/8/05
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|
JDS Uniphase Corporation
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|
Agility Communications Inc.
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2/25/05
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|
NeoPhotonics Corporation
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|
Photon Technology Co. Ltd.
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1/26/05
|
|
Finisar Corporation
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|
Infineon Technologies AG (fiber
optics
business)
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5/17/04
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|
JDS Uniphase Corporation
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|
E2O Communications Incorporated
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5/12/03
|
|
Avanex
|
|
Alcatel Optronics France SA
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10/7/02
|
|
Bookham
|
|
Nortel (optical components business)
|
Banc of America Securities reviewed, among other things,
transaction values, calculated as the equity value implied for
the target company based on the consideration payable in the
selected transaction, as a multiple of latest 12 months
revenue and next 12 months estimated revenue to the extent
such financial data were publicly available at the time of
announcement of the relevant transaction. Based on implied per
share equity reference ranges for Avanex calculated by applying
a range of selected multiples of latest 12 months revenue
and next 12 months estimated revenue derived from the
selected transactions to the calendar years 2008 and 2009
estimated revenue of Avanex and implied per share equity
reference ranges for Bookham calculated as described under the
selected publicly traded companies analysis above, this analysis
indicated the
101
following implied exchange ratio reference ranges, as compared
to the exchange ratio provided for in the merger agreement:
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|
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|
Implied Exchange Ratio Reference Ranges Based on
|
|
|
Calendar Year 2008E Revenue
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|
Calendar Year 2009E Revenue
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|
Merger
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Utilizing Avanexs and Bookhams
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|
Utilizing Avanexs and Bookhams
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|
Exchange
|
Forecasts
|
|
Adjusted Forecasts
|
|
Forecasts
|
|
Adjusted Forecasts
|
|
Nortel Sensitivities
|
|
Ratio
|
|
4.792x 21.566x
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|
|
4.792x 21.566
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x
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|
3.068x 16.363
|
x
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|
2.974x 15.860
|
x
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|
3.418x 21.713
|
x
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|
5.426x
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|
No company, business or transaction used in this analysis is
identical to Avanex, Bookham or the merger. Accordingly, an
evaluation of the results of this analysis is not entirely
mathematical. Rather, this analysis involves complex
considerations and judgments concerning differences in financial
and operating characteristics and other factors that could
affect the acquisition or other values of the companies,
business segments or transactions to which Avanex, Bookham and
the merger were compared.
Contribution Analysis. Banc of America
Securities reviewed the relative financial contributions of
Avanex and Bookham to the future financial performance of the
combined company on a pro forma basis without giving effect to
potential costs savings anticipated by the managements of Avanex
and Bookham to result from the merger. As directed by the
managements of Avanex and Bookham, Banc of America Securities
assumed that each companys cash on its balance sheet was
required for operations and was not considered excess cash. Banc
of America Securities reviewed the last quarter annualized (as
of December 31, 2008) and calendar years 2008 and 2009
estimated revenue and gross profit based on the Avanex
forecasts, the Bookham forecasts, the adjusted Avanex forecasts
and the adjusted Bookham forecasts. Based on the aggregate
equity ownership percentages for Avanexs and
Bookhams respective stockholders in the combined company
implied from these relative contributions, Banc of America
Securities calculated the following implied overall exchange
ratio reference ranges, as compared to the exchange ratio
provided for in the merger agreement:
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|
|
|
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|
Implied Exchange Ratio Reference Ranges Based on
|
|
Merger
|
Revenue
|
|
Gross Profit
|
|
Exchange Ratio
|
|
3.965x 4.792x
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|
|
2.615x 5.430
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x
|
|
|
5.426x
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|
Banc of America Securities also reviewed the last quarter
annualized (as of March 31, 2010) and latest
12 months (as of March 31, 2010) estimated
revenue and gross profit based on the Avanex forecasts and the
Bookham forecasts, in each case taking into account the Nortel
sensitivities assuming both 100% and 50% of revenues, accounts
receivables and certain other items attributable to Nortel were
excluded. In addition, Banc of America Securities reviewed the
last quarter annualized (as of March 31,
2010) estimated earnings before interest, taxes,
depreciation and amortization, referred to as EBITDA, based on
the Avanex forecasts and the Bookham forecasts, in each case
taking into account the Nortel sensitivities assuming that 100%,
50% and 0% of revenues, accounts receivables and certain other
items attributable to Nortel were excluded. Based on the
aggregate equity ownership percentages for Avanexs and
Bookhams respective stockholders in the combined company
implied from these relative contributions, Banc of America
Securities calculated the following implied overall exchange
ratio reference ranges, as compared to the exchange ratio
provided for in the merger agreement:
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|
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|
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|
|
|
Implied Exchange Ratio Reference Ranges Based on
|
|
Merger
|
Revenue
|
|
Gross Profit
|
|
EBITDA
|
|
Exchange Ratio
|
|
4.067x 4.328x
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|
|
3.437x 4.222
|
x
|
|
|
2.299x 7.934
|
x
|
|
|
5.426x
|
|
Has/Gets Analysis. Banc of America Securities
reviewed, among other things, the calendar year 2009 estimated
revenue, gross profit, EBITDA and cash position of Avanex on a
standalone basis relative to that of the combined company after
giving effect to potential cost savings anticipated by the
managements of Avanex and Bookham to result from the merger
based on the pro forma equity ownership of Avanexs
stockholders upon consummation of the merger (calculated by
multiplying such financial data of the combined company by the
pro forma equity ownership percentage of Avanexs
stockholders in the combined company). Financial data of Avanex
and Bookham were based on the Avanex forecasts and the Bookham
forecasts, in each case after taking into account the Nortel
sensitivities assuming both 100% and 0% of revenues, accounts
receivables and certain other items attributable to Nortel were
excluded, and after giving effect to potential cost savings
102
assuming such cost savings were both realized over time and
fully realized immediately following consummation of the merger,
referred to as run-rate cost savings. This comparison indicated
that, based on the exchange ratio provided for in the merger
agreement, the proportionate share of Avanexs stockholders
in such financial data of the combined company on a pro forma
basis could increase or (decrease) or that such change was not
meaningful, referred to as NM, as compared to Avanex on a
standalone basis as follows:
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|
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|
|
|
|
|
|
Calendar Year 2009E Percentage
|
|
|
|
Change for Avanex Stockholders Assuming
|
|
|
|
Cost Savings Over Time
|
|
|
Run-Rate Cost Savings
|
|
|
|
Utilizing Avanexs and Bookhams
|
|
|
Utilizing Avanexs and Bookhams
|
|
|
|
|
|
|
Nortel
|
|
|
|
|
|
Nortel
|
|
Calendar Year 2009
|
|
Forecasts
|
|
|
Sensitivities
|
|
|
Forecasts
|
|
|
Sensitivities
|
|
|
Revenue
|
|
|
17.8
|
%
|
|
|
13.4
|
%
|
|
|
17.8
|
%
|
|
|
13.4
|
%
|
Gross Profit
|
|
|
29.6
|
%
|
|
|
18.6
|
%
|
|
|
37.2
|
%
|
|
|
26.5
|
%
|
EBITDA
|
|
|
NM
|
|
|
|
NM
|
|
|
|
NM
|
|
|
|
NM
|
|
Cash
|
|
|
(19.6
|
)%
|
|
|
(48.3
|
)%
|
|
|
(5.2
|
)%
|
|
|
(31.1
|
%)
|
Illustrative Discounted Cash Flow Analysis of Cost
Savings. Banc of America Securities performed an
illustrative discounted cash flow analysis of the potential cost
savings anticipated by the managements of Avanex and Bookham to
result from the merger. Banc of America Securities calculated
the estimated present value of the unlevered, after-tax free
cash flows that the combined company could generate as a result
of such cost savings during the fourth quarter of the fiscal
year ending June 30, 2009 through the full fiscal year
ending June 30, 2011. Banc of America Securities calculated
terminal values for the cost savings by applying a perpetuity
growth rate of 0% and such cash flows and terminal values were
then discounted to present value as of March 31, 2009 using
discount rates ranging from 17.0% to 21.0%. This analysis
indicated an implied present value for such potential cost
savings of approximately $65.5 million to
$83.7 million or, based on the exchange ratio provided for
in the merger agreement and the number of shares of Avanex
common stock outstanding as of January 26, 2009,
approximately $1.87 to $2.40 per share of Avanex common stock.
Miscellaneous
As noted above, the discussion set forth above is a summary of
the material financial analyses presented by Banc of America
Securities to Avanexs board of directors in connection
with its opinion and is not a comprehensive description of all
analyses undertaken by Banc of America Securities in connection
with its opinion. The preparation of a financial opinion is a
complex analytical process involving various determinations as
to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular
circumstances and, therefore, a financial opinion is not readily
susceptible to partial analysis or summary description. Banc of
America Securities believes that its analyses summarized above
must be considered as a whole. Banc of America Securities
further believes that selecting portions of its analyses and the
factors considered or focusing on information presented in
tabular format, without considering all analyses and factors or
the narrative description of the analyses, could create a
misleading or incomplete view of the processes underlying Banc
of America Securities analyses and opinion. The fact that
any specific analysis has been referred to in the summary above
is not meant to indicate that such analysis was given greater
weight than any other analysis referred to in the summary.
In performing its analyses, Banc of America Securities
considered industry performance, general business and economic
conditions and other matters, many of which are beyond the
control of Avanex and Bookham. The estimates of the future
performance of Avanex and Bookham in or underlying Banc of
America Securities analyses are not necessarily indicative
of actual values or actual future results, which may be
significantly more or less favorable than those estimates or
those suggested by Banc of America Securities analyses.
These analyses were prepared solely as part of Banc of America
Securities analysis of the fairness, from a financial
point of view, of the exchange ratio and were provided to
Avanexs board of directors in connection with the delivery
of Banc of America Securities opinion. The analyses do not
purport to be appraisals or to reflect the prices at which a
company might actually be sold or the prices at which any
securities have traded or may trade at any time in the future.
Accordingly, the estimates used in, and the ranges of valuations
resulting from, any particular analysis described above are
inherently subject to substantial
103
uncertainty and should not be taken to be Banc of America
Securities view of the actual value of Avanex or Bookham.
The type and amount of consideration payable in the merger was
determined through negotiations between Avanex and Bookham,
rather than by any financial advisor, and was approved by
Avanexs board of directors. The decision to enter into the
merger agreement was solely that of Avanexs board of
directors. As described above, Banc of America Securities
opinion and analyses were only one of many factors considered by
Avanexs board of directors in its evaluation of the
proposed merger and should not be viewed as determinative of the
views of Avanexs board of directors or management with
respect to the merger or the exchange ratio provided for in the
merger agreement.
Avanex has agreed to pay Banc of America Securities for its
services in connection with the merger an aggregate fee
currently estimated to be approximately $2.25 million, a
portion of which was payable upon the rendering of Banc of
America Securities opinion and a significant portion of
which is contingent upon the completion of the merger. Avanex
also has agreed to reimburse Banc of America Securities for
reasonable expenses, including reasonable fees and disbursements
of Banc of America Securities counsel, incurred in
connection with Banc of America Securities engagement, and
to indemnify Banc of America Securities, any controlling person
of Banc of America Securities and each of their respective
directors, officers, employees, agents, affiliates and
representatives against specified liabilities, including
liabilities under the federal securities laws.
Banc of America Securities and its affiliates comprise a full
service securities firm and commercial bank engaged in
securities trading and brokerage activities and principal
investing as well as providing investment, corporate and private
banking, asset and investment management, financing and
financial advisory services and other commercial services and
products to a wide range of corporations and individuals. In the
ordinary course of its businesses, Banc of America Securities
and its affiliates may actively trade the debt, equity or other
securities or financial instruments (including bank loans or
other obligations) of Avanex, Bookham and certain of their
respective affiliates for its own account or for the accounts of
customers and, accordingly, Banc of America Securities or its
affiliates may at any time hold long or short positions in such
securities or financial instruments.
Banc of America Securities and its affiliates in the past have
provided, currently are providing, and in the future may provide
investment banking, commercial banking and other financial
services to Avanex and have received or in the future may
receive compensation for the rendering of these services,
including (i) having acted or acting as a lender under
certain credit facilities of Avanex, (ii) having acted as
agent and book runner in connection with certain equity
offerings of Avanex, (iii) having provided or providing
certain foreign exchange derivative trading services to Avanex
and (iv) having provided or providing certain treasury
management services to Avanex.
Interests
of Bookhams Directors in the Merger
In considering the recommendation of the Bookham board of
directors with respect to approving the issuance of shares of
Bookham common stock, Bookham stockholders should be aware that
certain members of the board of directors of Bookham have
interests in the merger that are different from, or are in
addition to, their interests as Bookham stockholders. These
interests may create an appearance of a conflict of interest.
The Bookham board of directors was aware of these potential
conflicts of interest during its deliberations on the merits of
the merger and in making its decisions in approving the merger,
the merger agreement, the issuance of shares of Bookham common
stock pursuant to the merger agreement, the amendment to
Bookhams restated certificate of incorporation to increase
the number of authorized shares of Bookham and the related
transactions.
Indemnification and Insurance. Pursuant to a
resolution of the Bookham board of directors as of
January 13, 2009, the members of the board of directors of
Bookham who will not continue to serve in their position as
directors of Bookham following the effective time of the merger
(such directors are referred to as the Bookham departing
directors) would be entitled to coverage under the current
directors and officers liability insurance for a period similar
to the period during which Avanexs directors will be
entitled to
104
insurance coverage (six years following the effective time) for
actions and omissions occurring prior to the effective time of
the merger. The Bookham departing directors are currently
expected to be Peter F. Bordui, David Simpson, Joe Cook and
W. Arthur Porter; however, a final determination as to who
the Bookham departing directors will be has not been made and
the persons who will be Bookham departing directors may change.
See Management and Other Information of the Combined
Company Executive Officers and Directors of Bookham
Following the Merger.
Extension of Exercise Period of Bookham Departing
Directors Stock Options. Pursuant to a
resolution of the Bookham board of directors as of
January 13, 2009, effective as of the effective time of the
merger, the exercise period of Bookham stock options held by the
Bookham departing directors will be extended and they will be
exercisable for a period of one year following the effective
time of the merger; provided, however, that in no event may any
such Bookham stock option be exercised after the date which is
ten years from the date it was granted by Bookham.
Accelerated Vesting of Bookham Departing Directors
Equity Awards. Pursuant to a resolution of the
Bookham board of directors as of January 13, 2009,
effective as of the effective time of the merger, the vesting of
each of the outstanding Bookham stock options, restricted stock
units of Bookham common stock and restricted stock awards
granted to the Bookham departing directors will accelerate in
full and each such stock option, restricted stock unit or
restricted stock award will become exercisable in full. With
respect to the persons currently expected to be Bookham
departing directors, as of January 27, 2009, Peter F.
Bordui held unvested options to purchase 76,150 shares of
Bookham common stock with a weighted average exercise price of
$2.72 per share and restricted stock units for 5,000 shares
of Bookham common stock; David Simpson held unvested options to
purchase 88,231 shares of Bookham common stock with a
weighted average exercise price of $7.77 per share and
restricted stock units for 5,000 shares of Bookham common
stock; Joe Cook held unvested options to purchase
77,783 shares of Bookham common stock with a weighted
average exercise price of $2.99 per share and restricted stock
units for 5,000 shares of Bookham common stock; and W.
Arthur Porter held unvested options to purchase
85,420 shares of Bookham common stock with a weighted
average exercise price of $6.39 per share and restricted stock
units for 5,000 shares of Bookham common stock.
Interests
of Avanexs Executive Officers and Directors in the
Merger
In considering the recommendation of the Avanex board of
directors with respect to adopting the merger agreement, Avanex
stockholders should be aware that certain members of the board
of directors and executive officers of Avanex have interests in
the merger that are different from, or are in addition to, their
interests as Avanex stockholders. These interests may create an
appearance of a conflict of interest. The Avanex board of
directors was aware of these potential conflicts of interest
during its deliberations on the merits of the merger and in
making its decisions in approving the merger, the merger
agreement and the related transactions.
Combined Company Board of Directors. The
merger agreement provides that Bookham will cause Giovanni
Barbarossa, Greg Dougherty and Joel Smith to be elected or
appointed to the board of directors of Bookham as of the
effective time of the merger, and they will be eligible to
receive compensation from Bookham as non-employee directors.
Indemnification and Insurance. The merger
agreement provides that for a period of six years after the
merger, Bookham will cause Avanex, as the surviving corporation
in the merger, to indemnify each current or former director and
officer of Avanex from liability to the extent that applicable
legal requirements permit a company to indemnify its own
officers and directors. The merger agreement further provides
that for a period of six years after the merger, Bookham and
Avanex will maintain in place the existing policy of directors
and officers liability insurance (or obtain a comparable
replacement policy) in favor of Avanex directors and officers
covered as of the effective time of the merger under the current
policy. Such policy will cover acts or omissions occurring on or
before the closing of the merger and provide coverage and
amounts no less favorable than in effect on January 27,
2009, except that Bookham will not be required to incur annual
premium expense in excess of $526,500. If the annual premium
payable exceeds $526,500, Bookham and Avanex are obligated to
obtain a policy providing the greatest coverage available at a
cost not exceeding $526,500.
105
Accelerated Vesting of Non-Employee Directors Equity
Awards. Pursuant to the terms of the Avanex
1999 Director Option Plan, upon the consummation of the
merger, each non-employee director of Avanex will be entitled to
accelerated vesting of all of their unvested options and
restricted stock units issued and outstanding under the plan.
Vinton Cerf, Greg Dougherty, Joel A. Smith, III, Paul G.
Smith, Susan Wang and Dennis P. Wolf are members of the Avanex
board of directors who are not employees of Avanex. As of
January 27, 2009, Dr. Cerf held unvested options to
purchase 1,333 shares of Avanex common stock with a
weighted average exercise price of $1.61 per share and
restricted stock units for 666 shares of Avanex common
stock; Mr. Dougherty held unvested options to purchase
1,999 shares of Avanex common stock with a weighted average
exercise price of $7.47 per share and restricted stock
units for 666 shares of Avanex common stock; Mr. J.
Smith held unvested options to purchase 1,333 shares of
Avanex common stock with a weighted average exercise price of
$1.61 per share and restricted stock units for
666 shares of Avanex common stock; Mr. P. Smith held
unvested options to purchase 5,332 shares of Avanex common
stock with a weighted average exercise price of $18.07 per
share and restricted stock units for 666 shares of Avanex
common stock; Ms. Wang held unvested options to purchase
1,333 shares of Avanex common stock with a weighted average
exercise price of $1.61 per share and restricted stock
units for 666 shares of Avanex common stock; and
Mr. Wolf held unvested options to purchase
6,666 shares of Avanex common stock with a weighted average
exercise price of $8.12 per share and restricted stock
units for 666 shares of Avanex common stock. Pursuant to
the terms of the outstanding option awards of those directors of
Avanex who will resign and will not become a director of Bookham
in connection with the merger (currently anticipated to be
Dr. Cerf, Mr. P. Smith and Ms. Wang), the
post-termination exercise period for such options is
24 months, provided, however, that in no event may any
option be exercised later than the expiration date or term of
option set forth in the agreement evidencing such option.
Change in Control Agreements. Avanex entered
into change in control agreements with each of Giovanni
Barbarossa, Brad Kolb, Scott Parker and Mark Weinswig providing
the following benefits:
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Upon a change in control (which would include consummation of
the merger) 50% of each executives then outstanding and
unvested equity awards will, if not already vested, fully vest
and will otherwise remain subject to the terms and conditions of
the applicable equity award agreements;
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If, within 12 months following a change in control, either
(i) the executive is terminated without cause (as such term
is defined in the agreement) or (ii) the executive
voluntarily resigns for good reason (as such term is defined in
the agreement), then, provided the executive timely executes and
does not revoke a release of claims, the executive will receive:
(a) a single cash lump sum severance payment equal to
12 months of the executives salary (for each of
Dr. Barbarossa and Messrs. Kolb and Parker) or six
months of the executives salary (for Mr. Weinswig);
(b) a lump sum cash payment equal to the then current
years target annual incentive (if a bonus incentive plan
has been established), pro-rated to the date of the
executives separation; (c) the vesting of 100% of the
executives then outstanding and unvested equity awards;
and (d) payment of premiums for continued health coverage
and benefits pursuant to COBRA continuation coverage for a
period of 12 months (for each of Dr. Barbarossa and
Messrs. Kolb and Parker) or 6 months (for
Mr. Weinswig).
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The following table identifies, for each of Dr. Barbarossa
and Messrs. Kolb, Parker and Weinswig the estimated values
of the (i) cash severance payments, (ii) number of
options (which have strike prices ranging from $0.79 to $43.20)
and restricted stock units, or RSUs, that would vest, and
(iii) the value of continued benefit coverage to which the
executives would be entitled pursuant the change in control
agreements, assuming that the executive is terminated for
reasons other than cause or resigns for good reason as of the
effective date of the merger.
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Estimated Option
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Estimated Value of
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Estimated Cash
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Acceleration
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Weighted Average
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Estimated RSU
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Continued Benefit
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Name
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Severance
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(shares)
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Exercise Price
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Acceleration (Units)
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Coverage
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Dr. Barbarossa
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$
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360,000
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64,320
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$
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2.35
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44,932
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$
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18,000
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Mr. Kolb
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$
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250,000
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52,104
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$
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11.18
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32,540
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$
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18,000
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Mr. Parker
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$
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250,000
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47,042
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$
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5.66
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33,500
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$
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18,000
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Mr. Weinswig
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$
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132,500
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26,667
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$
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7.52
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6,667
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$
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9,000
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106
Giovanni Barbarossa Consulting Agreement. In
connection with the merger, Avanex and Bookham have entered into
a consulting agreement with Giovanni Barbarossa, which becomes
effective upon consummation of the merger. At the effective time
of the merger, Dr. Barbarossa will cease to be employed by
Avanex and will be entitled to severance and equity acceleration
as provided in his change in control agreement. Under the
consulting agreement, Dr. Barbarossa will provide
consulting services to Bookham for a term of one year following
the merger for the purpose of assisting in the integration of
Avanexs operations into those of Bookham. Under the
consulting agreement, Dr. Barbarossa is entitled to
consulting fees payable at a rate of $30,000 per month. In the
event the consulting agreement is terminated prior to the end of
the term by Bookham other than for cause (as such term is
defined in the agreement), Dr. Barbarossa would be entitled
to a lump sum payment equal to the remaining consulting fees
that would otherwise have been payable through the end of the
term.
Agreements with other members of Avanexs current
management team. It is possible that other
members of Avanexs current management team will enter into
agreements with Bookham or its affiliates after the date of this
joint proxy statement/prospectus. Any such agreements would not
become effective until the merger is completed.
Material
U.S. Federal Income Tax Consequences of the Merger
The following discussion summarizes the material
U.S. federal income tax considerations of the merger of
merger sub into Avanex that are expected to apply generally to
U.S. Holders (as defined below) of Avanex common stock upon
an exchange of their Avanex stock for Bookham common stock in
the merger. This summary is based upon current provisions of the
Internal Revenue Code of 1986, as amended (the
Code), existing Treasury Regulations under the Code
and current administrative rulings and court decisions, all of
which are subject to change or different interpretation. Any
change, which may or may not be retroactive, could alter the tax
consequences to Avanex or the stockholders of Avanex as
described in this summary. In addition, this summary assumes the
truth and satisfaction of the statements and conditions
described below as the basis for the tax opinions of Cooley
Godward Kronish LLP, outside counsel to Bookham, and Wilson
Sonsini Goodrich & Rosati, Professional Corporation,
outside counsel to Avanex. No attempt has been made to comment
on all U.S. federal income tax consequences of the merger
that may be relevant to particular U.S. Holders, including
holders:
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who are subject to special tax rules such as dealers, brokers
and traders in securities, foreign persons, mutual funds,
regulated investment companies, real estate investment trusts,
insurance companies, banks or other financial institutions or
tax-exempt entities;
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who are subject to the alternative minimum tax provisions of the
Code;
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who acquired their shares in connection with stock option,
warrant or stock purchase plans or in other compensatory
transactions;
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who hold their shares as a hedge or as part of a hedging,
straddle or other risk reduction strategy;
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who are partnerships or other pass-through entities or investors
in such pass-through entities;
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who do not hold their shares as capital assets;
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whose shares constitute qualified small business stock with the
meaning of Section 1202 of the Code; or
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who have a functional currency other than the U.S. dollar.
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In addition, the following discussion does not address the tax
consequences of the merger under state, local and foreign tax
laws. Furthermore, the following discussion does not address any
of the following:
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the tax consequences of transactions effectuated before, after
or at the same time as the merger, whether or not they are in
connection with the merger; or
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the tax consequences of the receipt of Bookham shares other than
in exchange for Company shares.
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107
For purposes of this discussion, a U.S. Holder
means a beneficial owner of Avanex common stock who is:
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an individual who is a citizen or resident of the United States;
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a corporation (or other entity taxable as a corporation for
U.S. federal income tax purposes) created or organized in
the United States or under the laws of the United States or any
subdivision thereof;
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an estate the income of which is includible in gross income for
U.S. federal income tax purposes regardless of its
source; or
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a trust (other than a grantor trust) if (A) a court within
the United States is able to exercise primary supervision over
the administration of the trust and one or more
U.S. persons have the authority to control all substantial
decisions of the trust or (B) it has a valid election in
place to be treated as a U.S. person.
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HOLDERS OF AVANEX COMMON STOCK ARE ADVISED AND EXPECTED TO
CONSULT THEIR OWN TAX ADVISORS REGARDING THE U.S. FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER IN LIGHT OF THEIR PERSONAL
CIRCUMSTANCES AND THE CONSEQUENCES OF THE MERGER UNDER STATE,
LOCAL AND FOREIGN TAX LAWS.
It is a condition to the consummation of the merger that each of
Cooley Godward Kronish LLP, outside counsel to Bookham, and
Wilson Sonsini Goodrich & Rosati, Professional
Corporation, outside counsel to Avanex, render a tax opinion to
their respective clients to the effect that the merger will
constitute a reorganization within the meaning of
Section 368(a) of the Code. The tax opinion of Cooley
Godward Kronish LLP, and the tax opinion of Wilson Sonsini
Goodrich & Rosati, Professional Corporation, discussed
in this section are each conditioned upon certain assumptions
stated in their respective tax opinions and certain customary
representations being delivered by Bookham, Avanex and merger
sub.
No ruling from the IRS has been or will be requested in
connection with the merger. In addition, stockholders of Avanex
should be aware that the tax opinions discussed in this section
are not binding on the IRS, the IRS could adopt a contrary
position and a contrary position could be sustained by a court.
In addition, if any of the representations or assumptions upon
which the closing tax opinions of Cooley Godward Kronish LLP,
and Wilson Sonsini Goodrich & Rosati, Professional
Corporation, are based are inconsistent with the actual facts,
the tax consequences of the merger could be adversely affected.
Bookham and Avanex intend that the merger will be treated as a
reorganization pursuant to Section 368(a) of the Code. The
discussion below assumes that the merger qualifies as a
reorganization.
Exchange of Avanex Stock for Bookham Common
Stock. Except as discussed below under
Cash in Lieu of Fractional Shares of Bookham Common
Stock, Avanex stockholders generally will not
recognize any gain or loss upon receipt of solely Bookham common
stock in exchange for their Avanex common stock.
Tax Basis and Holding Period. The tax basis of
Bookham common stock received by an Avanex stockholder in the
merger will be equal to such stockholders tax basis in the
Avanex stock surrendered therefor. The holding period of Bookham
common stock received by an Avanex stockholder in the merger
will be equal to such stockholders holding period in the
Avanex stock exchanged therefor. If an Avanex stockholder owns
multiple blocks of Avanex stock, such stockholder should consult
its tax advisor with respect to the proper allocation of the tax
basis and holding periods of its Avanex stock among the Bookham
common stock received in the merger.
Cash in Lieu of Fractional Shares of Bookham Common
Stock. If an Avanex stockholder receives cash
instead of a fractional share of Bookham common stock, it will
recognize a taxable gain or loss based upon the difference
between the amount of cash that stockholder receives with
respect to such fractional share and its tax basis in the shares
of Avanex stock that is allocated to such fractional share. Any
gain or loss that an Avanex stockholder recognizes generally
will be treated as capital gain or loss. If such
stockholders holding period in a block of its Avanex stock
is greater than one year as of the consummation of the merger,
then such
108
stockholders capital gain or loss with respect to that
block will constitute long-term capital gain or loss. The use of
capital losses to offset ordinary income from other sources is
subject to limitations.
Treatment of Bookham and Avanex. No gain or
loss will be recognized by Bookham or Avanex solely as a result
of the merger.
Certain Avanex stockholders may be required to attach a
statement to their tax returns for the year in which the merger
is consummated that contains the information listed in Treasury
Regulation Section 1.368-3(b),
if applicable. Avanex stockholders are urged to consult their
own tax advisors with respect to the applicable reporting
requirements.
Backup Withholding. Any cash payments for
fractional shares made to Avanex stockholders in connection with
the merger may be subject to backup withholding on a
holders receipt of cash, unless such holder furnishes a
correct taxpayer identification number and certifies that he or
she is not subject to backup withholding or such stockholder is
otherwise exempt from backup withholding. Any amount withheld
under the backup withholding rules will generally be allowed as
a refund or credit against the holders U.S. federal
income tax liability, provided the required information is
furnished to the IRS.
THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
AND DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR DISCUSSION OF
ALL OF THE MERGERS POTENTIAL TAX EFFECTS. AVANEX
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING
TAX RETURN REPORTING REQUIREMENTS AND THE APPLICABILITY AND
EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER APPLICABLE
TAX LAWS.
Anticipated
Accounting Treatment
The merger is expected to be accounted for using the purchase
method of accounting pursuant to SFAS No. 141 with
Bookham as the acquiror. Under the purchase method of
accounting, the total estimated purchase price is allocated to
the assets of Avanex acquired and the liabilities of Avanex
assumed in connection with the merger, based on their estimated
fair values. These allocations will be based upon a valuation
that has not yet been finalized. If the merger is consummated
after June 27, 2009 the merger will be accounted for
pursuant to SFAS No. 141R. Under
SFAS No. 141R there are significant differences as
compared to SFAS No. 141 in determining the purchase
price of an acquired entity, including the requirement to
expense transaction costs and to reflect the fair value of
contingent purchase price adjustments at the date of acquisition.
Appraisal
Rights
Under Delaware law, holders of Avanex common stock are not
entitled to appraisal rights in connection with the merger
because both Bookham common stock and Avanex common stock are
listed on the NASDAQ Global Market. Under Delaware law, holders
of Bookham common stock are not entitled to appraisal rights in
connection with the merger.
Regulatory
Approvals
In the United States, Bookham must comply with applicable
federal and state securities laws and the rules and regulations
of the NASDAQ Global Market in connection with the issuance of
shares of Bookham common stock in the merger and the filing of
this joint proxy statement/prospectus with the SEC.
The merger is not subject to reporting obligations under the
Hart-Scott-Rodino
Act. However, at any time before or after the completion of the
merger, the Antitrust Division of the Department of Justice or
the Federal Trade Commission could take such action under the
antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the merger or seeking
divestiture of assets of Bookham or Avanex. In addition, at any
time before or after the consummation of the merger, any state
of the U.S. could take such actions under antitrust laws as
it deems necessary or desirable in the public interest. Such
actions can include
109
seeking to enjoin the merger or seeking divestiture of assets of
Bookham or Avanex. Private parties may also seek to take legal
actions under the antitrust laws in certain circumstances.
Neither Bookham nor Avanex is aware of any foreign approvals
that are required to complete the merger.
Restrictions
on Resales
All shares of Bookham common stock received by Avanex
stockholders in the merger will be freely tradable, except that
shares of Bookham common stock received by persons who become
affiliates of Bookham for purposes of Rule 144 under the
Securities Act may be resold by them only in transactions
permitted by Rule 144, or as otherwise permitted under the
Securities Act. Persons who may be deemed affiliates of Bookham
generally include individuals or entities that control, are
controlled by or are under common control with, Bookham and may
include the officers and directors as well as its principal
stockholders.
Legal
Proceedings Related to the Merger
On February 3, 2009, a purported class action complaint was
filed against Avanex and its directors, Bookham, Inc., and
Ultraviolet Acquisition Sub, Inc. in the Superior Court of
California, Alameda County by two individuals who purport to be
stockholders of Avanex. Plaintiffs purport to bring this action
on behalf of all stockholders of Avanex. On March 3, 2009,
these individuals filed an amended complaint. The amended
complaint alleges that the defendants breached their fiduciary
duties by failing to maximize stockholder value in connection
with the contemplated merger of Avanex and Bookham, and that the
joint proxy statement/prospectus fails to provide stockholders
with material information or contains materially misleading
information thereby rendering the stockholders unable to cast an
informed vote on the proposed merger. The complaint also alleges
that Avanex, Bookham, and Ultraviolet Acquisition Sub aided and
abetted the individual defendants alleged breach of
fiduciary duties. Plaintiffs seek to permanently enjoin the
merger with Bookham, monetary damages in an unspecified amount
attributable to the alleged breach of duties, and legal fees and
expenses. Avanex, Bookham and the individual defendants intend
to defend against the complaint vigorously.
Vote
Required; Recommendation of Bookham Board of Directors and
Avanex Board of Directors
The affirmative vote of the holders of a majority of the voting
power of the shares voting in person or by proxy at the Bookham
special meeting is required for approval of Bookham
Proposal No. 1. The failure to submit a proxy card or
vote at the special meeting, or an abstention, vote withheld or
broker non-votes will have no effect on the outcome
of Bookham Proposal No. 1.
The affirmative vote of the holders of a majority of the voting
power of the shares of Avanex common stock outstanding on the
record date for the Avanex special meeting is required for
approval of Avanex Proposal No. 1. Abstentions will be
counted towards a quorum and will have the same effect as
negative votes on Avanex Proposal No. 1 and
broker non-votes will be counted towards a quorum,
but will not be counted for any purpose in determining whether
Avanex Proposal No. 1 is approved.
THE BOOKHAM BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
BOOKHAMS STOCKHOLDERS VOTE FOR BOOKHAM
PROPOSAL NO. 1 TO APPROVE THE ISSUANCE OF SHARES OF
BOOKHAM COMMON STOCK IN THE MERGER.
THE AVANEX BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
AVANEXS STOCKHOLDERS VOTE FOR AVANEX
PROPOSAL NO. 1 TO ADOPT THE MERGER AGREEMENT.
110
THE
MERGER AGREEMENT
The following describes the material terms of the merger
agreement. This description of the merger agreement is qualified
in its entirety by reference to the full text of the merger
agreement which is attached as Annex A to this joint proxy
statement/prospectus and which is incorporated herein by
reference. The merger agreement has been included to provide you
with information regarding its terms. We encourage you to read
the entire merger agreement. The merger agreement is not
intended to provide any other factual information about us. Such
information can be found elsewhere in this joint proxy
statement/prospectus and in the other public filings that each
of Bookham and Avanex makes with the Securities and Exchange
Commission, which are available without charge at
www.sec.gov.
Unless specifically stated otherwise, the following
information and all other information contained in this joint
proxy statement/prospectus does not give effect to the proposed
reverse stock split discussed in the section entitled
Bookham Proposal No. 3 Amendments to
Bookhams Restated Certificate of Incorporation to Effect a
Reverse Stock Split and to Reduce the Number of Authorized
Shares of Bookham Common Stock and Preferred Stock.
The
Merger
The merger agreement provides that at the effective time,
Ultraviolet Acquisition Sub, Inc., or merger sub, a wholly owned
subsidiary of Bookham, will be merged with and into Avanex. Upon
the consummation of the merger, Avanex will continue as the
surviving corporation and will be a wholly owned subsidiary of
Bookham.
Effective
Time of the Merger
The merger agreement requires the parties to consummate the
merger on a date designated by Bookham and Avanex within two
business days after all the conditions to the consummation of
the merger contained in the merger agreement are satisfied or
waived, including the approval by stockholders of Bookham of the
issuance of shares of Bookham common stock in the merger and of
the amendment to Bookhams restated certificate of
incorporation to increase the number of authorized shares of
Bookham common stock and the adoption of the merger agreement by
the stockholders of Avanex. The merger will become effective
upon the filing of a certificate of merger with the Secretary of
State of the State of Delaware or at such later time as is
agreed by Bookham and Avanex and specified in the certificate of
merger. Because the consummation of the merger is subject to the
satisfaction of other conditions, we cannot predict the exact
timing of the consummation of the merger.
Manner
and Basis of Converting Shares
At the effective time, each share of Avanex common stock will
automatically be converted into the right to receive
5.426 shares of Bookham common stock. This number is
referred to in this joint proxy/prospectus as the exchange ratio
and is subject to future adjustment for stock splits, reverse
stock splits, recapitalizations, reclassifications or other
similar changes occurring prior to the consummation of the
merger.
No fractional shares of Bookham common stock will be issued in
the merger. Instead, each Avanex stockholder otherwise entitled
to a fraction of a share of Bookham common stock (after
aggregating all fractional shares of Bookham common stock
issuable to such stockholder) will be entitled to receive in
cash the dollar amount (rounded to the nearest whole cent),
without interest, determined by multiplying such fraction by the
average closing price of a share of Bookham common stock on the
NASDAQ Global Market for the 10 most recent trading days that
Bookham common stock has traded ending on the trading day one
day prior to the date the merger becomes effective.
The merger agreement provides that, prior to the effective time
of the merger, Bookham will select a bank or trust company to
act as the exchange agent under the merger agreement. The merger
agreement provides that promptly after the effective time of the
merger, Bookham will deposit with the exchange agent stock
certificates representing the shares of Bookham common stock
issuable in exchange for shares of Avanex common stock and a
sufficient amount of cash to make payments in lieu of fractional
shares.
111
The merger agreement contemplates that, as promptly as
practicable following the effective time of the merger, the
exchange agent for the merger will mail to each record holder of
Avanex common stock immediately prior to the effective time of
the merger a letter of transmittal and instructions for
surrendering and exchanging the stockholders shares of
Avanex common stock represented by stock certificates or by book
entry method (shares of Avanex common stock represented by the
book entry method will be referred as Avanex book entry shares).
The merger agreement provides that, upon surrender of an Avanex
common stock certificate or Avanex book entry shares for
exchange to the exchange agent, together with a duly signed
letter of transmittal, and such other documents as the exchange
agent or Bookham may reasonably require, the holder of the
Avanex stock certificate or Avanex book entry shares will be
entitled to receive the following:
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a certificate representing Bookham common stock;
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cash in lieu of any fractional share of Bookham common
stock; and
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any dividends or other distributions declared or made with
respect to Bookham common stock with a record date after the
effective time of the merger and a payment date prior to the
date the Avanex stock certificate or Avanex book entry shares
was surrendered.
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The stock certificate and book entry shares so surrendered will
be cancelled.
After the effective time of the merger, all holders of shares of
Avanex common stock represented by stock certificates or by book
entry shares that were outstanding immediately prior to the
effective time of the merger will cease to have any rights as
stockholders of Avanex. In addition, no transfer of Avanex
common stock after the effective time of the merger will be
registered on the stock transfer books of Avanex.
If any Avanex stock certificate has been lost, stolen or
destroyed, Bookham may in its reasonable discretion, and as a
condition to the issuance of any certificate representing
Bookham common stock in exchange therefor, require the owner of
such certificate to deliver an affidavit certifying such
certificate has been lost, stolen or destroyed and post a bond
in such amount as Bookham may reasonably direct as indemnity
against any claim that may be made with respect to that
certificate against Bookham, the surviving corporation or the
exchange agent.
From and after the effective time of the merger, until it is
surrendered and exchanged, each certificate that previously
evidenced Avanex common stock and each Avanex book entry share
will be deemed to represent only the right to receive shares of
Bookham common stock and cash in lieu of any fractional share of
Bookham common stock. Bookham will not pay dividends or other
distributions on any shares of Bookham common stock to be issued
in exchange for any unsurrendered Avanex common stock
certificate or Avanex book entry share until the Avanex common
stock certificate or Avanex book entry share is surrendered as
provided in the merger agreement.
Stock certificates and book entry shares should not be
surrendered for exchange by Avanex stockholders before the
effective time of the merger and should be sent only pursuant to
instructions set forth in the letters of transmittal which the
merger agreement provides will be mailed to Avanex stockholders
promptly following the effective time of the merger. In all
cases, the certificates representing shares of Bookham common
stock and cash in lieu of fractional shares will be delivered
only in accordance with the procedures set forth in the letter
of transmittal.
The merger agreement contemplates that, upon demand by Bookham,
the exchange agent will deliver to Bookham any certificates
representing Bookham common stock and any funds which have not
been disbursed to holders of Avanex stock certificates or Avanex
book entry shares as of the first year anniversary of the
effective time of the merger. Any holders of Avanex stock
certificates or Avanex book entry shares who have not
surrendered such certificates or book entry shares in compliance
with the above-described procedures may thereafter look only to
Bookham for, and be entitled to receive from Bookham,
certificates representing shares of Bookham common stock, cash
in lieu of fractional shares and any dividends or distributions
with respect to such Bookham common stock.
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Avanex
Stock Options
The merger agreement provides that, at the effective time of the
merger, each Avanex stock option that is outstanding and
unexercised immediately prior to the effective time of the
merger, whether or not vested, will be converted into an option
to purchase Bookham common stock and Bookham will assume such
stock option in accordance with the terms of the applicable
Avanex stock option plan and terms of the stock option agreement
evidencing that Avanex stock option. The number of shares of
Bookham common stock subject to each assumed Avanex stock option
will be determined by multiplying the number of shares of Avanex
common stock subject to the stock option immediately prior to
the effective time of the merger by the exchange ratio (5.426)
and rounding down to the nearest whole number of shares of
Bookham common stock. The per share exercise price for shares of
Bookham common stock under each assumed Avanex stock option will
be determined by dividing the exercise price for the Avanex
common stock subject to the stock option immediately prior to
the effective time of the merger by the exchange ratio (5.426)
and rounding up to the nearest whole cent. After adjusting the
assumed stock options to reflect the application of the exchange
ratio, all other terms of the assumed stock options, including
the term, exercisability and vesting schedule, will remain
unchanged, except that the Bookham board of directors or a
committee thereof will succeed to the authority and
responsibility of the Avanex board of directors or a committee
thereof with respect to such stock options. Certain holders of
stock options to purchase Avanex common stock will be entitled
to acceleration of vesting of their outstanding Avanex stock
options upon the consummation of the merger. For more
information as it relates to Avanexs directors and
executive officers, please see Bookham Proposal No. 1 and
Avanex Proposal No. 1 The Merger
Interests of Avanexs Executive Officers and Directors in
the Merger.
Avanex
Restricted Stock Units
The merger agreement provides that, at the effective time of the
merger, each restricted stock unit representing Avanex common
stock that remains unvested or unissued as of the effective time
will convert automatically into a restricted stock unit
reflecting Bookham common stock and will remain subject to the
vesting conditions in effect as of the effective time. The
number of shares of Bookham common stock subject to each
converted Avanex restricted stock unit will be determined by
multiplying the number of shares of Avanex common stock subject
to such converted Avanex restricted stock unit by the exchange
ratio and rounding the resulting number down to the nearest
whole number of shares of Bookham common stock. Certain holders
of Avanex RSUs will be entitled to acceleration of vesting of
their outstanding Avanex RSUs upon the consummation of the
merger. For more information as it relates to Avanexs
directors and executive officers, please see Bookham
Proposal No. 1 and Avanex
Proposal No. 1 The Merger
Interests of Avanexs Executive Officers and Directors in
the Merger.
The merger agreement provides that Bookham will file a
registration statement on
Form S-8
(if available for use by Bookham) within 15 days after the
effective time of the merger for the shares of Bookham common
stock issuable upon exercise of the assumed stock options and
the converted restricted stock units.
Avanex
Warrants
The merger agreement provides that at the effective time, each
warrant to purchase shares of Avanex common stock that is
outstanding and unexercised immediately prior to the effective
time of the merger agreement (whether or not vested):
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will be converted into and become a warrant to purchase Bookham
common stock;
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will be replaced by Bookham by issuing a reasonably equivalent
replacement stock warrant in accordance with the terms of the
warrant agreement by which each such warrant is evidenced;
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will be exercisable for that number of shares of Bookham common
stock determined by multiplying the number of shares of Avanex
common stock that were subject to such warrant immediately prior
to the effective time of the merger by the exchange ratio
(5.426) and rounding the resulting number down to the nearest
whole number of shares of Bookham common stock; and
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will have a per share exercise price for Bookham common stock
determined by dividing the per share exercise price of Avanex
common stock subject to such warrant (as in effect immediately
prior to the effective time of the merger) by the exchange ratio
(5.426), and rounding the resulting exercise price up to the
nearest whole cent.
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The merger agreement further provides that any restriction on
the exercise of any such warrant replaced by Bookham will
continue in full force and effect and the term, exercisability,
vesting schedule and other provisions of such replaced warrant
will otherwise remain unchanged as a result of the replacement
of such warrant.
Representations
and Warranties
The merger agreement contains customary representations and
warranties that Bookham and Avanex have made to, and solely for
the benefit of, each other. The representations and warranties
in the merger agreement expire at the effective time of the
merger. The assertions embodied in the representations and
warranties are qualified by information in disclosure schedules
that Bookham and Avanex have exchanged in connection with
signing the merger agreement. While Bookham and Avanex do not
believe that these disclosure schedules contain information that
securities laws require the parties to publicly disclose other
than information that has already been so disclosed, the
disclosure schedules do contain information that modifies,
qualifies and creates exceptions to the representations and
warranties set forth in the merger agreement. Accordingly, the
representations and warranties in the merger agreement should
not be relied upon as characterizations of the actual state of
facts, since such representations and warranties are qualified
in important respects by the disclosure schedules and since
facts may have changed or may change in the future. The
disclosure schedules exchanged by Bookham and Avanex contain
information that has been included in the companies
general prior public disclosures, as well as additional
non-public information. Moreover, information concerning the
subject matter of the representations and warranties may have
changed since the date of the merger agreement, which subsequent
information may or may not be fully reflected in the
companies public disclosures. In addition, certain
representations and warranties in the merger agreement were used
for the purpose of allocating risk between Bookham and Avanex
rather than establishing matters as facts. The customary
representations and warranties of each of Avanex and Bookham in
the merger agreement relate to following subject matters, among
other things:
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corporate organization, qualifications to do business, corporate
standing and corporate power;
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ownership of subsidiaries capital stock and the absence of
certain obligations with respect to the capital stock of any
subsidiary;
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capitalization;
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documents filed with the SEC;
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disclosure controls and procedures and internal controls over
financial reporting;
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financial statements and off-balance sheet arrangements;
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compliance with the rules and regulations of NASDAQ and certain
Sarbanes-Oxley requirements with respect to auditors;
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absence of certain changes and events since September 30,
2008;
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title to assets and leasehold interests;
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loans made to employees and other service providers and
customers;
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real and personal property;
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intellectual property;
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material contracts;
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the effect on material contracts of entering into and completing
the transactions contemplated by the merger agreement and other
matters relating to material contracts;
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absence of certain liabilities;
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compliance with applicable laws;
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possession of and compliance with material permits and other
governmental authorizations required for the operation of the
business;
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taxes;
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employee benefit plans and labor matters;
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environmental matters;
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insurance;
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transactions with affiliates;
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litigation;
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corporate authorization to enter into and complete the
transactions contemplated by the merger agreement and the
enforceability of the merger agreement;
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the applicability of any stockholder rights plan or business
combination statues (made only by Avanex);
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stockholder vote needed to approve the transactions contemplated
by the merger agreement;
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absence of any violation of any applicable legal requirements or
the charter documents, or certain other effects, as a result of
entering into and completing the transactions contemplated by
the merger agreement;
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brokerage, finders or other fees or commissions payable to
brokers, finders or financial advisors in connection with the
merger;
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arrangements with a financial advisor and receipt of an opinion
from a financial advisor;
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merger sub (made only by Bookham)
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the valid issuance of Bookham common stock to be issued in the
merger (made only by Bookham); and
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the accuracy of the information provided in connection with this
joint proxy statement/prospectus.
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Covenants;
Conduct of Business Prior to the Merger
Affirmative Covenants of Avanex. Avanex has
agreed that before the effective time of the merger, it will,
and it will cause its subsidiaries to, among other things:
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provide Bookham and its representatives with reasonable access
during normal business hours to its personnel, tax and
accounting advisers, assets, books, records, tax returns, work
papers and other documents, in each case as reasonably requested
by Bookham;
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provide Bookham and its representatives with copies of existing
books, records, tax returns, work papers and other documents and
information relating to Avanex and its subsidiaries as
reasonably requested by Bookham;
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permit Bookhams senior officers to meet, upon reasonable
notice and during normal business hours, with officers of Avanex
responsible for Avanexs financial statements and internal
controls in order to discuss certain matters;
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provide Bookham with copies of any notice, report or other
document filed with or sent to any governmental body on behalf
of Avanex or any of its subsidiaries in connection with the
merger or the other transactions contemplated by the merger
agreement;
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conduct its business and operations in the ordinary course and
in accordance in all material respects with past practices, use
its commercially reasonable efforts to attempt to preserve
intact the material components of its current business
organization, keep available the services of its current
officers and key employees and maintain its relations and
goodwill with all material suppliers, material customers,
material licensors and governmental bodies;
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promptly notify Bookham of any claim or legal proceeding
against, relating to, involving or otherwise affecting Avanex or
its subsidiaries that relates to the transactions contemplated
by the merger agreement commenced or, to Avanexs
knowledge, overtly threatened by a governmental body or
threatened in writing by any other person;
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promptly notify Bookham of:
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any event, condition, fact or circumstance that would reasonably
be expected to make the timely satisfaction of the conditions to
Bookhams obligation to close the merger impossible or
unlikely or that has had or would reasonably be expected to have
or result in a material adverse effect on Avanex and its
subsidiaries; and
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any material claim or other legal proceedings threatened,
commenced or asserted against, or with respect to, Avanex or any
of its subsidiaries;
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use commercially reasonable efforts to obtain and deliver to
Bookham at or prior to the effective time of the merger the
resignation of each corporate officer and director of Avanex and
each of its subsidiaries;
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at the request of Bookham, take such action so as to cause the
termination of Avanex 401(k) plans no less than one day prior to
the effective time of the merger; and
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promptly notify Bookham of any material weaknesses (or a series
of control deficiencies that collectively are deemed to
constitute a material weakness) in the effectiveness of
Avanexs internal control over financial reporting
identified by Avanex or its auditors and use its commercially
reasonable efforts to rectify such material weakness or series
of control deficiencies.
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Negative Covenants of Avanex. Avanex has
agreed that before the effective time of the merger, except as
otherwise consented to in writing by Bookham, which consent may
not be unreasonably withheld, or as previously disclosed to
Bookham pursuant to the merger agreement, it will not, will not
agree to, and will not permit any of its subsidiaries to, among
other things:
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subject to limited exceptions, declare, accrue, set aside or pay
any dividend or make any other distribution in respect of any
shares of capital stock, or repurchase, redeem or otherwise
reacquire any shares of capital stock or other securities (other
than pursuant to Avanexs right to repurchase restricted
shares held by an employee upon termination of such
employees employment);
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subject to limited exceptions, sell, issue, grant or authorize
the sale, issuance or grant of any capital stock or other
security or any option, call, warrant or right to acquire any
capital stock or other security or any security convertible into
any capital stock or other security;
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amend or waive any of its rights under, or accelerate the
vesting under, any provision of Avanexs stock option
plans, any agreement evidencing any outstanding stock option or
any restricted stock purchase agreement or otherwise modify the
terms of any outstanding stock option, restricted stock unit
agreement, warrant or other security or related contract;
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amend, terminate or grant any waiver under Avanexs
stockholder rights agreement, as amended;
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amend or permit the adoption of any amendment to its certificate
of incorporation or bylaws (or other charter or organizational
documents);
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acquire an equity interest or other interest in any other entity
or form any subsidiary, in each case except in the ordinary
course of business and consistent with past practices, or effect
or become a party to any merger, consolidation, share exchange,
business combination, amalgamation, recapitalization,
reclassification of shares, stock split, reverse stock split or
similar transaction;
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make any capital expenditures other than (a) those that are
provided for in Avanexs capital expense budget; and
(b) if not provided for in Avanexs capital expense
budget, those that, when added together with all other capital
expenditures made since the date of the merger agreement that
are not provided for in Avanexs capital expense budget, do
not exceed $500,000 in the aggregate;
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other than in the ordinary course of business and consistent
with past practices, enter into or become bound by any material
contract or amend, terminate or waive any material right or
remedy under any material contract;
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acquire, lease or license any right or other asset from any
other person or sell or otherwise dispose of, or lease or
license, any right or other asset to any other person other than
assets that are acquired, leased, licensed or disposed of in the
ordinary course of business consistent with past practices or
assets that are immaterial to the business of Avanex and its
subsidiaries;
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make any pledge of any material asset or permit any material
asset to become subject to any encumbrances other than
encumbrances that do not materially impair the operations of
Avanex and its subsidiaries;
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subject to limited exceptions, lend any money to any person, or
incur or guarantee any indebtedness;
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subject to limited exceptions, establish, adopt, enter into or
amend any employee plan or employee agreement, pay any bonus or
make any profit-sharing or similar payment to, or increase the
amount of the wages, salary, commissions, fringe benefits or
other compensation or remuneration payable to, any of its
directors or any of its officers or other employees;
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hire any employee at the level of vice president or above or
with an annual base salary in excess of $200,000, or promote any
employee to vice president or above, except in order to fill a
position vacated after January 27, 2009;
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subject to limited exceptions, change any of its methods of
accounting or accounting practices in any respect;
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make any material tax election;
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subject to limited exceptions, commence any legal proceeding or
settle any legal proceeding;
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subject to limited exceptions, enter into any contracts or make
any payments that can be characterized as parachute
payments under the Code; or
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subject to limited exceptions, take any action that would be
reasonably expected to cause the merger to fail to qualify as a
reorganization for federal income tax purposes under
the Code.
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Affirmative Covenants of Bookham. Bookham has
agreed that before the effective time of the merger, it will,
among other things:
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use reasonable best efforts to cause the shares of Bookham
common stock to be issued in the merger to be approved for
listing (subject to notice of issuance) on the NASDAQ Global
Market at or prior to the effective time of the merger;
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provide Avanex and its representatives with reasonable access
during normal business hours to its personnel, tax and
accounting advisers, assets, books, records, tax returns, work
papers and other documents, in each case as reasonably requested
by Avanex;
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provide Avanex and its representatives with copies of existing
books, records, tax returns, work papers and other documents and
information relating to Bookham and its subsidiaries as
reasonably requested by Avanex;
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provide Avanex with copies of any notice, report or other
document filed with or sent to any governmental body on behalf
of Bookham or any of its subsidiaries in connection with the
merger or the other transactions contemplated by the merger
agreement;
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conduct its business and operations in the ordinary course and
in accordance in all material respects with past practices, use
its commercially reasonable efforts to attempt to preserve
intact the material components of its current business
organization, keep available the services of its current
officers and key employees and maintain its relations and
goodwill with all material suppliers, material customers,
material licensors and governmental bodies;
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promptly notify Avanex of any claim or legal proceeding against,
relating to, involving or otherwise effecting Bookham or its
subsidiaries that relates to the transactions contemplated by
the merger agreement commenced or, to Bookhams knowledge,
overtly threatened by a governmental body or threatened in
writing by any other person;
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promptly notify Avanex of:
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any event, condition, fact or circumstance that would reasonably
be expected to make the timely satisfaction of the conditions to
Avanexs obligation to close the merger impossible or
unlikely or that has had or would reasonably be expected to have
or result in a material adverse effect on Bookham and its
subsidiaries; and
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any material claim or other legal proceedings threatened,
commenced or asserted against or with respect to Bookham or any
of its subsidiaries;
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promptly notify Avanex of any material weaknesses (or a series
of control deficiencies that collectively are deemed to
constitute a material weakness) in the effectiveness of
Bookhams internal control over financial reporting
identified by Bookham or its auditors and use its commercially
reasonable efforts to rectify such material weakness or series
of control deficiencies;
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use commercially reasonable efforts to obtain and deliver to
Avanex at or prior to the effective time the resignation of each
director of Bookham, other than those directors continuing in
officer (see description under the section The Merger
Agreement The Board of Directors of Bookham
Following the Merger on page 132; and
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cause merger sub to perform its obligations under the merger
agreement.
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Negative Covenants of Bookham. Bookham has
agreed that before the effective time of the merger, except as
otherwise consented to in writing by Avanex, which consent may
not be unreasonably withheld or delayed, or as previously
disclosed to Avanex pursuant to the merger agreement, it will
not, will not agree to, and will not permit any of its
subsidiaries to, among other things:
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subject to limited exceptions, declare, accrue, set aside or pay
any dividend or make any other distribution in respect of any
shares of capital stock, or repurchase, redeem or otherwise
reacquire any shares of capital stock or other securities, other
than pursuant to Bookhams right to repurchase restricted
shares held by an employee upon termination of such
employees employment;
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subject to limited exceptions, sell, issue, grant or authorize
the sale, issuance or grant of any capital stock or other
security or any option, call, warrant or right to acquire any
capital stock or other security or any security convertible into
any capital stock or other security;
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amend or waive any of its rights under, or accelerate the
vesting under, any provision of Bookhams stock option
plans, any agreement evidencing any outstanding stock option or
any restricted stock purchase agreement or otherwise modify the
terms of any outstanding stock option, restricted stock unit
agreement, warrant or other security or related contract;
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amend or permit the adoption of any amendment to its certificate
of incorporation or bylaws (or other charter or organizational
documents);
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acquire an equity interest or other interest in any other entity
or form any subsidiary, in each case except in the ordinary
course of business and consistent with past practices, or effect
or become a party to any merger, consolidation, share exchange,
business combination, amalgamation, recapitalization,
reclassification of shares, stock split, reverse stock split or
similar transaction;
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make any capital expenditures other than (a) those that are
provided for in Bookhams capital expense budget; and
(b) if not provided for in Bookhams capital expense
budget, those that, when added together with all other capital
expenditures made since the date of the merger agreement that
are not provided for in Bookhams capital expense budget,
do not exceed $2,500,000 in the aggregate;
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other than in the ordinary course of business and consistent
with past practices, enter into or become bound by any material
contract or amend, terminate or waive any material right or
remedy under any material contract;
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acquire, lease or license any right or other asset from any
other person or sell or otherwise dispose of, or lease or
license, any right or other asset to any other person other than
assets that are acquired, leased, licensed or disposed of in the
ordinary course of business consistent with past practices or
assets that are immaterial to the business of Bookham and its
subsidiaries;
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make any pledge of any material asset or permit any material
asset to become subject to any encumbrances other than
encumbrances that do not materially impair the operations of
Bookham and its subsidiaries;
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subject to limited exceptions, lend any money to any person, or
incur or guarantee any indebtedness;
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subject to limited exceptions, establish, adopt, enter into or
amend any employee plan or employee agreement, pay any bonus or
make any profit-sharing or similar payment to, or increase the
amount of the wages, salary, commissions, fringe benefits or
other compensation or remuneration payable to, any of its
directors or any of its officers or other employees;
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hire any employee at the level of vice president or above or
with an annual base salary in excess of $200,000, or promote any
employee to vice president or above, except in order to fill a
position vacated after January 27, 2009;
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subject to limited exceptions, change any of its methods of
accounting or accounting practices in any respect;
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make any material tax election;
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subject to limited exceptions, commence any legal proceeding or
settle any legal proceeding;
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subject to limited exceptions, enter into any contracts or make
any payments that can be characterized as parachute
payments under the Code; or
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subject to limited exceptions, take any action that would be
reasonably expected to cause the merger to fail to qualify as a
reorganization for federal income tax purposes under
the Code.
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Affirmative Covenants of Bookham and
Avanex. Both Bookham and Avanex have agreed that,
among other things:
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as promptly as practicable after the date of the merger
agreement, both Bookham and Avanex will prepare and cause to be
filed with the SEC a joint proxy statement/prospectus and
Bookham will prepare and cause to be filed with the SEC a
registration statement on
Form S-4,
of which this joint proxy statement/prospectus is a part and
will use reasonable best efforts:
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to cause the registration statement and the join proxy
statement/prospectus to comply with all applicable rules and
regulations promulgated by the SEC;
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to promptly notify the other of, cooperate with each other with
respect to and respond promptly to any comments of the SEC or
its staff;
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to have the registration statement declared effective as
promptly as practicable after it is filed with the SEC; and
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to keep such registration statement effective through the
consummation of the merger in order to permit the consummation
of the merger;
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each party will use reasonable best efforts to file, as soon as
practicable after January 27, 2009, all notices, reports
and other documents required to be filed with any governmental
body, including all notifications and responses to requests for
additional information required under applicable antitrust
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laws or regulations in connection with the merger and the other
transactions contemplated by the merger agreement;
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each party will use reasonable best efforts to take, or cause to
be taken, all actions necessary to consummate the merger and the
other transactions contemplated by the merger agreement;
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each party will make all filings and give all required notices
required to made or given by such party in connection with the
merger and the other transactions contemplated by the merger
agreement;
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each party will use reasonable best efforts to obtain each
consent required to be obtained by such party in connection with
the merger or the other transactions contemplated by the merger
agreement;
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each party will use its commercially reasonable efforts to lift
any restraint, injunction or other legal bar to the merger;
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each party will take all actions necessary to ensure that,
effective as promptly as practicable following the effective
time of the merger, the name of the combined company shall be
the name mutually agreed to by Bookham and Avanex; and
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each party will take all actions necessary to ensure that,
effective immediately following the effective time of the
merger, Bookhams board of directors is composed as
described in the merger agreement (unless otherwise agreed to by
the parties in writing).
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Provided, however, that neither Bookham nor Avanex shall have
any obligation to do any of the following with respect to itself
or any of its subsidiaries:
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to divest or agree to divest any of its respective businesses,
product lines or assets, or to take or agree to take any other
action or agree to any limitation or restriction on any of its
respective businesses, product lines or assets;
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to license or otherwise make available to any person, any
technology, software or other intellectual property or
intellectual property right; or
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to contest any lawsuit by any governmental body relating to the
merger or any of the other transactions contemplated by the
merger agreement.
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Avanex
Employee Stock Purchase Plan and Avanex Officer and Director
Share Purchase Plan
The merger agreement provides that Avanex will terminate its
1999 Employee Stock Purchase Plan and its Officer and Director
Share Purchase Plan immediately prior to and effective as of the
effective time of the merger. The merger agreement provides that
prior to the effective time of the merger, Avanex will take all
actions necessary with respect to the 1999 Employee Stock
Purchase Plan and the Avanex Officer and Director Share Purchase
Plan to:
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cause any outstanding offering periods to be terminated as of
the last business day before the effective date of the merger;
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make any pro-rata adjustments that may be necessary to reflect
the shortened offering period (but the shortened offering period
will otherwise be treated as a fully effective and completed
offering period for all purposes of such plans);
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cause the exercise as of the last business day before the
effective date of the merger of each purchase right under these
plans; and
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provide that no further offering period or purchase period will
commence under either plan.
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The merger agreement further provides that, on the last business
day before the effective date of the merger, Avanex will apply
the funds credited as of such date under the 1999 Employee Stock
Purchase Plan and the Officer and Director Share Purchase Plan
within each participants payroll withholding account to
the purchase of whole shares of Avanex common stock in
accordance with the terms of the respective plans.
120
Employee
Benefits Matters
The merger agreement provides that, subject to any necessary
transition period and subject to any applicable plan provisions,
contractual requirements or legal requirements:
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employees of Avanex (or its subsidiaries) who continue
employment with Bookham (or its subsidiaries) after the
effective time of the merger, who are sometimes referred to as
continuing Avanex employees, will be eligible to participate in
Bookhams health, vacation and 401(k) plans, to
substantially the same extent as similarly situated employees of
Bookham; and
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for purposes of determining a continuing Avanex employees
eligibility to participate in these Bookham plans (but not for
purposes of accrual), the continuing Avanex employee will
receive credit under these Bookham plans for his or her years of
continuous service with Avanex or its subsidiaries prior to the
effective time of the merger.
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The merger agreement further provides that Bookham will
recognize all service of the continuing Avanex employees with
Avanex or its subsidiaries, for purposes of eligibility, vesting
and participation (but not for purposes of benefit accrual) in
certain employee benefit plans of Bookham. In addition, Bookham
will:
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waive all limitations as to preexisting conditions, exclusions
and waiting periods with respect to participation and coverage
requirements (that do not require the consent of any insurance
carrier) applicable to the continuing Avanex employees under
certain Bookham welfare benefit plans in which such continuing
Avanex employees may be eligible to participate after the
effective time of the merger (other than preexisting condition
limitations, exclusions or waiting periods that are in effect
with respect to such continuing Avanex employee prior to the
effective time); and
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provide each continuing Avanex employee with credit for
co-payments and deductibles or out of pocket requirements under
any benefit plan that is a welfare plan in which such continuing
Avanex employee may be eligible to participate after the
effective time of the merger (to the extent possible without the
consent of any insurance carrier).
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Nothing provided for in the merger agreement creates or shall be
construed to create a right in any Avanex employee to employment
with Bookham, the surviving corporation or any other subsidiary
of Bookham. In addition, no Avanex employee or employee who
continues employment with Bookham will be deemed to be a third
party beneficiary of the merger agreement, except for officers
and directors of Avanex to the extent of their respective rights
with respect to the maintenance of indemnification rights and
directors and officers liability insurance coverage.
Please see The Merger Agreement
Indemnification and Insurance.
Indemnification
and Insurance
The merger agreement provides that, for a period of six years
after the merger, Bookham will cause the surviving corporation
and its subsidiaries to indemnify their respective current or
former directors and officers and any person who becomes a
director or officer of Avanex (or any of its subsidiaries) prior
to the effective time of the merger (such officers and directors
are referred to collectively as the Avanex indemnified D&O)
to the fullest extent that applicable legal requirements permit
a company to indemnify its own officers and directors.
In addition, the merger agreement provides that for a period of
six years after the merger, Bookham or the surviving corporation
will maintain in effect the existing policy of Avanexs
directors and officers liability insurance (or a
comparable replacement policy):
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covering claims arising from facts or events that occurred at or
prior to the effective time of the merger (to the extent that
such claims are of the type covered by such policy);
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covering each Avanex indemnified D&O who is covered as of
the effective time by the current insurance policy; and
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including terms with respect to coverage and amounts that are no
less favorable in the aggregate than those terms in effect on
January 27, 2009.
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If the annual premiums payable for such insurance coverage
exceed $526,500 (which reflects 150% of the annual premium
currently paid by Avanex for its existing policy), Bookham and
the surviving corporation may reduce the amount of coverage to
the greatest amount of coverage available for a cost equal to
that amount.
Obligations
of the Bookham Board of Directors and Avanex Board of Directors
with Respect to Their Recommendations and Holding Meetings of
Stockholders
Each of Avanex and Bookham has agreed to take all actions
necessary to call, give notice of and, as promptly as
practicable after the registration statement on
Form S-4
(of which this joint proxy statement/prospectus is a part) is
deemed effective under the Securities Act, hold meetings of
their respective stockholders, in the case of Avanex, for the
adoption of the merger agreement, and, in the case of Bookham,
for the approval of the issuance of shares of Bookham common
stock in the merger (and certain other proposals at the option
of Bookham).
Both Avanex and Bookham have agreed to include a statement in
this joint proxy statement/prospectus to the effect that, in the
case of Avanex, the board of directors of Avanex recommends that
Avanexs stockholders adopt the merger agreement at the
Avanex special meeting, and, in the case of Bookham, the board
of directors of Bookham recommends that Bookhams
stockholders approve the issuance of shares of Bookham common
stock in the merger and the amendment to Bookhams restated
certificate of incorporation to increase the number of
authorized shares of Bookham common stock at the Bookham special
meeting. The merger agreement provides that neither the board of
directors of Avanex nor the board of directors of Bookham may
withdraw its recommendation or modify its recommendation in a
manner adverse to the other company except in certain
circumstances.
The merger agreement provides that each of the boards of
directors of Avanex and Bookham is entitled to withdraw or
modify its recommendation that its stockholders vote in favor of
the transaction (in the case of Avanex, to adopt the merger
agreement at the Avanex special meeting, and, in the case of
Bookham, to approve the issuance of shares of Bookham common
stock in the merger and the amendment to Bookhams restated
certificate of incorporation to increase the number of
authorized shares of Bookham common stock at the Bookham special
meeting) in connection with an unsolicited written offer to
purchase all of the outstanding shares of such company if
certain requirements, including the following, are met:
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such company has not breached certain obligations under the
merger agreement regarding non-solicitation of alternative
transactions (see a description of such obligations under the
section entitled The Merger Agreement
Limitation on the Solicitation, Negotiation and Discussion by
Avanex and Bookham of Other Acquisition Proposals on
page 123);
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an unsolicited bona fide written offer to purchase all of the
outstanding shares of such company is made after
January 27, 2009 and the board of directors of such company
determines in its good faith judgment (after having consulted
with an independent financial advisor and outside legal counsel)
that this offer is more favorable from a financial point of view
to such companys stockholders than the merger (to be
determined on the basis of long term value);
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for a period of five business days after receipt of the new
offer such company engages in good faith negotiations with the
other party to amend the merger agreement in such manner that
the new offer that was determined to be favorable is no longer
more favorable than the merger agreement; and
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such companys board of directors determines in good faith
(after having consulted with its outside legal counsel) that in
light of such new offer, the withdrawal or change in its
recommendation is required in order for such board of directors
to comply with its fiduciary obligations to the stockholders of
such company under applicable law.
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122
In addition, the merger agreement provides that each of the
boards of directors of Avanex and Bookham is entitled to
withdraw or modify its recommendation that its stockholders vote
in favor of the transaction (in the case of Avanex, to adopt the
merger agreement at the Avanex special meeting, and, in the case
of Bookham, to approve the issuance of shares of Bookham common
stock in the merger and the amendment to Bookhams restated
certificate of incorporation to increase the number of
authorized shares of Bookham common stock at the Bookham special
meeting) in other circumstances (unrelated to a competing offer
to purchase the shares of such company) if certain requirements,
including the following, are met:
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a material development or change in circumstances occurs after
January 27, 2009 that was neither known to such company,
its subsidiaries and their representatives nor reasonably
foreseeable by such company and its subsidiaries;
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such company satisfies certain notice requirements with respect
to the other party;
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for a period of five business days such company engages in good
faith negotiations with the other party to amend the merger
agreement in such a manner that obviates the need to withdraw or
change the recommendation of such companys board of
directors; and
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such companys board of directors determines in good faith
(after having consulted with its outside legal counsel) that in
light of such material development or change in circumstances,
the withdrawal or change in its recommendation is required in
order for such board of directors to comply with its fiduciary
obligations to the stockholders of such company under applicable
law.
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The merger agreement provides that, if either company withdraws
or modifies the recommendation of its board of directors, such
company may be required to pay a fee of $1.64 million to
the other company under certain circumstances. See the section
entitled The Merger Agreement Expenses and
Termination Fees.
Both Avanex and Bookham have agreed to submit the adoption of
the merger agreement, in the case of Avanex, and the issuance of
shares of Bookham common stock in the merger and the amendment
to Bookhams restated certificate of incorporation to
increase the number of authorized shares of Bookham common
stock, in the case of Bookham, to their stockholders, regardless
of any withdrawal or modification of the respective
recommendation by the board of directors of Avanex or Bookham.
Limitation
on the Solicitation, Negotiation and Discussion by Avanex and
Bookham of Other Acquisition Proposals
The merger agreement contains detailed provisions prohibiting
Avanex and Bookham from seeking or entering into an alternative
transaction to the merger. Under these no
solicitation and related provisions, subject to specific
exceptions described in the merger agreement, each of Avanex and
Bookham has agreed that, prior to the earlier of consummation of
the merger or the termination of the merger agreement, it will
not, directly or indirectly (and that it will (a) cause its
subsidiaries and the respective officers, directors, financial
advisers, attorneys and accountants of such company and its
subsidiaries not to; and (b) use its reasonable best
efforts to ensure that the other representatives of such company
and its subsidiaries do not, directly or indirectly):
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solicit, initiate, knowingly encourage or knowingly facilitate
the making, submission or announcement of any acquisition
proposal or acquisition inquiry with respect to such company;
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furnish any information regarding such company or any of its
subsidiaries to any person in connection with or in response to
an acquisition proposal or acquisition inquiry with respect to
such company;
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engage in discussions or negotiations with any person with
respect to any acquisition proposal or acquisition inquiry with
respect to such company;
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approve, endorse or recommend any acquisition proposal or
acquisition inquiry with respect to such company; and
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enter into any letter of intent or contract relating to any
acquisition transaction with respect to such company.
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123
Under the merger agreement, an acquisition inquiry
is defined as an inquiry, indication of interest or request for
nonpublic information (other than those made or submitted by
Bookham or Avanex, as the case may be) that would reasonably be
expected to lead to an acquisition proposal, and an
acquisition proposal is defined as any offer or
proposal with respect to Avanex (other than those made or
submitted by Bookham) or Bookham (other than those submitted by
Avanex) relating to any acquisition transaction.
Under the merger agreement, subject to limited exceptions, an
acquisition transaction with respect to Avanex or
Bookham, as the case may be, is defined as any transaction or
series of related transactions (other than the one contemplated
by the merger agreement or with respect to Bookham as previously
disclosed to Avanex pursuant to the merger agreement) involving:
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any merger, exchange, consolidation, business combination,
issuance of securities, acquisition of securities,
reorganization, recapitalization, takeover offer, tender offer,
exchange offer or similar transaction involving such company or
one of its material subsidiaries, in which a third party or
group acquires more than a 15% interest in the total outstanding
voting securities of such company or one of its material
subsidiaries, or in which such company or one of its material
subsidiaries issues more than 15% of the outstanding voting
securities of such company or that significant subsidiary (as
described below);
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any sale, lease, exchange, transfer, license, acquisition or
disposition of assets representing 15% or more of the
consolidated net revenues, consolidated net income or
consolidated assets of such company and its subsidiaries; or
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any liquidation or dissolution of such company or one of its
material subsidiaries.
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Under the merger agreement, a significant subsidiary
of Avanex or Bookham, as the case may be, is defined as any
subsidiary that accounts for 10% or more of the consolidated net
revenues, consolidated net income or consolidated assets of such
company and its subsidiaries taken as a whole.
Under the merger agreement, Avanex and Bookham agreed to cease
any existing discussions with any third party that relate to any
acquisition proposal or acquisition inquiry with respect to such
company (subject to certain exceptions).
Each of Avanex and Bookham has agreed to advise the other party,
within 48 hours after receipt of any acquisition proposal
or acquisition inquiry with respect to such company, of the
identity of the person making the acquisition proposal or
acquisition inquiry and the terms thereof. The merger agreement
provides that each party receiving an acquisition proposal or an
acquisition inquiry must keep the other party reasonably
informed of the status of the acquisition proposal or
acquisition inquiry and the status and terms of any material
modifications or material proposed modifications thereto.
Each of Avanex and Bookham has also agreed not to release or
waive any provision of any confidentiality, non-solicitation,
no-hire, standstill or similar contract under which such company
or any of its subsidiaries has any rights and to use
commercially reasonable efforts to enforce such contracts at the
request of the other party.
Exception
to the Limitation on the Negotiation and Discussion by Avanex or
Bookham of Other Acquisition Proposals
The merger agreement provides that, if, prior to, in the case of
Avanex, the adoption of the merger agreement by the Avanex
stockholders, and in the case of Bookham, the approval if the
issuance of shares of Bookham common stock in the merger by the
Bookham stockholders, Avanex or Bookham, as the case may be,
receives from any person an acquisition proposal that
constitutes, or could reasonably be expected to result in the
submission by such person of, a superior offer (as described
below) with respect to such company, then
124
such company may furnish nonpublic information to, and engage in
discussions and negotiations with, the person making the
acquisition proposal, as long as:
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the acquisition proposal is not a result of any breach of the
no solicitation obligations of such company (see the
description of these obligations under the heading
Limitation on the Solicitation, Negotiation
and Discussion by Avanex and Bookham of Other Acquisition
Proposals above);
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such companys board of directors concludes in good faith
(after having consulted with its outside legal counsel) that
such action is required in order for such companys board
of directors to comply with its fiduciary obligations to such
companys stockholders under applicable law;
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such company has given the other party at least four business
days prior notice of its intention to take such action and
the identity of the person who made the acquisition proposal;
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such company receives an executed confidentiality agreement from
the person who made the acquisition proposal with terms at least
as favorable to such company as the confidentiality agreement
between Avanex and Bookham (except that no such confidentiality
agreement need include a standstill
provision); and
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such company provides the other party with any nonpublic
information to be furnished to the person who made the
acquisition proposal (that has not previously been delivered to
the other party) at least two business days prior to furnishing
such person with such nonpublic information.
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For purposes of the merger agreement, the term superior
offer, with respect to either Bookham or Avanex, as the
case may be, is defined as an unsolicited bona fide written
offer by a third party to acquire all of the outstanding shares
of such company that is determined by the board of directors of
such company, in its good faith judgment (after consulting with
an independent financial advisor and outside legal counsel and
after taking into account the likelihood and anticipated timing
of the consummation of the transaction contemplated by such
offer) to be more favorable from a financial point of view to
such companys stockholders than the merger determined on a
basis of long term value, without consideration of short-term
changes in stock price or volume in and of itself.
Material
Adverse Effect
Several of the representations, warranties, covenants, closing
conditions and termination provisions of Bookham and Avanex in
the merger agreement use the phrase material adverse
effect. The merger agreement provides that material
adverse effect means, with respect to either Bookham or
Avanex, as the case may be, any effect, change, claim, event or
circumstance that, considered together with other effects,
changes, claims, events and circumstances, has (or would
reasonably be expected to have) a material adverse effect on:
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the business, financial condition, operations or results of
operations of the subject company and its subsidiaries taken as
a whole; however, for purposes of this provision, no effect,
change, claim, event or circumstance resulting from the
following will be deemed to constitute, or be taken into account
in determining whether there has occurred, a material adverse
effect on the particular subject company:
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conditions generally affecting the industries in which the
subject company participates or the U.S. or global economy,
to the extent that such conditions do not have a
disproportionate impact on the subject company and its
subsidiaries taken as a whole;
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general conditions in the financial markets and any changes
therein (including any changes arising out of acts of terrorism,
war, weather conditions or other force majeure events), to the
extent that such conditions do not have a disproportionate
impact on the subject company and its subsidiaries taken as a
whole;
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changes in the trading price or trading volume of the subject
companys common stock in and of themselves;
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changes in GAAP applicable to the subject company and its
subsidiaries;
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the failure to meet public estimates or forecasts of revenues,
earnings of other financial metrics, in and of itself, or the
failure to meet internal projections, forecasts or budgets of
revenues, earnings or other financial metrics, in and of itself;
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any stockholder litigation directly resulting from the execution
of the merger agreement or the consummation of the merger;
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loss of employees, suppliers or customers resulting directly
from the announcement or pendency of the merger agreement or the
transactions contemplated by the merger agreement;
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the taking of any action expressly required to be taken pursuant
to the merger agreement;
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certain other specified items identified by the subject company
to the other party:
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with respect to Bookham relating to certain legal proceedings
and controversies and specified effects of the bankruptcy of
Nortel Networks Corporation or any of its subsidiaries or other
affiliates; and
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With respect to Avanex relating to certain legal
proceedings; or
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the ability of the subject company to consummate the merger or
to perform any of its covenants or obligations under the merger
agreement.
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Conditions
to the Merger
Conditions to the Obligations of Bookham. The
merger agreement provides that the obligations of Bookham and
merger sub to consummate the merger are subject to the
satisfaction of each of the following conditions:
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subject to the Avanex disclosure schedule, the accuracy in all
material respects of a limited number of representations and
warranties made by Avanex in the merger agreement (disregarding
all materiality qualifications limiting the scope of such
representations and warranties), including those relating to
capitalization, authorization to enter into the merger
agreement, the stockholder vote requirement and Avanexs
stockholder rights agreement;
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subject to the Avanex disclosure schedule, the accuracy of the
remaining representations and warranties made by Avanex in the
merger agreement in all respects (disregarding all materiality
qualifications limiting the scope of such representations and
warranties), provided that inaccuracies in such representations
and warranties will be disregarded so long as the circumstances
giving rise to all such inaccuracies, considered collectively,
do not constitute, and would not reasonably be expected to have
or result in, a material adverse effect on Avanex;
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subject to the Avanex disclosure schedule, the performance in
all material respects by Avanex of its obligations and covenants
set forth in the merger agreement that are required to be
performed at or prior to the consummation of the merger;
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the registration statement on
Form S-4,
of which this joint proxy statement/prospectus is a part, shall
have become effective in accordance with the provisions of the
Securities Act and shall not be subject to any stop order or
pending or threatened proceedings seeking such a stop order;
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Avanexs stockholders shall have adopted the merger
agreement by the required vote and Bookhams stockholders
shall have approved the issuance of shares of Bookham common
stock in the merger and the amendment to Bookhams restated
certificate of incorporation to increase the number of
authorized shares by the required vote;
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Bookham shall have received a legal opinion, dated as of the
date of consummation of the merger, to the effect that the
merger will constitute a reorganization for federal
income tax purposes;
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Avanexs chief executive officer and chief financial
officer shall have delivered to Bookham a certificate confirming
that certain conditions have been duly satisfied;
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there shall not have occurred and be continuing any event that
has a material adverse effect on Avanex which has not been
cured, and no event shall have occurred or circumstance shall
exist that, in combination with any other events or
circumstances, would reasonably be expected to have or result in
a material adverse effect on Avanex;
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all applicable waiting periods under applicable antitrust laws
shall have expired or been terminated;
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any governmental approvals or other consents required under any
applicable antitrust laws or other legal requirements shall have
been obtained (except for governmental authorization or other
consent that the failure to obtain would not reasonably be
expected to have a material adverse effect on Avanex or Bookham)
and such approvals or consents shall not be subject to any
conditions that would reasonably be expected to result in a
material adverse effect on Avanex or Bookham;
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the shares of Bookham common stock to be issued in the merger
shall have been approved for listing on the NASDAQ Global Market;
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there shall be no temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation
of the merger and no legal requirement making the consummation
of the merger illegal;
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there shall not be pending, any suit, action or judicial
proceedings brought by, or overtly threatened by, a governmental
body:
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challenging or seeking to restrain, prohibit, rescind or unwind
the consummation of the merger or any of the other transactions
contemplated by the merger agreement;
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seeking to prohibit or limit in any material respect
Bookhams ability to vote or otherwise exercise ownership
rights with respect to the stock of the surviving corporation;
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relating to the merger or the other transactions contemplated by
the merger agreement that would reasonably be expected to
materially and adversely affect the right or ability of Bookham,
Avanex or any of its subsidiaries to own any material assets or
materially limit the operation of the business of Avanex or its
subsidiaries;
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seeking to compel Bookham, Avanex or any of their respective
subsidiaries to dispose of or hold separate any material assets
or business as a result of the merger; or
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seeking to impose (or that would reasonably be expected to
result in the imposition of) criminal sanctions or liability on
Bookham, Avanex or any of its subsidiaries; and
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Avanex shall have filed all statements, reports, schedules,
forms and other documents required to be filed with the SEC
since January 27, 2009.
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Conditions to the Obligations of Avanex. The
merger agreement provides that the obligation of Avanex to
consummate the merger is subject to the satisfaction of each of
the following conditions:
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subject to the Bookham disclosure schedule, the accuracy in all
material respects of a limited number of representations and
warranties made by Bookham in the merger agreement (disregarding
all materiality qualifications limiting the scope of such
representations and warranties), including those relating to
capitalization, authorization to enter into the merger agreement
and the stockholder vote requirement;
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subject to the Bookham disclosure schedule, the accuracy of the
remaining representations and warranties made by Bookham in the
merger agreement in all respects (disregarding all materiality
qualifications limiting the scope of such representations and
warranties), provided that inaccuracies in such representations
and warranties will be disregarded so long as the circumstances
giving rise to all such inaccuracies, considered collectively,
do not constitute, and would not reasonably be expected to have
or result in, a material adverse effect on Bookham;
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subject to the Bookham disclosure schedule, the performance in
all material respects by Bookham of its obligations and
covenants set forth in the merger agreement that are required to
be performed at or prior to the consummation of the merger;
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the registration statement on
Form S-4,
of which this joint proxy statement/prospectus is a part, shall
have become effective in accordance with the provisions of the
Securities Act and shall not be subject to any stop order or
pending or threatened proceedings seeking such a stop order;
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Avanexs stockholders shall have adopted the merger
agreement by the required vote and Bookhams stockholders
shall have approved the issuance of shares of Bookham common
stock in the merger and the amendment to Bookhams restated
certificate of incorporation to increase the number of
authorized shares of Bookham by the required vote;
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Avanex shall have received a legal opinion, dated as of the date
of consummation of the merger, to the effect that the merger
will constitute a reorganization for federal income
tax purposes;
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an executive officer of Bookham shall have delivered to Avanex a
certificate confirming that certain conditions have been duly
satisfied;
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there shall not have occurred and be continuing any event that
has a material adverse effect on Bookham which has not been
cured, and no event shall have occurred or circumstance shall
exist that, in combination with any other events or
circumstances, would reasonably be expected to have or result in
a material adverse effect on Bookham;
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the shares of Bookham common stock to be issued in the merger
shall have been approved for listing on the NASDAQ Global Market;
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all applicable waiting periods under applicable antitrust law
shall have expired or been terminated;
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any governmental approvals or consents required under any
applicable antitrust laws or other legal requirements shall have
been obtained (except for governmental authorization or other
consent that the failure to obtain would not reasonably be
expected to have a material adverse effect on Avanex or Bookham)
and such approvals or consents shall not be subject to any
conditions that would reasonably be expected to result in a
material adverse effect on Avanex or Bookham;
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there shall be no temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation
of the merger and no legal requirement making the consummation
of the merger illegal;
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there shall not be pending, any suit, action or judicial
proceedings brought by, or overtly threatened by, a governmental
body:
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challenging or seeking to restrain, prohibit, rescind or unwind
the consummation of the merger or any of the other transactions
contemplated by the merger agreement;
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seeking to prohibit or limit in any material respect
Bookhams ability to vote or otherwise exercise ownership
rights with respect to the stock of the surviving corporation;
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relating to the merger or the other transactions contemplated by
the merger agreement that would reasonably be expected to
materially and adversely affect the right or ability of Bookham,
Avanex or any of its subsidiaries to own any material assets or
materially limit the operation of the business of Avanex or its
subsidiaries;
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seeking to compel Bookham, Avanex or any of their respective
subsidiaries to dispose of or hold separate any material assets
or business as a result of the merger; or
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seeking to impose (or that would reasonably be expected to
result in the imposition of) criminal sanctions or liability on
Bookham, Avanex or any of its subsidiaries; and
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Bookham shall have filed all statements, reports, schedules,
forms and other documents required to be filed with the SEC
since January 27, 2009.
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128
Termination
of the Merger Agreement
The merger agreement provides that, at any time prior to the
consummation of the merger, either before or after the requisite
approvals of the stockholders of Bookham or Avanex have been
obtained, Bookham and Avanex can terminate the merger agreement:
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by mutual written consent;
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by either Avanex or Bookham if the merger shall not have been
consummated by July 26, 2009; provided, however, that
neither party will be permitted to terminate the merger
agreement under this provision of the merger agreement if the
failure to consummate the merger by July 26, 2009 is caused
by a breach of an obligation to be performed prior to the
effective time of the merger by the party seeking to terminate
the merger agreement;
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by either Bookham or Avanex if a court of competent jurisdiction
or other governmental body shall have issued a final and
nonappealable order or taken other final and nonappealable
action permanently prohibiting the consummation of the merger;
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by either Bookham or Avanex if the Avanex special meeting
(including any postponements and adjournments thereof) has been
held, a final vote on the adoption of the merger agreement has
been taken and Avanexs stockholders do not approve the
adoption of the merger agreement by the required vote;
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by either Bookham or Avanex if the Bookham special meeting
(including any postponements and adjournments thereof) has been
held, a final vote on the issuance of shares of Bookham common
stock in the merger and on the amendment to Bookhams
certificate of incorporation to effect an increase in the number
of authorized shares of Bookham has been taken, and
Bookhams stockholders do not approve either the issuance
of shares of Bookham common stock in the merger or the amendment
to Bookhams restated certificate of incorporation to
increase the number of authorized shares by the required vote;
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by Avanex if, at any time prior to the adoption of the merger
agreement by the Avanex stockholders, any of the following
events shall have occurred (which are referred to as Avanex
triggering events):
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the board of directors of Avanex shall have failed to recommend
that Avanexs stockholders vote to adopt the merger
agreement, or shall have withdrawn or modified its
recommendation in a manner adverse to Bookham;
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Avanex shall have failed to include in this joint proxy
statement/prospectus its board of directors recommendation
in favor of the adoption of the merger agreement or a statement
to the effect that the board of directors of Avanex has
determined and believes that the merger is advisable to, and in
the best interests of, Avanexs stockholders;
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the board of directors of Avanex fails to reaffirm its
recommendation in favor of the adoption of the merger agreement
or fails to reaffirm its determination that the merger is in the
best interests of Avanexs stockholders, within
10 days after Bookham requests a reaffirmation in writing;
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the board of directors of Avanex shall have approved, endorsed
or recommended any acquisition proposal with respect to Avanex;
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Avanex shall have entered into any letter of intent or contract
relating to any acquisition proposal with respect to Avanex;
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a tender or exchange offer relating to securities of Avanex
shall have been commenced and Avanex shall not have sent to its
security holders, within 10 business days, a statement
disclosing that Avanex recommends rejection of the tender or
exchange offer;
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Avanex fails to issue a press release announcing its opposition
to an acquisition proposal with respect to Avanex within 10
business days after such an acquisition proposal is publicly
announced; or
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129
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Avanex shall have breached in any material respect certain
material provisions relating to its obligations of
non-solicitation, to hold the Avanex special meeting and not to
change the recommendation of Avanexs board of directors to
Avanexs stockholders to vote in favor of adoption of the
merger;
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by Bookham if, at any time prior to the approval of the issuance
of shares of Bookham common stock in the merger and the approval
of the amendment to Bookhams certificate of incorporation
to effect an increase in the number of authorized shares of
Bookham, any of the following events shall have occurred (which
are referred to as Bookham triggering events):
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the board of directors of Bookham shall have failed to recommend
that Bookhams stockholders vote to approve the issuance of
shares of Bookham common stock in the merger and the amendment
to Bookhams restated certificate of incorporation to
increase the number of authorized shares of Bookham, or shall
have withdrawn or modified its recommendation in a manner
adverse to Avanex;
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Bookham shall have failed to include in this joint proxy
statement/prospectus its board of directors recommendation
in favor of the approval of the issuance of shares of Bookham
common stock in the merger and the amendment to Bookhams
restated certificate of incorporation to increase the number of
authorized shares of Bookham or a statement to the effect that
the board of directors of Bookham has determined and believes
that the merger and such amendment to Bookhams restated
certificate of incorporation is advisable to, and in the best
interests of, Bookhams stockholders;
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the board of directors of Bookham fails to reaffirm its
recommendation in favor of the approval of the issuance of
shares of Bookham common stock in the merger and the amendment
to Bookhams restated certificate of incorporation to
increase the number of authorized shares of Bookham or fails to
reaffirm its determination that the merger and such amendment to
Bookhams restated certificate of incorporation is in the
best interests of Bookhams stockholders, within
10 days after Avanex requests a reaffirmation in writing;
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the board of directors of Bookham shall have approved, endorsed
or recommended any acquisition proposal with respect to Bookham;
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Bookham shall have entered into any letter of intent or contract
relating to any acquisition proposal with respect to Bookham;
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a tender or exchange offer relating to securities of Bookham
shall have been commenced and Bookham shall not have sent to its
security holders, within 10 business days, a statement
disclosing that Bookham recommends rejection of the tender or
exchange offer; or
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Bookham fails to issue a press release announcing its opposition
to an acquisition proposal with respect to Bookham within 10
business days after such an acquisition proposal is publicly
announced; or
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Bookham shall have breached in any material respect certain
material provisions relating to its obligations of
non-solicitation, to hold the Bookham special meeting and not to
change the recommendation of Bookhams board of directors
to Bookhams stockholders to vote in favor of the approval
of the issuance of shares of Bookham common stock in the merger
and the amendment to Bookhams restated certificate of
incorporation to increase the number of authorized shares of
Bookham;
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by Bookham if Avanexs representations and warranties are
inaccurate such that the closing conditions relating to the
accuracies of Avanexs representations and warranties would
not be satisfied (see section Conditions to
the Merger on page 126); provided that if any
inaccuracy is curable by Avanex before July 26, 2009 and
Avanex is continuing to exercise its reasonable best efforts to
cure such inaccuracy, Bookham may not terminate the merger
agreement under this provision unless the inaccuracy remains
uncured for a period of 30 days following notice thereof;
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by Bookham if Avanex has breached any of its covenants and
obligations in any material respect; provided that if any breach
is curable by Avanex before July 26, 2009 and Avanex is
continuing to exercise its reasonable best efforts to cure such
inaccuracy, Bookham may not terminate the merger agreement under
this provision unless the breach remains uncured for a period of
30 days following notice thereof;
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by Avanex if Bookhams representations and warranties are
inaccurate such that the closing conditions relating to the
accuracies of Bookhams representations and warranties
would not be satisfied (see section Conditions
to the Merger on page 126); provided that if any
inaccuracy is curable by Bookham before July 26, 2009 and
Bookham is continuing to exercise its reasonable best efforts to
cure such inaccuracy, Avanex may not terminate the merger
agreement under this provision unless the inaccuracy remains
uncured for a period of 30 days following notice
thereof; or
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by Avanex if Bookham has breached any of its covenants and
obligations in any material respect; provided that if any breach
is curable by Bookham before July 26, 2009 and Bookham is
continuing to exercise its reasonable best efforts to cure such
inaccuracy, Avanex may not terminate the merger agreement under
this provision unless the breach remains uncured for a period of
30 days following notice thereof.
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Expenses
and Termination Fees
The merger agreement provides that, subject to limited
exceptions, all fees and expenses incurred in connection with
the merger agreement and the merger will be paid by the party
incurring such expenses; provided, however, that Bookham and
Avanex will share equally all fees and expenses, other than
attorneys fees, incurred in connection with: (a) the
filing, printing and mailing of the registration statement on
Form S-4
and this joint proxy statement/prospectus; and (b) the
filing by the parties of any notice or other document under any
applicable antitrust or competition legal requirement.
The merger agreement provides that Avanex will pay Bookham a
termination fee of $1.64 million if any of the following
events occurs:
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the merger agreement is terminated by Bookham under the
provision of the merger agreement permitting such termination in
the event of the occurrence of any of the Avanex triggering
events described in The Merger Agreement
Termination of the Merger Agreement; or
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(i) the merger agreement is terminated by Avanex or Bookham
under the provision of the merger agreement permitting such
termination in the event that the stockholders of Avanex have
voted not to adopt the merger agreement, (ii) before such
termination an acquisition proposal with respect to Avanex shall
have been publicly disclosed or announced and is not withdrawn,
and (iii) on or prior to the first anniversary of the
termination of the merger agreement, either an acquisition
proposal with respect to Avanex is consummated or Avanex (or any
of its subsidiaries) enters into a definitive agreement
providing for an acquisition transaction with respect to Avanex.
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In addition, the merger agreement provides that Avanex will pay
Bookhams expenses in connection with the merger agreement
in the amount of $1.0 million if the merger agreement is
terminated by Bookham or Avanex under the provision of the
merger agreement permitting such termination in the event the
stockholders of Avanex have voted not to adopt the merger
agreement. The payment of $1.0 million of expenses by
Avanex will be credited against the $1.64 million
termination fee described above.
The merger agreement provides that Bookham will pay Avanex a
termination fee of $1.64 million if any of the following
events occurs:
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the merger agreement is terminated by Avanex under the provision
of the merger agreement permitting such termination in the event
of the occurrence of any of the Bookham triggering events
described in The Merger Agreement Termination
of the Merger Agreement; or
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(i) the merger agreement is terminated by Avanex or Bookham
under the provision of the merger agreement permitting such
termination in the event that the stockholders of Bookham have
voted not to
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131
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approve the issuance of the Bookham common stock in the merger
or the amendment to Bookhams certificate of incorporation
affecting an increase in the number of authorized shares of
Bookham, (ii) before such termination an acquisition
proposal with respect to Bookham shall have been publicly
disclosed or announced and is not withdrawn, and (iii) on
or prior to the first anniversary of the termination of the
merger agreement, either an acquisition proposal with respect to
Bookham is consummated or Bookham (or any of its subsidiaries)
enters into a definitive agreement providing for an acquisition
transaction with respect to Bookham.
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In addition, the merger agreement provides that Bookham will pay
Avanexs expenses in connection with the merger agreement
in the amount of $1.0 million if the merger agreement is
terminated by Bookham or Avanex under the provision of the
merger agreement permitting such termination in the event the
stockholders of Bookham have voted not to approve the issuance
of Bookham common stock in the merger or the amendment to
Bookhams certificate of incorporation affecting an
increase in the number of authorized shares of Bookham. The
payment of $1.0 million of expenses paid by Bookham will be
credited against the $1.64 million termination fee
described above.
The Board
of Directors of Bookham Following the Merger
The Bookham board of directors is currently comprised of eight
directors and is divided into three classes, with each class
serving a staggered three-year term.
The merger agreement provides that the parties will take all
actions necessary to ensure that effective immediately following
the effective time of the merger, the board of directors of
Bookham will consist of the following members, each to hold
office from and after the effective time of the merger until the
earliest of appointment of his or her respective successor,
resignation or proper removal in accordance with Bookhams
charter documents and applicable legal requirements:
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Two members to be chosen by Bookham (in its sole discretion), or
to the extent any such person determines not to serve (or is
unable to serve) as a member of the board, another person
designated by Bookham; and
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Giovanni Barbarossa, or, to the extent Dr. Barbarossa
determines not to serve (or is unable to serve) as a member of
the board, another person designated by Avanex.
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One member to be chosen by Bookham (in its sole discretion), or,
to the extent any such person determines not to serve (or is
unable to serve) as a member of the board, another person
designated by Bookham; and
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Greg Dougherty, or, to the extent Mr. Dougherty determines
not to serve (or is unable to serve) as a member of the board,
another person designated by Avanex.
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One member to be chosen by Bookham (in its sole discretion), or,
to the extent any such person determines not to serve (or is
unable to serve) as a member of the board, another person
designated by Bookham; and
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Joel A. Smith, III, or, to the extent Mr. Smith determines
not to serve (or is unable to serve) as a member of the board,
another person designated by Avanex.
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Bookham currently expects that Alain Couder, Bernard Couillaud,
Lori Holland and Edward Collins will be appointed on its behalf
to the Bookham board of directors immediately following the
effective time of the merger; however, a final determination as
to who will be appointed on Bookhams behalf to the Bookham
board of directors has not been made and the persons who will be
appointed on Bookhams behalf to the Bookham board of
directors immediately following the effective time of the merger
may change. See
132
Management and other Information of the Combined
Company Executive Officers and Directors of Bookham
Following the Merger.
The merger agreement provides that Bernard Couillaud (to the
extent he becomes a director immediately following the effective
time) will serve as the chairman of the board of directors of
Bookham immediately following the effective time of the merger.
The merger agreement further provides that the committees of
Bookhams board of directors from and after the effective
time of the merger will consist of the following:
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Lori Holland (Chair) (to the extent Ms. Holland becomes a
director immediately following the effective time of the
merger); and
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Other members of the Audit Committee (one of which shall be
either Greg Dougherty or Joel A. Smith, III) will
be appointed by the board of directors of Bookham in accordance
with the merger agreement.
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Compensation Committee:
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Greg Dougherty (Chair) (to the extent Mr. Dougherty becomes
a director immediately following the effective time of the
merger); and
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Other members of the Compensation Committee will be appointed by
the board of directors of Bookham in accordance with the merger
agreement.
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Nominating and Corporate Governance Committee:
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Joel A. Smith, III (Chair) (to the extent Mr. Smith becomes
a director immediately following the effective time of the
merger); and
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Other members of the Nominating and Corporate Governance
Committee will be appointed by the board of directors of Bookham
in accordance with the merger agreement.
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VOTING
AGREEMENTS
The following descriptions of the voting agreements describes
the material terms of the voting agreements. The descriptions of
the voting agreements are qualified in their entirety by
reference to the forms of voting agreements which are attached
as Annex B and Annex C to this joint proxy
statement/prospectus and which are incorporated herein by
reference. We encourage you to read the entire forms of voting
agreements.
Voting
Agreements Relating to Avanex Shares
Giovanni Barbarossa, Mark Weinswig, Bradley Kolb, Scott Parker,
Paul Smith, Vinton Cerf, Joel A. Smith, III, Susan Wang, Greg
Dougherty and Dennis Wolf, each of whom is either an executive
officer
and/or a
director of Avanex, have each entered into a voting agreement
with Bookham dated January 27, 2009. In the voting
agreements, each such officer
and/or
director has agreed to vote all shares of Avanex common stock
owned by them as of the record date in favor of the adopting of
the merger agreement and against any alternative transaction
with respect to Avanex. In addition, each such officer
and/or
director has each granted Bookham an irrevocable proxy to vote
their shares of Avanex common stock in the same manner.
Each such officer
and/or
director has also agreed that, before the Avanex special meeting
of stockholders, they will not transfer, assign, convey or
dispose of any shares of Avanex common stock, any options to
purchase shares of Avanex common stock or any other Avanex
securities owned by them except in certain circumstances.
Approximately 98,664 shares in the aggregate, or 0.63% of
the Avanex common stock outstanding on the record date for the
Avanex special meeting, are subject to such voting agreements
and irrevocable proxies.
Such voting agreements will terminate upon the earlier of:
(a) the termination of the merger agreement in accordance
with its terms or the effectiveness of the merger; or
(b) an amendment to the merger agreement
133
decreasing the exchange ratio or otherwise materially and
adversely effecting the applicable stockholder who signed the
voting agreement.
Voting
Agreements Relating to Bookham Shares
David Simpson, Jerry Turin, Lori Holland, Alain Couder, Kate
Rundle, Edward Collins, James Haynes, Yves LeMaitre, Kenneth
Ibbs, Kathleen Zwickert, Bernard Couillaud, Peter Bordui, Joseph
Cook, Adrian Meldrum and W. Arthur Porter, each of whom is
either an officer
and/or a
director of Bookham, have each entered into a voting agreement
with Avanex dated January 27, 2009. In the voting
agreements, each such officer
and/or
director agreed to vote all shares of Bookham common stock owned
by them as of the record date in favor of the issuance of shares
of Bookham common stock in the merger and against any
alternative transaction with respect to Bookham.
In addition, each such officer
and/or
director has granted Avanex an irrevocable proxy to vote their
shares of Bookham common stock in the same manner.
Each such officer
and/or
director has also agreed that, before the Bookham special
meeting of stockholders, they will not transfer, assign, convey
or dispose of any shares of Bookham common stock, any options to
purchase shares of Bookham common stock or any other Bookham
securities, owned by them except in certain circumstances.
Approximately 792,788 shares in the aggregate, or
approximately 0.79% of the Bookham common stock outstanding on
the record date for the Bookham special meeting, are subject to
such voting agreements and irrevocable proxies.
Such voting agreements will terminate upon the earlier of:
(a) the termination of the merger agreement in accordance
with its terms or the effectiveness of the merger; or
(b) an amendment to the merger agreement increasing the
exchange ratio or otherwise materially and adversely affecting
the applicable stockholder who signed the voting agreement.
134
BOOKHAM
PROPOSAL NO. 2 AMENDMENT TO BOOKHAMS
RESTATED CERTIFICATE OF
INCORPORATION TO INCREASE THE AUTHORIZED SHARES OF BOOKHAM
COMMON STOCK
Overview
The Bookham board of directors has unanimously approved a
proposal to amend its restated certificate of incorporation to
increase the authorized shares of common stock of Bookham to
450,000,000 shares, subject to stockholder approval.
Bookhams board has declared this amendment to be advisable
and recommended that this proposal be presented to Bookham
stockholders for approval. The text of the form of proposed
amendment to Bookhams restated certificate of
incorporation to increase the authorized shares of common stock
of Bookham to 450,000,000 shares, is attached to this joint
proxy statement/prospectus as Annex F.
If the Bookham stockholders approve this
Proposal No. 2 and the Bookham
Proposal No. 1 to approve the issuance of Bookham
common stock in the merger, Bookham expects to file a
certificate of amendment to the Bookham restated certificate of
incorporation with the Secretary of State of the State of
Delaware to increase the number of authorized shares of common
stock immediately prior to the proposed merger. Upon filing the
certificate of amendment to Bookhams restated certificate
of incorporation to increase the number of authorized shares of
common stock from 175,000,000 to 450,000,000, the first sentence
of Article FOURTH of Bookhams restated certificate of
incorporation will be as follows (on a
pre-reverse
stock split basis):
FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is
455,000,000, consisting of (i) 450,000,000 shares of
Common Stock, $0.01 par value per share (Common
Stock), and (ii) 5,000,000 shares of Preferred
Stock, $0.01 par value per share (Preferred
Stock).
On March 18, 2009, the record date for the Bookham special
meeting, Bookham had an aggregate of 100,959,545 shares
outstanding, approximately 19,355,179 shares of Bookham
common stock were issuable pursuant to outstanding warrants,
stock options and restricted stock units and
7,303,957 shares of Bookham common stock were reserved for
future issuance pursuant to Bookhams equity incentive
plans.
The primary reason for this increase in the authorized shares
is to effect the merger with Avanex. If Bookhams
stockholders do not approve Bookham Proposal No. 1 to
approve the issuance of shares of Bookham common stock in the
merger, then the Bookham board of directors will,
notwithstanding stockholder approval of this proposed amendment,
abandon this proposed amendment.
Reasons
for the Increase in Authorized Shares
The primary reason for the increase in authorized shares is
to effect the merger. At present, Bookham does not have
sufficient authorized shares of its common stock in order to
effect the merger and to issue the Bookham common stock in the
merger pursuant to the merger agreement. Additionally, approval
of an increase in authorized shares of Bookham common stock is a
closing condition to the obligations of the parties to
consummate the merger pursuant to the merger agreement. If
Bookham Proposal No. 2 is not approved by the Bookham
stockholders, and the closing condition to the merger agreement
is not waived, Bookham will be unable to complete the merger.
Although at present, apart from the shares to be issued pursuant
to the merger and pursuant to its equity incentive plans and
outstanding warrants, Bookham has no commitments or agreements
to issue additional shares of common stock, it desires to have
additional shares available to provide additional flexibility to
use its capital stock for business and financial purposes in the
future. In this regard, in connection with Bookhams
evaluation of its strategic and financing alternatives, Bookham
may determine to issue additional shares of its common stock at
any time following the completion of the merger. In addition,
the additional shares may be used for various purposes without
further stockholder approval, except as may be required by
applicable law, regulations promulgated by government agencies,
the rules of the NASDAQ Global Market or other market or
exchange on which Bookham common stock is then listed. These
purposes may include, among others:
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raising capital;
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providing equity incentives to employees, officers or directors;
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establishing strategic relationships with other
companies; and
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135
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expanding the business or product lines of the combined company
through the acquisition of other businesses or products.
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The terms of additional shares of common stock will be identical
to those of the currently outstanding shares of Bookham common
stock. However, because holders of Bookham common stock have no
preemptive rights to purchase or subscribe for any unissued
stock of Bookham, the issuance of any additional shares of
common stock authorized as a result of the increase in the
number of authorized shares of common stock will substantially
reduce the current stockholders percentage of ownership
interest in the total outstanding shares of common stock.
Effects
of the Increase in Authorized Shares
The proposed increase in the authorized number of shares of
common stock could have a number of effects on the stockholders
of Bookham depending upon the exact nature and circumstances of
any actual issuances of authorized but unissued shares. The
increase could have an anti-takeover effect, in that additional
shares could be issued (within the limits imposed by applicable
law) in one or more transactions that could make a change in
control or takeover of Bookham difficult. For example,
additional shares could be issued by Bookham so as to dilute the
stock ownership or voting rights of persons seeking to obtain
control of Bookham. Similarly, the issuance of additional shares
to certain persons allied with Bookhams management could
have the effect of making it more difficult to remove
Bookhams management by diluting the stock ownership or
voting rights of persons seeking to cause such removal.
The proposed amendment to Bookhams restated certificate of
incorporation to increase the number of authorized shares of
common stock from 175,000,000 shares to
450,000,000 shares will be effective upon the filing of the
certificate of amendment with the Secretary of State of the
State of Delaware. Notwithstanding stockholder approval of this
proposed amendment, Bookhams board of directors may
abandon the proposed amendment without any further action by
Bookham stockholders at any time prior to its effectiveness, and
will abandon the proposed amendment if Bookhams
stockholders do not approve Proposal No. 1 to approve
the issuance of shares pursuant to the merger. Bookham expects
to file such proposed amendment immediately prior to the
proposed merger if Bookhams stockholders approve Bookham
Proposal No. 1 and this Proposal No. 2. As
previously noted, the proposed amendment to Bookhams
restated certificate of incorporation to increase the number of
authorized shares of common stock is a condition to the
consummation of the merger.
The share amounts referenced in this Bookham
Proposal No. 2, including the proposed increase to
450,000,000 authorized shares, does not give effect to the
proposed reverse stock split discussed in the section entitled
Bookham Proposal No. 3 Amendments to
Bookhams Restated Certificate of Incorporation to Effect a
Reverse Stock Split and to Reduce the Number of Authorized
Shares of Bookham Common Stock and Preferred Stock. For
more information on the effect of the proposed reverse stock
split on Bookhams authorized shares, please see
Bookham Proposal No. 3 Amendments to
Bookhams Restated Certificate of Incorporation to Effect a
Reverse Stock Split and to Reduce the Number of Authorized
Shares of Bookham Common Stock and Preferred Stock
Effects of the Reverse Stock Split.
Vote
Required; Recommendation of Bookham Board of Directors
The affirmative vote of the holders of a majority of the voting
power of Bookham common stock outstanding on the record date for
the Bookham special meeting is required to approve the proposal
to amend Bookhams restated certificate of incorporation to
increase the authorized shares of common stock of Bookham to
450,000,000 shares.
A failure to submit a proxy card or vote at the special meeting,
or an abstention, vote withheld or broker non-vote
will have the same effect as a vote against Bookham
Proposal No. 2.
BOOKHAMS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
BOOKHAM STOCKHOLDERS VOTE FOR BOOKHAM
PROPOSAL NO. 2 TO APPROVE AN AMENDMENT TO
BOOKHAMS RESTATED CERTIFICATE OF INCORPORATION TO INCREASE
THE NUMBER OF AUTHORIZED SHARES OF BOOKHAM COMMON STOCK TO
450,000,000 SHARES.
136
BOOKHAM
PROPOSAL NO. 3 AMENDMENTS TO
BOOKHAMS RESTATED CERTIFICATE OF
INCORPORATION TO EFFECT A REVERSE STOCK SPLIT AND TO REDUCE THE
NUMBER OF
AUTHORIZED SHARES OF BOOKHAM COMMON STOCK AND PREFERRED
STOCK
Overview
The Bookham board of directors has unanimously approved a series
of amendments to its restated certificate of incorporation to
effect a reverse stock split of all issued and outstanding
shares of its common stock at a reverse stock split ratio
ranging from one-for-five to one-for-thirty and to effect a
corresponding proportionate reduction in the total number of
authorized shares of Bookham common stock and preferred stock in
connection with the reverse stock split. The Bookham board of
directors has declared such proposed amendments to be advisable
and has recommended that these proposed amendments be presented
to Bookham stockholders for approval.
The proposed amendments to Bookhams restated certificate
of incorporation would effect a reverse stock split whereby a
whole number of outstanding shares of Bookham common stock
between and including five and thirty would be combined and
reclassified into one share of Bookham common stock, and
pursuant to which the total number of authorized shares of
Bookham common stock and preferred stock would be
proportionately reduced. The actions taken in connection with
the reverse stock split would reduce the number of outstanding
shares of Bookham common stock and the total number of
authorized shares of Bookham common stock and preferred stock.
Upon receiving stockholder approval, the Bookham board of
directors will have the sole discretion, but not the obligation,
at any time within one year of the date of the Bookham special
meeting (and regardless of whether the proposed merger is
consummated) and pursuant to Section 242(c) of the Delaware
General Corporation Law to elect, as it determines to be in the
best interests of Bookham and its stockholders, whether to
effect a reverse stock split, and if so, the whole number of
shares of Bookham common stock between and including five and
thirty that will be combined and reclassified into one share of
Bookham common stock with the resulting corresponding
proportionate reduction of the total number of authorized shares
of Bookham common stock and preferred stock. The Bookham board
of directors believes that these amendments granting the Bookham
board of directors the discretion to select a specific reverse
stock split ratio among those approved by the Bookham
stockholders provides the Bookham board of directors with
maximum flexibility to react to then-current market conditions
and, therefore, is in the best interests of Bookham and its
stockholders.
By approving these amendments, Bookhams stockholders:
(a) approve a series of amendments to Bookhams
restated certificate of incorporation pursuant to which any
whole number of outstanding shares between and including five
and thirty would be combined and reclassified into one share of
Bookham common stock and pursuant to which the total number of
authorized shares of Bookham common stock and preferred stock
would be proportionately reduced; and (b) authorize the
Bookham board of directors to file only one such amendment, as
determined by the Bookham board of directors in its sole
discretion, and to abandon each amendment not selected by the
Bookham board of directors. The Bookham board of directors may
also elect not to undertake any reverse stock split and
therefore abandon all amendments. The text of the proposed form
of certificate of amendment to the restated certificate of
incorporation is attached hereto as Annex G.
If approved by Bookhams stockholders, and following such
stockholder approval, the Bookham board of directors determines
that effecting a reverse stock split is in the best interests of
Bookham and its stockholders, the reverse stock split and the
corresponding proportionate reduction in the total number of
authorized shares of Bookham common stock and preferred stock
will become effective upon the filing of one such amendment with
the Secretary of State of the State of Delaware. The amendment
filed thereby will contain the number of shares selected by the
Bookham board of directors within the limits set forth in this
proposal to be combined and reclassified into one share of
Bookham common stock, and the resulting corresponding
proportionate reduction in the total number of authorized shares
of Bookham common stock and preferred stock. The decision by the
Bookham board of directors to effect the reverse stock split,
and if implemented the reverse stock split ratio, will be based
on a number of factors, including market conditions, existing
and expected
137
trading prices for Bookham common stock and the applicable
listing requirements of the NASDAQ Global Market.
If, following stockholder approval, the Bookham board of
directors elects to effect a reverse stock split, the number of
issued and outstanding shares of Bookham common stock would be
reduced in accordance with a reverse stock split ratio
determined by the Bookham board of directors within the limits
set forth in this proposal and the total number of shares of
Bookham common stock and preferred stock that Bookham is
authorized to issue would be proportionately reduced.
Except for adjustments that may result from the treatment of
fractional shares as described below, each Bookham stockholder
will hold the same percentage of the outstanding Bookham common
stock immediately following the reverse stock split as such
Bookham stockholder held immediately prior to the reverse stock
split. The par value of the common stock would remain unchanged
at $0.01 per share.
If this Bookham Proposal No. 3 is approved by the
Bookham stockholders, the Bookham board of directors may elect
to effect a reverse stock split whether or not any of the other
Bookham Proposals are approved, including the approval of the
issuance of Bookham common stock in the proposed merger, or
whether or not the proposed merger is consummated.
Reasons
for the Reverse Stock Split
The Bookham board of directors believes that a reverse stock
split may be desirable for a number of reasons. First, the
Bookham board of directors believes that a reverse stock split
may allow Bookham to meet the listing requirements of, and thus
remain listed on, the NASDAQ Global Market. Second, the Bookham
board of directors believes that a reverse stock split could
improve the marketability and liquidity of Bookham common stock.
Bookhams common stock is currently, and will be following
the completion of the merger, listed on the NASDAQ Global
Market. According to applicable NASDAQ rules, in order for
Bookham common stock to continue to be listed on the NASDAQ
Global Market, Bookham must satisfy certain listing maintenance
standards established by the NASDAQ Global Market. Among other
things, if the closing bid price of Bookham common stock is
under $1.00 per share for 30 consecutive trading days and does
not thereafter reach $1.00 per share or higher for a minimum of
ten consecutive trading days during the 180 calendar days
following notification by NASDAQ, NASDAQ may take action to
delist Bookhams common stock from trading on the NASDAQ
Global Market. On October 16, 2008, NASDAQ announced that
it had suspended the enforcement of its rules requiring a
minimum bid price of $1.00 per share through January 16,
2009, which was subsequently extended by NASDAQ on
December 18, 2008 and March 18, 2009, such that
companies will not be cited for any new concerns related to
minimum bid price or market value of publicly held shares
deficiencies. According to NASDAQ, the bid price and market
value of publicly held shares requirements will be reinstated on
July 20, 2009. As a result of this suspension, Bookham does
not expect to receive a staff determination letter with respect
to the delisting of Bookham common stock resulting from a
failure to meet the minimum bid requirement unless it has failed
to demonstrate compliance with the minimum bid requirement on or
after July 20, 2009. As of March 23, 2009, the closing
bid price of Bookham common stock was $0.33, lower than the
minimum bid requirement. Therefore, a reverse stock split is
intended to allow Bookham to comply with NASDAQs minimum
bid requirement and thereby permit Bookham common stock to
continue to be listed on the NASDAQ Global Market following the
reinstatement of the minimum bid requirement.
The Bookham board of directors expects that a reverse stock
split of its common stock will increase the market price of its
common stock so that Bookham is able to maintain compliance with
the NASDAQ minimum bid requirement for the foreseeable future.
The Bookham board of directors also believes that the increased
market price of Bookham common stock expected as a result of
implementing a reverse stock split will improve the
marketability and liquidity of Bookham common stock and will
encourage interest and trading in Bookham common stock. Because
of the trading volatility often associated with low-priced
stocks, many brokerage houses and institutional investors
138
have internal policies and practices that either prohibit them
from investing in low-priced stocks or tend to discourage
individual brokers from recommending low-priced stocks to their
customers. Some of those policies and practices may function to
make the processing of trades in low-priced stocks economically
unattractive to brokers. Additionally, because brokers
commissions on low-priced stocks generally represent a higher
percentage of the stock price than commissions on higher-priced
stocks, the current average price per share of Bookham common
stock can result in individual stockholders paying transaction
costs representing a higher percentage of their total share
value than would be the case if the share price were
substantially higher. It should be noted that the liquidity
of Bookham common stock may be harmed by the proposed reverse
stock split given the reduced number of shares that would be
outstanding after the reverse stock split. The Bookham board
of directors is hopeful, however, that the anticipated higher
market price will reduce, to some extent, the negative effects
of the policies and practices of institutional investors and
brokerage houses described above on the liquidity and
marketability of the common stock.
Notwithstanding the foregoing, there can be no assurance
that: (a) the market price per share following the reverse
stock split would rise in proportion to the reduction in the
number of pre-split shares of Bookham common stock outstanding
before the reverse stock split; (b) the market price per
share following the reverse stock split would remain in excess
of the $1.00 minimum bid price for a sustained period of time;
(c) the Bookham common stock will not be delisted from
NASDAQ due to a failure to meet other continued listing
requirements even if the market price per post-reverse split
share of Bookham common stock remains in excess of the $1.00
minimum bid requirement; and (d) the reverse stock split
would result in a per share price that would attract brokers and
investors who do not trade in lower priced stock. The market
price of Bookham common stock will also be based on
Bookhams performance and other factors, some of which are
unrelated to the number of shares outstanding. If the reverse
stock split is effected and the market price of Bookham common
stock declines, the percentage decline as an absolute number and
as a percentage of Bookhams overall market capitalization
may be greater than would occur in the absence of a reverse
stock split.
Bookham
Board of Directors Discretion to Effect the Reverse Stock
Split
If the amendments to Bookhams restated certificate of
incorporation to effect a reverse stock split and a
corresponding proportionate reduction in the total number of
authorized shares of Bookham common stock and preferred stock
are approved by the Bookham stockholders, any one such amendment
will be effected, if at all, only upon a determination by the
Bookham board of directors that a reverse stock split (with a
reverse stock split ratio determined by the Bookham board of
directors as described above) and a proportionate corresponding
reduction in the total number of authorized shares of Bookham
common stock and preferred stock are in the best interests of
Bookham and its stockholders. Such determination shall be based
upon certain factors, including existing and expected
marketability and liquidity of the Bookham common stock, meeting
the listing requirements for the NASDAQ Global Market,
prevailing market conditions and the likely effect on the market
price of the Bookham common stock. Notwithstanding approval by
the stockholders of the amendments to Bookhams restated
certificate of incorporation to effect a reverse stock split and
a corresponding proportionate reduction in the total number of
authorized shares of Bookham common stock and preferred stock,
the Bookham board of directors may, in its sole discretion,
abandon all of the proposed amendments and determine prior to
the effectiveness of any filing with the Secretary of State of
the State of Delaware not to effect the reverse stock split and
corresponding proportionate reduction in the total number of
authorized shares of Bookham common stock and preferred stock,
as permitted under Section 242(c) of the Delaware General
Corporation Law. If the Bookham board of directors fails to
effect the reverse stock split and the corresponding
proportionate reduction in the total number of authorized shares
of Bookham common stock and preferred stock within one year of
the date of the Bookham special meeting, stockholder approval
again would be required prior to implementing any reverse stock
split. If approved by the Bookham stockholders, the Bookham
board of directors may determine to effect the reverse stock
split and the corresponding proportionate reduction in the total
number of authorized shares of Bookham common stock and
preferred stock even if the merger that is the subject of
Bookham Proposal No. 1 is not consummated.
139
Effects
of the Reverse Stock Split
After the effective date of the proposed reverse stock split and
the corresponding proportionate reduction in the total number of
authorized shares of Bookham common stock and preferred stock,
each Bookham stockholder will own a reduced number of shares of
Bookham common stock. However, any reverse stock split and
corresponding proportionate reduction in the total number of
authorized shares of Bookham common stock and preferred stock
will affect all Bookham stockholders uniformly and will not
affect any stockholders percentage ownership interests in
Bookham, except to the extent that the reverse stock split
results in any of Bookham stockholders owning a fractional share
as described below. Voting rights and other rights and
preferences of the holders of Bookham common stock will not be
affected by the proposed reverse stock split (other than as a
result of the payment of cash in lieu of fractional shares). For
example, a holder of 2% of the voting power of the outstanding
shares of Bookham common stock immediately prior to the reverse
stock split would continue to hold 2% of the voting power of the
outstanding shares of Bookham common stock immediately after the
reverse stock split. The number of stockholders of record will
not be affected by the proposed reverse stock split (except to
the extent that any stockholder holds only a fractional share
interest and receives cash for such interest after the proposed
reverse stock split).
The principal effects of the reverse stock split will be that:
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depending on the reverse stock split ratio selected by the
Bookham board of directors, each five or thirty shares of
Bookham common stock owned by a stockholder, or any whole number
of shares of Bookham common stock between five and thirty as
determined by the Bookham board of directors, will be combined
and reclassified into one new share of Bookham common stock;
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if Bookham Proposal No. 2 is approved and the
certificate of amendment to Bookhams restated certificate
of incorporation to increase the authorized shares of Bookham
common stock is filed with the Secretary of State of the State
of Delaware as described in Bookham Proposal No. 2,
then, dependent on the reverse stock split ratio selected by the
Bookham board of directors:
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the total number of authorized shares of Bookham common stock
will be reduced from 450,000,000 to a range of 90,000,000 to
15,000,000,
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the total number of authorized shares of Bookham preferred stock
will be reduced from a range of 1,000,000 to 166,667, and
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the total number of authorized shares of Bookham capital stock
will be reduced from a range of 91,000,000 to 15,166,667;
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if Bookham Proposal No. 2 is not approved, then,
dependent on the reverse stock split ratio selected by the
Bookham board of directors:
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the total number of authorized shares of Bookham common stock
will be reduced from 175,000,000 to a range of 35,000,000 to
5,833,333,
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the total number of authorized shares of Bookham preferred stock
will be reduced from a range of 1,000,000 to 166,667, and
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the total number of authorized shares of Bookham capital stock
will be reduced from a range of 36,000,000 to 6,000,000;
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based upon the reverse stock split ratio selected by the Bookham
board of directors, proportionate adjustments will be made to
the per share exercise price
and/or the
number of shares issuable upon the exercise or vesting of all
then outstanding Bookham stock options, restricted stock awards,
restricted stock units or warrants (including any such
securities that may be assumed in the merger), which will result
in, with respect to stock options and warrants, a proportional
decrease in the number of shares of Bookham common stock
reserved for issuance upon exercise of, and a proportional
increase in the exercise price of, all such stock options and
warrants; and
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140
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the number of shares then reserved for issuance under
Bookhams equity incentive plans (including any such plans
assumed in the merger) will be reduced proportionately based
upon the reverse stock split ratio selected by the Bookham board
of directors.
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The following table illustrates the effect of the reverse stock
split ratio selected by the Bookham board of directors on the
proportionate reduction of the authorized shares of Bookham
common stock and preferred stock assuming that Bookham
Proposal No. 2 is approved and the certificate of
amendment to Bookhams restated certificate of
incorporation to increase the authorized shares of Bookham
common stock is filed with the Secretary of State of the State
of Delaware as described in Bookham Proposal No. 2,
and the reverse stock split is effected after the filing of such
certificate of amendment:
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Total Authorized
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Total Authorized
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Total Authorized
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Shares of Bookham
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Shares of Bookham
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Shares of Bookham
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Common Stock
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Preferred Stock
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Capital Stock
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Pre-Split
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450,000,000
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5,000,000
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455,000,000
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1-for-5
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90,000,000
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1,000,000
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91,000,000
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1-for-6
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75,000,000
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833,333
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75,833,333
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1-for-7
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64,285,714
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714,286
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65,000,000
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1-for-8
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56,250,000
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625,000
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56,875,000
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1-for-9
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50,000,000
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555,556
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|
50,555,556
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1-for-10
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45,000,000
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500,000
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45,500,000
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1-for-11
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40,909,091
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|
454,545
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|
41,363,636
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1-for-12
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37,500,000
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416,667
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37,916,667
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1-for-13
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34,615,385
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|
384,615
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35,000,000
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1-for-14
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32,142,857
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|
357,143
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32,500,000
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1-for-15
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30,000,000
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|
|
333,333
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30,333,333
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1-for-16
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28,125,000
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312,500
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28,437,500
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1-for-17
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26,470,588
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|
|
294,118
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|
26,764,706
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1-for-18
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25,000,000
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|
277,778
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|
25,277,778
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1-for-19
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23,684,211
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263,158
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23,947,368
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1-for-20
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22,500,000
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250,000
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22,750,000
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1-for-21
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21,428,571
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238,095
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21,666,667
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1-for-22
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20,454,545
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227,273
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20,681,818
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1-for-23
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19,565,217
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|
217,391
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19,782,609
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1-for-24
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18,750,000
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208,333
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18,958,333
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1-for-25
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18,000,000
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200,000
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18,200,000
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1-for-26
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17,307,692
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192,308
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17,500,000
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1-for-27
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16,666,667
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185,185
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16,851,852
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1-for-28
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16,071,429
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178,571
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16,250,000
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1-for-29
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15,517,241
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172,414
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15,689,655
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1-for-30
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15,000,000
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166,667
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15,166,667
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141
The following table illustrates the effect of the reverse stock
split ratio selected by the Bookham board of directors on the
proportionate reduction of the authorized shares of Bookham
common stock and preferred stock assuming that Bookham
Proposal No. 2 is not approved:
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Total Authorized
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Total Authorized
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Total Authorized
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Shares of Bookham
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Shares of Bookham
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Shares of Bookham
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Common Stock
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Preferred Stock
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Capital Stock
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Pre-Split
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175,000,000
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5,000,000
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180,000,000
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1-for-5
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35,000,000
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1,000,000
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36,000,000
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1-for-6
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29,166,667
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|
833,333
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30,000,000
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1-for-7
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25,000,000
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|
|
714,286
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25,714,286
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1-for-8
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21,875,000
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625,000
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22,500,000
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1-for-9
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19,444,444
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|
555,556
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20,000,000
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1-for-10
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|
17,500,000
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|
|
|
500,000
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18,000,000
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|
1-for-11
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|
|
15,909,091
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|
454,545
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|
|
16,363,636
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1-for-12
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|
14,583,333
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|
|
416,667
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|
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|
15,000,000
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|
1-for-13
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|
|
13,461,538
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|
|
|
384,615
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|
|
|
13,846,154
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|
1-for-14
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|
|
12,500,000
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|
|
|
357,143
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|
|
|
12,857,143
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|
1-for-15
|
|
|
11,666,667
|
|
|
|
333,333
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|
|
12,000,000
|
|
1-for-16
|
|
|
10,937,500
|
|
|
|
312,500
|
|
|
|
11,250,000
|
|
1-for-17
|
|
|
10,294,118
|
|
|
|
294,118
|
|
|
|
10,588,235
|
|
1-for-18
|
|
|
9,722,222
|
|
|
|
277,778
|
|
|
|
10,000,000
|
|
1-for-19
|
|
|
9,210,526
|
|
|
|
263,158
|
|
|
|
9,473,684
|
|
1-for-20
|
|
|
8,750,000
|
|
|
|
250,000
|
|
|
|
9,000,000
|
|
1-for-21
|
|
|
8,333,333
|
|
|
|
238,095
|
|
|
|
8,571,429
|
|
1-for-22
|
|
|
7,954,545
|
|
|
|
227,273
|
|
|
|
8,181,818
|
|
1-for-23
|
|
|
7,608,696
|
|
|
|
217,391
|
|
|
|
7,826,087
|
|
1-for-24
|
|
|
7,291,667
|
|
|
|
208,333
|
|
|
|
7,500,000
|
|
1-for-25
|
|
|
7,000,000
|
|
|
|
200,000
|
|
|
|
7,200,000
|
|
1-for-26
|
|
|
6,730,769
|
|
|
|
192,308
|
|
|
|
6,923,077
|
|
1-for-27
|
|
|
6,481,481
|
|
|
|
185,185
|
|
|
|
6,666,667
|
|
1-for-28
|
|
|
6,250,000
|
|
|
|
178,571
|
|
|
|
6,428,571
|
|
1-for-29
|
|
|
6,034,483
|
|
|
|
172,414
|
|
|
|
6,206,897
|
|
1-for-30
|
|
|
5,833,333
|
|
|
|
166,667
|
|
|
|
6,000,000
|
|
In addition to the above effects, if a reverse stock split is
implemented, it will increase the number of stockholders of
Bookham who own odd lots of less than
100 shares of Bookham common stock. Brokerage commission
and other costs of transactions in odd lots are generally higher
than the costs of transactions of more than 100 shares of
common stock. Accordingly, a reverse stock split may not achieve
the desired results of increasing marketability and liquidity of
Bookham common stock that have been outlined above.
Bookham common stock is currently registered under
Section 12(b) of the Securities Exchange Act of 1934, as
amended, or the Exchange Act, and Bookham is subject to the
periodic reporting and other requirements of the Exchange Act.
The proposed reverse stock split will not affect the
registration of the common stock under the Exchange Act. Bookham
common stock will continue to be reported on the NASDAQ Global
Market under the symbol BKHM (although, if the
proposed reverse stock split is implemented, NASDAQ would likely
add the letter D to the end of the trading symbol
for a period of 20 trading days to indicate that the reverse
stock split has occurred). Pursuant to the merger agreement,
Bookham and Avanex will take all actions necessary to ensure
that the name of the combined company following the merger will
be the name mutually agreed to by Bookham and Avanex. The name
change has not yet been
142
determined between the parties; however, when (and if) a name
change is effected, a change in Bookhams trading symbol
may be effected as well.
Effective
Date
The proposed reverse stock split would become effective at
5:00 p.m., Eastern time, on the date of filing of a
certificate of amendment to Bookhams restated certificate
of incorporation with the office of the Secretary of State of
the State of Delaware. Bookham currently expects that, if this
Bookham Proposal No. 3 is approved, the reverse stock
split will become effective following the consummation of the
merger (assuming the merger is consummated). However, this
Bookham Proposal No. 3 is not conditioned upon the
approval of any of the other Bookham Proposals and the Bookham
board of directors may elect to effect a reverse stock split
whether or not the merger is approved and consummated and such
reverse stock split may be made effective at any time prior to
one year after the date of the Bookham special meeting. Except
as explained below with respect to fractional shares, on the
effective date of the reverse stock split, shares of Bookham
common stock issued and outstanding immediately prior to the
effective date of the reverse stock split will be combined and
reclassified, automatically and without any action on the part
of the stockholders, into a lesser number of new shares of
Bookham common stock in accordance with the reverse stock split
ratio determined by the Bookham board of directors within the
limits set forth in this proposal.
Payment
for Fractional Shares
No fractional shares of Bookham common stock will be issued as a
result of the proposed reverse stock split. Instead, a Bookham
stockholder who would otherwise be entitled to receive
fractional shares (after taking into account all fractional
shares of Bookham common stock otherwise issuable to such
holder), upon receipt by the exchange agent selected by Bookham
of a properly completed and executed letter of transmittal, and
where shares are held in certificated form, surrender to the
exchange agent of the stockholders certificate(s) formerly
representing pre-reverse stock split shares of Bookham common
stock, will be entitled to receive a cash payment (without
interest) equal to the fractional share of Bookham common stock
to which such stockholder would otherwise be entitled multiplied
by the closing sales price of a share of Bookham common stock on
the date the amendment effecting the reverse stock split is
filed with the Secretary of State of the State of Delaware (with
such average closing sales price being adjusted to give effect
to the reverse stock split).
After the reverse stock split, a stockholder will have no
further interest in Bookham with respect to their cashed-out
fractional shares. A stockholder otherwise entitled to a
fractional interest will not have any voting, dividend or other
rights except to receive payment as described above.
Exchange
of Stock Certificates
As soon as practicable after the effective date of the reverse
stock split, holders of Bookham common stock immediately prior
to the effective date of reverse stock split will be notified
that the reverse stock split has been effected. Bookham will
also select an exchange agent for purposes of implementing the
exchange of stock certificates. Holders of pre-reverse stock
split shares of Bookham common stock will be asked to surrender
to the exchange agent certificates representing pre-reverse
stock split shares in exchange for certificates representing
post-reverse stock split shares and payment in lieu of
fractional shares (if any) in accordance with the procedures to
be set forth in a letter of transmittal to be sent by Bookham or
its exchange agent. No new certificates will be issued to a
Bookham stockholder until such Bookham stockholder has
surrendered such stockholders outstanding certificate(s)
together with the properly completed and executed letter of
transmittal to the exchange agent. Bookham stockholders
should not destroy any stock certificate and should not submit
any certificates until requested to do so.
Accounting
Consequences
The par value per share of Bookham common stock would remain
unchanged at $0.01 per share after the reverse stock split. As a
result, on the effective date of the reverse stock split, the
stated capital on Bookham
143
balance sheet attributable to the Bookham common stock will be
reduced proportionally, based on the reverse stock split ratio,
from its present amount, and the additional paid-in capital
account shall be credited (or increased) with the amount by
which the stated capital is reduced. The per share common stock
net income or loss and net book value will be increased because
there will be fewer shares of Bookham common stock outstanding.
Such reverse stock split will be reflected retroactively in
Bookhams financial statements. Bookham does not anticipate
that any other accounting consequences would arise as a result
of the reverse stock split.
Material
U.S. Federal Income Tax Consequences of the Reverse Stock
Split
The following discussion summarizes the material
U.S. federal income tax considerations of the proposed
reverse stock split that are expected to apply generally to
U.S. Holders (as defined below) of Bookham common stock.
This summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended, or the Code, existing Treasury
Regulations under the Code and current administrative rulings
and court decisions, all of which are subject to change or
different interpretation. Any change, which may or may not be
retroactive, could alter the tax consequences to Bookham or the
Bookham stockholders as described in this summary. No ruling
from the IRS has been or will be requested in connection with
the reverse stock split. No attempt has been made to comment on
all U.S. federal income tax consequences of the reverse
stock split that may be relevant to particular
U.S. Holders, including holders:
|
|
|
|
|
who are subject to special tax rules such as dealers, brokers
and traders in securities, foreign persons, mutual funds,
regulated investment companies, real estate investment trusts,
insurance companies, banks or other financial institutions or
tax-exempt entities;
|
|
|
|
who are subject to the alternative minimum tax provisions of the
Code;
|
|
|
|
who acquired their shares of Bookham common stock in connection
with stock options, warrants, restricted stock units or stock
purchase plans or in other compensatory transactions;
|
|
|
|
who hold their shares of Bookham common stock as a hedge or as
part of a hedging, straddle or other risk reduction strategy;
|
|
|
|
who are partnerships or other pass-through entities or investors
in such pass-through entities;
|
|
|
|
who do not hold their shares of Bookham common stock as capital
assets;
|
|
|
|
whose shares of Bookham common stock constitute qualified small
business stock with the meaning of Section 1202 of the Code;
|
|
|
|
who have a functional currency other than the
U.S. dollar; or
|
|
|
|
holders who will receive shares of Bookham common stock in
exchange for Avanex capital stock in the merger.
|
In addition, the following discussion does not address the tax
consequences of the reverse stock split under state, local and
foreign tax laws. Furthermore, the following discussion does not
address any of the following:
|
|
|
|
|
the tax consequences of transactions effectuated before, after
or at the same time as the reverse stock split, whether or not
they are in connection with the reverse stock split; or
|
|
|
|
the tax consequences of the receipt of Bookham common stock
other than in exchange for Bookham common stock in the reverse
stock split, and in particular the acquisition of Bookham common
stock in exchange for capital stock of Avanex in the merger.
|
For purposes of this discussion, a U.S. Holder means a
beneficial owner of Bookham common stock who is:
|
|
|
|
|
an individual who is a citizen or resident of the United States;
|
144
|
|
|
|
|
a corporation (or other entity taxable as a corporation for
U.S. federal income tax purposes) created or organized in
the United States or under the laws of the United States or any
subdivision thereof;
|
|
|
|
an estate the income of which is includible in gross income for
U.S. federal income tax purposes regardless of its
source; or
|
|
|
|
a trust (other than a grantor trust) if (A) a court within
the United States is able to exercise primary supervision over
the administration of the trust and one or more
U.S. persons have the authority to control all substantial
decisions of the trust or (B) it has a valid election in
place to be treated as a U.S. person.
|
HOLDERS OF BOOKHAM COMMON STOCK ARE ADVISED AND EXPECTED TO
CONSULT THEIR OWN TAX ADVISORS REGARDING THE U.S. FEDERAL
INCOME TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT IN LIGHT OF
THEIR PERSONAL CIRCUMSTANCES AND THE CONSEQUENCES OF THE REVERSE
STOCK SPLIT UNDER STATE, LOCAL AND FOREIGN TAX LAWS.
The reverse stock split is expected to qualify for one or more
non-recognition provisions of the Code. Assuming the reverse
stock split so qualifies, the following consequences will result:
|
|
|
|
|
no gain or loss will be recognized by Bookham as a result of the
reverse stock split;
|
|
|
|
a Bookham stockholder who receives only Bookham common stock in
the reverse stock split generally will not recognize any gain or
loss on the reverse stock split, and the aggregate tax basis of
the post-reverse split shares received will be equal to the
aggregate tax basis of the pre-reverse split shares exchanged
therefor;
|
|
|
|
a Bookham stockholder who receives both Bookham common stock and
cash in lieu of fractional shares of Bookham common stock in the
reverse stock split generally will recognize any gain inherent
in the Bookham common stock surrendered up to the amount of cash
received, but will not recognize any loss;
|
|
|
|
|
|
the aggregate tax basis of the post-reverse split shares
received, including any fractional share not actually received,
will be equal to the aggregate tax basis of the pre-reverse
split shares exchanged therefor, increased by the amount of any
gain recognized as a result of the reverse stock split;
|
|
|
|
|
|
the holding period of Bookham common stock received in the
reverse stock split will include the holding period of the
pre-reverse stock split shares exchanged;
|
|
|
|
a Bookham stockholder who receives only cash in exchange for
Bookham common stock in the reverse stock split generally will
recognize gain or loss equal to the difference between such
stockholders tax basis in the shares of Bookham common
stock exchanged and the amount of cash received in exchange for
those shares; and
|
|
|
|
any gain or loss recognized by a Bookham stockholder as a result
of the reverse stock split will be a capital gain or loss and
will be long term capital gain or loss if the stockholders
holding period for the shares of Bookham common stock exchanged
is more than one year.
|
Certain Bookham stockholders may be required to attach a
statement to their tax returns for the year in which the reverse
stock split is consummated that contains the information listed
in Treasury
Regulation Section 1.368-3(b),
if applicable. Bookham stockholders are urged to consult their
own tax advisors with respect to the applicable reporting
requirements.
For purposes of the above discussion of the bases and holding
periods for shares of Bookham common stock, and except as
provided therein, stockholders who acquired different blocks of
Bookham common stock at different times for different prices
must calculate their basis, gains and losses, and holding
periods separately for each identifiable block of such stock
exchanged, reclassified, canceled or received in the reverse
stock split.
145
Any cash payments for fractional shares made to Bookham
stockholders in connection with the reverse stock split may be
subject to backup withholding on a holders receipt of
cash, unless such holder furnishes a correct taxpayer
identification number and certifies that he or she is not
subject to backup withholding or such stockholder is otherwise
exempt from backup withholding. Any amount withheld under the
backup withholding rules will generally be allowed as a refund
or credit against the holders U.S. federal income tax
liability, provided the required information is furnished to the
IRS.
No
Appraisal Rights
Under Delaware law, Bookham stockholders are not entitled to
dissenters appraisal rights with respect to the proposed
amendments to the Bookham restated certificate of incorporation
to effect the reverse stock split and to reduce the number of
authorized shares of Bookham common stock and preferred stock,
and Bookham will not independently provide Bookham stockholders
with any such right.
Vote
Required; Recommendation of Bookham Board of Directors
The affirmative vote of the holders of a majority of the voting
power of Bookham common stock outstanding on the record date for
the Bookham special meeting is required to approve the
amendments to Bookhams restated certificate of
incorporation to effect a reverse stock split and a
corresponding proportionate reduction in the total number of
authorized shares of Bookham common stock and preferred stock.
A failure to submit a proxy card or vote at the special meeting,
or an abstention, vote withheld or broker non-vote
will have the same effect as a vote against Bookham
Proposal No. 3.
BOOKHAMS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
BOOKHAM STOCKHOLDERS VOTE FOR BOOKHAM
PROPOSAL NO. 3 TO APPROVE AMENDMENTS TO BOOKHAMS
RESTATED CERTIFICATE OF INCORPORATION THAT WOULD EFFECT A
REVERSE STOCK SPLIT, PURSUANT TO WHICH ANY WHOLE NUMBER OF
ISSUED AND OUTSTANDING SHARES OF BOOKHAM COMMON STOCK BETWEEN
AND INCLUDING FIVE AND THIRTY WOULD BE COMBINED AND RECLASSIFIED
INTO ONE SHARE OF BOOKHAM COMMON STOCK, AND PURSUANT TO WHICH
THE TOTAL NUMBER OF AUTHORIZED SHARES OF BOOKHAM COMMON STOCK
AND PREFERRED STOCK WOULD BE PROPORTIONATELY REDUCED, AND TO
AUTHORIZE THE BOOKHAM BOARD OF DIRECTORS TO SELECT AND FILE ONE
SUCH AMENDMENT THAT WOULD EFFECT THE REVERSE STOCK SPLIT WITHIN
SUCH RANGE AND THAT WOULD PROPORTIONATELY REDUCE THE TOTAL
NUMBER OF AUTHORIZED SHARES OF BOOKHAM COMMON STOCK AND
PREFERRED STOCK.
146
BOOKHAM
PROPOSAL NO. 4 POSSIBLE ADJOURNMENT OF
THE
BOOKHAM SPECIAL MEETING
If Bookham fails to receive a sufficient number of votes to
approve any of Bookham Proposal Nos. 1, 2 or 3, Bookham may
propose to adjourn the special meeting, if a quorum is present,
for a period of not more than 30 days for the purpose of
soliciting additional proxies to approve any of Bookham
Proposal Nos. 1, 2 or 3. Bookham currently does not intend
to propose adjournment at the Bookham special meeting if there
are sufficient votes to approve each of Bookham
Proposal Nos. 1, 2 and 3.
Vote
Required; Recommendation of Bookham Board of Directors
The affirmative vote of the holders of a majority of the voting
power of the shares of Bookham common stock voting in person or
by proxy at the Bookham special meeting is required for approval
of Bookham Proposal No. 4.
The failure to submit a proxy card or vote at the special
meeting, or an abstention, vote withheld or broker
non-votes will be counted towards a quorum but will have
no effect on the outcome of Bookham Proposal No. 4.
BOOKHAMS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
ALL BOOKHAM STOCKHOLDERS VOTE FOR BOOKHAM
PROPOSAL NO. 4 TO ADJOURN THE BOOKHAM SPECIAL MEETING,
IF NECESSARY, IF A QUORUM IS PRESENT, TO SOLICIT ADDITIONAL
PROXIES IF THERE ARE NOT SUFFICIENT VOTES IN FAVOR OF ANY OF
BOOKHAM PROPOSAL NOS. 1, 2 OR 3.
147
AVANEX
PROPOSAL NO. 2 POSSIBLE ADJOURNMENT OF
THE
AVANEX SPECIAL MEETING
If Avanex fails to receive a sufficient number of votes to
approve Avanex Proposal No. 1, Avanex may propose to
adjourn the special meeting, if a quorum is present, for a
period of not more than 30 days for the purpose of
soliciting additional proxies to approve Avanex
Proposal No. 1. Avanex currently does not intend to
propose adjournment at the Avanex special meeting if there are
sufficient votes to approve Avanex Proposal No. 1.
Vote
Required; Recommendation of Avanex Board of Directors
The affirmative vote of the holders of a majority of the voting
power of the shares of Avanex common stock voting in person or
by proxy at the Avanex special meeting is required for approval
of Avanex Proposal No. 2.
The failure to submit a proxy card or vote at the special
meeting, or an abstention, vote withheld or broker
non-votes will be counted towards a quorum, but will have
no effect on the outcome of Avanex Proposal No. 2.
THE AVANEX BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
AVANEXS STOCKHOLDERS VOTE FOR AVANEX
PROPOSAL NO. 2 TO ADJOURN THE AVANEX SPECIAL MEETING,
IF NECESSARY, IF A QUORUM IS PRESENT, TO SOLICIT ADDITIONAL
PROXIES IF THERE ARE NOT SUFFICIENT VOTES IN FAVOR OF AVANEX
PROPOSAL NO. 1.
148
UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Unless specifically stated otherwise, the following
information and all other information contained in this joint
proxy statement/prospectus, including that regarding the
exchange ratio pursuant to the merger agreement, does not give
effect to the proposed reverse stock split discussed in the
section entitled Bookham
Proposal No. 3 Amendments to
Bookhams Restated Certificate of Incorporation to Effect a
Reverse Stock Split and to Reduce the Number of Authorized
Shares of Bookham Common Stock and Preferred Stock.
Introduction
The following unaudited pro forma condensed combined financial
statements give effect to the proposed merger of merger sub, a
wholly-owned subsidiary of Bookham with Avanex. The merger is
anticipated to be completed before June 27, 2009, and
accordingly is expected to be accounted for under the purchase
method of accounting in accordance with Statement of Financial
Accounting Standard (SFAS) No. 141, Business
Combinations. Under the purchase method of accounting, the
total estimated purchase price, calculated as described in
Note 1 to these unaudited pro forma condensed combined
financial statements, is allocated to the assets acquired and
liabilities assumed of Avanex, based on their fair values as of
the completion of the merger. Managements estimates of the
fair values are reflected in these unaudited pro forma condensed
combined financial statements. A final determination of these
fair values, which cannot be made prior to the completion of the
merger, will be based on the actual net assets of Avanex that
exist as of the closing of the merger.
The unaudited pro forma condensed combined balance sheet as of
December 27, 2008 gives effect to the proposed merger as if
it occurred on December 27, 2008 and, due to the different
fiscal period ends, combines the historical balance sheet of
Bookham at December 27, 2008 and the historical balance
sheet of Avanex at December 31, 2008. The Bookham
consolidated balance sheet information was derived from its
unaudited December 27, 2008 condensed consolidated balance
sheet included elsewhere in this joint proxy
statement/prospectus and the Avanex consolidated balance sheet
information was derived from its unaudited December 31,
2008 condensed consolidated balance sheet included elsewhere in
this joint proxy statement/prospectus.
The unaudited pro forma condensed combined statement of
operations for the six months ended December 27, 2008 is
presented as if the transaction had been consummated on
June 29, 2008 and, due to the different fiscal period ends,
combines the historical results of Bookham for the six months
ended December 27, 2008 and the historical results of
Avanex for the six months ended December 31, 2008, which
results were derived from Bookhams and Avanexs
unaudited condensed consolidated statements of operations
included elsewhere in this joint proxy statement/prospectus. The
unaudited pro forma condensed combined statement of operations
for the fiscal year ended June 28, 2008 is presented as if
the transaction had been consummated on July 1, 2007 and,
due to the different fiscal period ends, combines the historical
results of Bookham for the fiscal year ended June 28, 2008
and the historical results of Avanex for the fiscal year ended
June 30, 2008, which results were derived from
Bookhams and Avanexs audited consolidated statements
of operations included elsewhere in this joint proxy
statement/prospectus.
The unaudited pro forma condensed combined financial statements
have been prepared by Bookham management for illustrative
purposes only and are not necessarily indicative of the
condensed consolidated financial position or results of
operations in future periods or the results that actually would
have been realized had Bookham and Avanex been a combined
company during the specified periods. The pro forma adjustments
are based on the information available at the time of the
preparation of this joint proxy statement/prospectus. The
unaudited pro forma condensed combined financial statements,
including the notes thereto, are qualified in their entirety by
reference to, and should be read in conjunction with, the
historical consolidated financial statements of Bookham and
Avanex included in this joint proxy statement/prospectus.
The unaudited pro forma condensed combined financial statements
have been prepared based on preliminary estimates of fair values
of assets acquired and liabilities assumed of Avanex.
Intercompany transactions and balances between Bookham and
Avanex, which comprise the sale of certain products and the
payment of technology royalties by Bookham to Avanex, have been
eliminated in the unaudited pro forma
149
condensed combined financial statements. Further, the unaudited
pro forma condensed combined financial statements do not include
any adjustments for the anticipated benefits from cost savings
or synergies of Bookham and Avanex operating as a combined
company or for liabilities resulting from integration planning,
as managements of Bookham and Avanex are in the process of
making these assessments and estimates of these costs are not
currently known. However, liabilities ultimately may be recorded
for severance, relocation or retention costs in subsequent
quarters related to employees of both companies, the costs of
vacating certain leased facilities of either company or other
costs associated with exiting or transferring activities between
companies that would affect amounts in the unaudited pro forma
condensed combined financial statements. A substantial portion
of these expenditures is expected to be related to restructuring
at closing and therefore will be recorded as assumed liabilities
from Avanex and will decrease negative goodwill. Certain
reclassifications have been made so that historical amounts
included in Avanexs financial statements conform to
Bookhams presentation.
The actual amounts recorded as of the completion of the merger
may differ materially from the information presented in these
unaudited pro forma condensed combined financial statements.
Changes in Bookhams stock price, the impact of ongoing
integration activities, and other changes in the net tangible
assets of Avanex that occur prior to completion of the merger
could cause material differences in the information presented.
150
BOOKHAM,
INC.
UNAUDITED
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF
DECEMBER 27, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
Pro Forma
|
|
|
|
Bookham
|
|
|
Avanex
|
|
|
|
|
|
Combined
|
|
|
|
December 27,
|
|
|
December 31,
|
|
|
Pro Forma
|
|
|
December 27,
|
|
|
|
2008
|
|
|
2008
|
|
|
Adjustments
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
35,296
|
|
|
$
|
13,897
|
|
|
$
|
(6,410
|
)(1)
|
|
$
|
42,783
|
|
Short-term investments
|
|
|
8,894
|
|
|
|
19,550
|
|
|
|
|
|
|
|
28,444
|
|
Restricted cash
|
|
|
513
|
|
|
|
3,803
|
|
|
|
|
|
|
|
4,316
|
|
Accounts receivable, net
|
|
|
33,119
|
|
|
|
30,197
|
|
|
|
(217
|
)(2)
|
|
|
63,099
|
|
Inventories
|
|
|
58,448
|
|
|
|
19,528
|
|
|
|
|
|
|
|
77,976
|
|
Prepaid expenses and other current assets
|
|
|
4,842
|
|
|
|
7,144
|
|
|
|
(90
|
)(3)
|
|
|
11,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
141,112
|
|
|
|
94,119
|
|
|
|
(6,717
|
)
|
|
|
228,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets, net
|
|
|
6,191
|
|
|
|
|
|
|
|
|
|
|
|
6,191
|
|
Property and equipment, net
|
|
|
32,509
|
|
|
|
8,906
|
|
|
|
(8,906
|
)(4)
|
|
|
32,509
|
|
Other non-current assets
|
|
|
274
|
|
|
|
3,094
|
|
|
|
(1,873
|
)(4)
|
|
|
1,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
180,086
|
|
|
$
|
106,119
|
|
|
$
|
(17,496
|
)
|
|
$
|
268,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
15,402
|
|
|
$
|
24,371
|
|
|
$
|
(217
|
)(2)
|
|
$
|
39,556
|
|
Accrued expenses and other liabilities
|
|
|
21,245
|
|
|
|
14,126
|
|
|
|
|
|
|
|
35,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
36,647
|
|
|
|
38,497
|
|
|
|
(217
|
)
|
|
|
74,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
1,821
|
|
|
|
4,977
|
|
|
|
|
|
|
|
6,798
|
|
Deferred gain on sale-leaseback
|
|
|
14,019
|
|
|
|
|
|
|
|
|
|
|
|
14,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
52,487
|
|
|
|
43,474
|
|
|
|
(217
|
)
|
|
|
95,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
127,599
|
|
|
|
62,645
|
|
|
|
(62,645
|
)(5)
|
|
|
172,965
|
|
|
|
|
|
|
|
|
|
|
|
|
32,064
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,302
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
180,086
|
|
|
$
|
106,119
|
|
|
$
|
(17,496
|
)
|
|
$
|
268,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to Bookham, Inc. unaudited pro forma
condensed combined financial statements.
151
BOOKHAM,
INC.
UNAUDITED
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE
SIX MONTHS ENDED DECEMBER 27, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
|
Bookham
|
|
|
Avanex(A)
|
|
|
Adjustments
|
|
|
Combined
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues
|
|
$
|
116,735
|
|
|
$
|
83,275
|
|
|
$
|
(1,595
|
)(8)
|
|
$
|
198,295
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(120
|
)(9)
|
|
|
|
|
Cost of revenues
|
|
|
91,401
|
|
|
|
69,660
|
|
|
|
(677
|
)(8)
|
|
|
159,630
|
|
|
|
|
|
|
|
|
|
|
|
|
(120
|
)(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(634
|
)(10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
25,334
|
|
|
|
13,615
|
|
|
|
(284
|
)
|
|
|
38,665
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
14,832
|
|
|
|
12,722
|
|
|
|
(417
|
)(10)
|
|
|
27,137
|
|
Selling, general and administrative
|
|
|
19,966
|
|
|
|
15,544
|
|
|
|
(922
|
)(10)
|
|
|
34,588
|
|
Amortization of intangible assets
|
|
|
907
|
|
|
|
107
|
|
|
|
(107
|
)(11)
|
|
|
907
|
|
Restructuring and severance charges
|
|
|
1,968
|
|
|
|
2,476
|
|
|
|
|
|
|
|
4,444
|
|
Certain legal actions, settlements and related costs
|
|
|
(184
|
)
|
|
|
|
|
|
|
|
|
|
|
(184
|
)
|
Impairment of goodwill and intangibles
|
|
|
7,881
|
|
|
|
9,615
|
|
|
|
(9,615
|
)(12)
|
|
|
7,881
|
|
Loss on sale of property and equipment
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
45,378
|
|
|
|
40,464
|
|
|
|
(11,061
|
)
|
|
|
74,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(20,044
|
)
|
|
|
(26,849
|
)
|
|
|
10,777
|
|
|
|
(36,116
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
(695
|
)
|
|
|
370
|
|
|
|
|
|
|
|
(325
|
)
|
Interest income
|
|
|
457
|
|
|
|
453
|
|
|
|
(16
|
)(13)
|
|
|
894
|
|
Interest expense
|
|
|
(324
|
)
|
|
|
|
|
|
|
|
|
|
|
(324
|
)
|
Gain (loss) on foreign exchange
|
|
|
16,362
|
|
|
|
(1,174
|
)
|
|
|
|
|
|
|
15,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
15,800
|
|
|
|
(351
|
)
|
|
|
(16
|
)
|
|
|
15,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(4,244
|
)
|
|
|
(27,200
|
)
|
|
|
10,761
|
|
|
|
(20,683
|
)
|
Income tax provision (benefit)
|
|
|
24
|
|
|
|
(745
|
)
|
|
|
|
|
|
|
(721
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,268
|
)
|
|
$
|
(26,455
|
)
|
|
$
|
10,761
|
|
|
$
|
(19,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share (basic and diluted)
|
|
$
|
(0.04
|
)
|
|
$
|
(1.71
|
)
|
|
|
|
|
|
$
|
(0.11
|
)
|
Shares used in computing net loss per share (basic and diluted)
|
|
|
100,209
|
|
|
|
15,460
|
|
|
|
|
|
|
|
185,828
|
|
|
|
|
(A) |
|
As discussed above, the historical results of Avanex are for the
six months ended December 31, 2008. |
See accompanying notes to Bookham, Inc. unaudited pro forma
condensed combined financial statements.
152
BOOKHAM,
INC.
UNAUDITED
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE
YEAR ENDED JUNE 28, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
|
Bookham
|
|
|
Avanex(A)
|
|
|
Adjustments
|
|
|
Combined
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues
|
|
$
|
235,491
|
|
|
$
|
208,094
|
|
|
$
|
(2,781
|
)(8)
|
|
$
|
439,405
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,399
|
)(9)
|
|
|
|
|
Cost of revenues
|
|
|
182,518
|
|
|
|
144,509
|
|
|
|
(1,100
|
)(8)
|
|
|
323,444
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,399
|
)(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,084
|
)(10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
52,973
|
|
|
|
63,585
|
|
|
|
(597
|
)
|
|
|
115,961
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
32,633
|
|
|
|
28,325
|
|
|
|
(795
|
)(10)
|
|
|
60,163
|
|
Selling, general and administrative
|
|
|
47,941
|
|
|
|
34,973
|
|
|
|
(1,597
|
)(10)
|
|
|
81,317
|
|
Amortization of intangible assets
|
|
|
4,639
|
|
|
|
771
|
|
|
|
(771
|
)(11)
|
|
|
4,639
|
|
Restructuring and severance charges
|
|
|
3,471
|
|
|
|
(164
|
)
|
|
|
|
|
|
|
3,307
|
|
Certain legal actions, settlements and related costs
|
|
|
(2,882
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,882
|
)
|
Gain on sale of property and equipment
|
|
|
(2,562
|
)
|
|
|
(23
|
)
|
|
|
|
|
|
|
(2,585
|
)
|
Gain on sale of subsidiary
|
|
|
|
|
|
|
(1,996
|
)
|
|
|
|
|
|
|
(1,996
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
83,240
|
|
|
|
61,886
|
|
|
|
(3,163
|
)
|
|
|
141,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(30,267
|
)
|
|
|
1,699
|
|
|
|
2,566
|
|
|
|
(26,002
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
|
|
|
|
936
|
|
|
|
|
|
|
|
936
|
|
Interest income
|
|
|
1,465
|
|
|
|
1,634
|
|
|
|
(32
|
)(13)
|
|
|
3,067
|
|
Interest expense
|
|
|
(671
|
)
|
|
|
(152
|
)
|
|
|
|
|
|
|
(823
|
)
|
Gain on foreign exchange
|
|
|
6,038
|
|
|
|
1,530
|
|
|
|
|
|
|
|
7,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
6,832
|
|
|
|
3,948
|
|
|
|
(32
|
)
|
|
|
10,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(23,435
|
)
|
|
|
5,647
|
|
|
|
2,534
|
|
|
|
(15,254
|
)
|
Income tax provision
|
|
|
5
|
|
|
|
927
|
|
|
|
|
|
|
|
932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(23,440
|
)
|
|
$
|
4,720
|
|
|
$
|
2,534
|
|
|
$
|
(16,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.25
|
)
|
|
$
|
0.31
|
|
|
|
|
|
|
$
|
(0.09
|
)
|
Diluted
|
|
$
|
(0.25
|
)
|
|
$
|
0.31
|
|
|
|
|
|
|
$
|
(0.09
|
)
|
Shares used in computing net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
93,099
|
|
|
|
15,242
|
|
|
|
|
|
|
|
178,718
|
|
Diluted
|
|
|
93,099
|
|
|
|
15,370
|
|
|
|
|
|
|
|
178,718
|
|
|
|
|
(B) |
|
As discussed above, the historical results of Avanex are for the
fiscal year ended June 30, 2008. |
See accompanying notes to Bookham, Inc. unaudited pro forma
condensed combined financial statements.
153
NOTES TO
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS
On January 27, 2009, Bookham and Avanex entered into a
definitive agreement pursuant to which the two companies will be
combined through the merger of a wholly-owned subsidiary of
Bookham with and into Avanex. The transaction is expected to
close in Bookhams fiscal quarter ending June 27,
2009, subject to approval by the stockholders of both companies
and the satisfaction of other customary conditions.
Preliminary
Estimated Purchase Price
The total purchase price is estimated to be $35.4 million
and is comprised of (in thousands):
|
|
|
|
|
Fair value of Bookham shares to be issued
|
|
$
|
31,945
|
|
Fair value of vested Avanex stock awards assumed
|
|
|
115
|
|
Fair value of vested Avanex warrants assumed
|
|
|
4
|
|
Acquisition-related transaction costs(1)
|
|
|
3,300
|
|
|
|
|
|
|
Total estimated purchase price
|
|
$
|
35,364
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes acquisition-related transaction costs of Bookham
determined in accordance with SFAS No. 141. If the
merger is completed after June 27, 2009, the merger would
be accounted for under SFAS No. 141 (revised 2007),
Business Combinations, or SFAS No. 141R. Under
SFAS. No. 141R, acquisition-related transaction costs are
expensed as incurred and would not be included in determining
the purchase price. |
Fair
Value of Shares to be Issued
Under the terms of the merger agreement, Avanex stockholders
will receive 5.426 shares of Bookham common stock for each
share of Avanex common stock they own. Avanex options and
warrants will represent a corresponding right to acquire a
number of shares of Bookham common stock based on the exchange
ratio. Based on the number of shares of Avanex common stock
outstanding as of January 27, 2009, Bookham expects to
issue approximately 84.6 million common shares in the
proposed combination. In addition, approximately 193,000
restricted stock units of Avanex contain acceleration
provisions, and those units will therefore be accelerated upon
the close of the merger and exchanged for approximately
1,049,000 shares of Bookham common stock. For accounting
purposes, the total estimated purchase price is based on a per
share price of $0.3731, which is the weighted-average of the
closing market prices of Bookhams common stock for a
period beginning two days before and ending two days after
January 27, 2009.
Fair
Value Estimate of Stock Awards Assumed
As of January 27, 2009, Avanex had outstanding stock
options for the purchase of approximately 1.0 million
shares of Avanex common stock and approximately 298,000
restricted stock units, net of the approximately 193,000
restricted stock units with acceleration provisions. In
accordance with the merger agreement, 5.426 stock options and
restricted stock units will be issued for each stock option and
restricted stock unit assumed. The fair values of stock options
assumed were determined using a Black-Scholes valuation model
with the following assumptions: weighted-average expected life
of 4.5 years; weighted-average risk-free interest rate of
2.3%; expected volatility of 83% and no dividend yield. The fair
values of the restricted stock units assumed were determined
using their intrinsic value, which is the fair value of the
shares to be issued in the merger of $0.3731 per share. The fair
values of the Avanex unvested stock options and restricted stock
units assumed will be recorded as operating expenses on a
straight-line basis over the remaining service periods, while
the fair values of the vested stock options are included in the
total purchase price.
154
NOTES TO
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS (Continued)
Fair
Value Estimate of Warrants Assumed
As of January 27, 2009, Avanex had outstanding warrants for
the purchase of 673,232 shares of Avanex common stock. In
accordance with the merger agreement, warrants for the purchase
of 5.426 shares of Bookham common stock will be issued for
each warrant assumed.
The fair values of warrants assumed were determined using a
Black-Scholes valuation model with the following assumptions:
weighted-average remaining warrant term of 1.1 years;
weighted-average risk-free interest rate of 2.3%; expected
volatility of 83% and no dividend yield. The fair values of the
warrants assumed are included in the total purchase price.
Acquisition
Related Transaction Costs
Acquisition related transaction costs include Bookhams
estimated legal, accounting and financial advisory fees and
other external costs directly related to the acquisition.
Preliminary
Estimated Purchase Price Allocation
Under the purchase method of accounting of
SFAS No. 141, the total estimated purchase price shown
in the table above is allocated to the assets acquired and
liabilities assumed of Avanex based on their estimated fair
values as of the date of the completion of the merger, which is
expected to occur on or before June 27, 2009. If the merger
is completed after June 27, 2009, it would be accounted for
under SFAS No. 141R. Under SFAS. No. 141R, there
are significant differences as compared to
SFAS No. 141 in determining the purchase price of an
acquired entity.
The costs of the merger will be allocated to the assets acquired
and liabilities assumed according to their respective fair
values, with the excess of fair value over purchase price being
allocated to negative goodwill. Based on information currently
available, and subject to potentially material changes after
completion of the merger and other factors as described in the
introduction to these unaudited pro forma condensed combined
financial statements, the preliminary estimated purchase price
is allocated as follows (in thousands):
|
|
|
|
|
Assets acquired and liabilities assumed:
|
|
|
|
|
Cash and short-term investments(1)
|
|
$
|
34,050
|
|
Accounts receivable, net
|
|
|
30,197
|
|
Inventories
|
|
|
19,528
|
|
Prepaid expenses and other current assets
|
|
|
7,144
|
|
Other non-current assets
|
|
|
1,221
|
|
Accounts payable and accrued liabilities
|
|
|
(38,497
|
)
|
Other liabilities
|
|
|
(4,977
|
)
|
|
|
|
|
|
Net assets acquired
|
|
|
48,666
|
|
Negative goodwill
|
|
|
(13,302
|
)
|
|
|
|
|
|
Total estimated purchase price
|
|
$
|
35,364
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes $3.2 million expected to be paid at close for
Avanexs transaction costs as result of the merger. |
Bookham has not identified any pre-acquisition contingencies
where the related asset, liability or impairment is probable and
the amount of the asset, liability or impairment can be
reasonably estimated. Prior to the end of the purchase price
allocation period, if information becomes available which would
indicate it is probable that such events have occurred and the
amounts can be reasonably estimated, such items will be included
in the purchase price allocation.
155
NOTES TO
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS (Continued)
Assets
Acquired and Liabilities Assumed
Of the total estimated purchase price, a preliminary estimate of
$48.7 million has been allocated to net assets based on
information currently available. Assets and liabilities are
being valued at net book value, which are estimated to
approximate fair market value.
Negative
Goodwill
Of the total estimated purchase price, a preliminary estimate of
$13.3 million has been allocated to negative goodwill.
Negative goodwill represents the excess of the fair value of the
assets acquired and liabilities assumed of an acquired business
over the purchase price. In accordance with
SFAS No. 141, negative goodwill resulting from a
business combination will be recognized as an extraordinary gain
in the period in which the business combination is completed.
Pro forma adjustments are necessary to reflect the estimated
consideration paid, to adjust amounts related to the net assets
of Avanex to a preliminary estimate of their fair values, to
eliminate transactions between Bookham and Avanex and to reflect
changes in depreciation and amortization expense and impairment
charges resulting from the estimated fair value adjustments to
assets acquired and liabilities assumed.
The following pro forma adjustments are included in the
unaudited pro forma condensed combined financial statements:
Footnotes
to Unaudited Pro Forma Condensed Combined Balance Sheet as of
December 27, 2008
(1) To record cash to be used for Bookhams and
Avanexs estimated transaction costs as result of the
merger, net of $90,000 previously paid and recorded as prepaid
expenses.
(2) To eliminate accounts receivable and accounts payable
balances related to product sales to Avanex by Bookham.
(3) To eliminate Bookhams direct acquisition-related
transaction costs recorded by Bookham as a prepaid expense.
(4) To allocate the excess of the fair value of the assets
acquired and liabilities assumed over the purchase price to
non-current non-financial assets.
(5) To reverse Avanexs historical equity balances.
(6) To record Bookhams equity consideration for the
merger, which amount was determined based on the estimated
85,619,000 shares of common stock to be issued upon the
closing of the merger multiplied by the fair value per share of
common stock of $0.3731.
(7) To reflect the estimated fair value of negative
goodwill. Because this credit is directly attributable to the
merger and will not have a continuing impact, it is not
reflected in the pro forma condensed combined statement of
operations. However, this item will be recognized as an
extraordinary gain in the period that the merger with Avanex is
completed.
Footnotes
to Unaudited Pro Forma Condensed Combined Statement of
Operations for the Six Months Ended December 27, 2008 and
for the Fiscal Year Ended June 28, 2008
(8) To eliminate revenues and cost of revenues related to
product sales by Bookham to Avanex.
(9) To eliminate revenue and expenses for technology
royalties payable by Bookham to Avanex.
156
NOTES TO
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS (Continued)
(10) To reverse depreciation of property and equipment by
Avanex based on the allocation of excess fair value to acquired
property and equipment, net.
(11) To reverse amortization of intangible assets from
acquisitions previously consummated by Avanex.
(12) To reverse impairment of goodwill from acquisitions
previously consummated by Avanex.
(13) To record the reduction in investment income resulting
from the reduced cash balance after payments to effect the
merger.
|
|
3.
|
Pro Forma
Loss Per Share
|
The pro forma basic and diluted loss per share amounts presented
in Bookhams unaudited pro forma condensed combined
statements of operations are based upon the weighted-average
number of shares of Bookham common stock outstanding and are
adjusted for the estimated number of shares to be issued to
Avanexs stockholders, based on the number of shares of
Avanex common stock outstanding as of January 27, 2009, and for
Avanex restricted stock units which are subject to accelerated
vesting upon the closing of the merger.
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
December 27,
|
|
|
June 28,
|
|
|
|
2008
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Weighted-average shares used in computing net loss per share
(basic and diluted)
|
|
|
100,209
|
|
|
|
93,099
|
|
Shares estimated to be issued by Bookham
|
|
|
84,570
|
|
|
|
84,570
|
|
Shares estimated to be issued by Bookham upon acceleration of
Avanex restricted stock units at close
|
|
|
1,049
|
|
|
|
1,049
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted-average shares used in computing net loss per
share (basic and diluted)
|
|
|
185,828
|
|
|
|
178,718
|
|
|
|
|
|
|
|
|
|
|
157
BOOKHAM
BUSINESS
Overview
We design, manufacture and market optical components, modules
and subsystems that generate, detect, amplify, combine and
separate light signals principally for use in high-performance
fiber optics communications networks. Due to its advantages of
higher capacity and transmission speed, optical transmission has
become the predominant technology for large-scale communications
networks. Our primary operating segment, which we refer to as
our telecom segment, addresses the optical communications
market. We are one of the largest vertically-integrated vendors
of optical components used for fiber optic telecommunications
network applications. Our customers include leading equipment
systems vendors, including ADVA AG Optical Networking,
Alcatel-Lucent, Ciena Corporation, Cisco Systems, Inc., Huawei
Technologies Co., Ltd., Tellabs, Inc., Tyco Electronics, Ltd.
and Nortel Networks Corporation, which we refer to as Nortel
Networks. Our remaining product lines, which comprise our
non-telecom segment, leverage our optical component technologies
and expertise in manufacturing optical subsystems to address
opportunities in other markets, including industrial, research,
semiconductor capital equipment, military and biotechnology.
Innovation at the component level has been a primary enabler of
optical networking, facilitating increased transmission
capacity, improving signal quality and lowering cost. Optical
communications equipment vendors initially developed and
manufactured their own optical components. For a variety of
industry-related reasons, many of the larger optical equipment
vendors have sold, eliminated or outsourced their internal
component capabilities and now rely on third-party sources to
meet their optical component needs. In the absence of
significant internal component technology expertise or
manufacturing capability, communications equipment vendors have
become more demanding of their component suppliers, including
Bookham, seeking companies with broad technology portfolios,
component innovation expertise, advanced manufacturing
capabilities, the ability to provide more integrated solutions
and financial strength.
Although many of our competitors have in recent years outsourced
their own manufacturing capabilities, in whole or in part, we
have maintained a vertically integrated structure. By leveraging
our own in-house research and manufacturing capabilities we are
able to support and control all phases of the development and
manufacturing process from chip creation to component design and
all the way through module and subsystem production. In
particular, our wafer fabrication facilities, we believe,
position us to introduce product innovations delivering optical
network cost and performance advantages to our customers. We
also believe that our in-house control of this complete process
provides us with the opportunity to respond more quickly to
changing customer requirements, allowing our customers to
improve the time it takes them to deliver products to market,
and that our ability to deliver innovative technologies in a
variety of form factors ranging from chip level to module level
to subsystem level, allows us to address the needs of a broad
base of potential customers regardless of their desired level of
product integration or complexity.
We also believe our advanced chip and component design and
manufacturing facilities would be very expensive to replicate.
On-chip, or monolithic, integration of functionality is more
difficult to achieve without control over the production
process, and requires advanced process know-how and equipment.
Although the market for optical integrated circuits is still in
its early stages, it shares many characteristics with the
semiconductor market, including the positive relationship
between the number of features integrated on a chip, the wafer
size and the cost and sophistication of the fabrication
equipment. For this reason, we believe our
3-inch wafer
indium phosphide, or InP, semiconductor fabrication facility in
Caswell, U.K. provides us a competitive advantage by allowing us
to increase the complexity of the optical circuits that we
design and manufacture, and the integration of photonics
components within smaller packages, without the relatively high
cost, power and size issues associated with less integrated
solutions. We believe that our pump laser gallium arsenide
semiconductor fabrication facility in Zurich, Switzerland is one
of the few facilities in the world offering the 980 nanometer
pump laser diode capability required for most metro and long
haul optical amplification solutions. We also believe that our
Shenzhen, China assembly and test operation constitutes a
leading manufacturing facility which has allowed us to reduce
costs, improve processing efficiencies, respond to changes in
customer requirements and reduce time to market for ourselves
and our customers by reducing design turnaround time. We also
believe that leveraging our investment in these advanced telecom
facilities to
158
manufacture and support products in our non-telecom segment
represent a competitive opportunity within certain of the
non-telecom markets we serve.
We intend to draw upon our internal development and
manufacturing capability to continue to create innovative
solutions for our customers. We are currently delivering a range
of tunable products that include an InP tunable laser chip, 10
gigabyte per second, or Gb/s, iTLA tunable laser, a 10Gb/s iTTA
transmitter module and a 10Gb/s SFF tunable transponder. Tunable
products provide customers with the opportunity to reduce their
inventory levels and their order lead time, and we believe this
is one of the technologies enabling what is becoming known as
the agile network. We believe we are gaining share in the 10Gb/s
tunable product markets. We are also delivering chips and
packages performing at 40Gb/s data rate operations for
integration in our customers products, and are developing
additional products targeted at the 40Gb/s data rate, including
products with tunable characteristics. We have recently
announced our demonstration of a 40Gb/s tunable transmitter
assembly designed to meet price points we believe will enable
cost-effective deployment of 40Gb/s transmission in metro
networks. We plan to extend our offerings to operations
requiring even higher data rates over time. We believe our
10Gb/s indium phosphide mach-zender transmitter, which
demonstrates the advantages of our InP photonic integration, is
the only transmitter of its kind on the market today, and we are
currently the sole-source supplier to a number of customers.
In developing and growing our telecom segment, we acquired and
integrated a number of optical components companies and
businesses from 2002 through 2004, including those of Nortel
Networks, Marconi Optical Components Limited, which we refer to
as Marconi, and the assets and liabilities of Cierra Photonics.
These acquisitions, in particular the optical components
businesses of Nortel Networks and Marconi, significantly
increased our telecom product portfolio and manufacturing
expertise, and we believe we have since enhanced our existing
relationships with leading optical systems vendors. We have
completed the integration of these acquired businesses and
companies, and in the process have in recent years taken
significant steps to rationalize production capacity, adjust
headcount and restructure resources to reduce manufacturing and
operating overhead expenses.
Since the acquisition of Nortel Networks Optical Components, or
NNOC, in 2002, we have diversified our revenue base by
increasing our revenues from customers other than Nortel
Networks, on both an absolute basis and as a percentage of total
revenues. This has been one of our key strategic objectives. For
example, in our fiscal years ended June 28, 2008,
June 30, 2007 and July 1, 2006, our revenues from
customers other than Nortel Networks were $200.3 million,
$162.9 million and $121.2 million of our total
revenues, respectively, which represented increases of 23% in
2008 compared to 2007 and 34% in 2007 compared to 2006. In
addition, in the six months ended December 27, 2008 and
December 29, 2007, our revenues from customers other than
Nortel Networks were $99.2 million and $96.2 million
of our total revenues, respectively, which represented an
increase of 3% in the 2008 period compared to the 2007 period.
In 2004 we acquired New Focus, Inc., a photonics and microwave
company, and in 2006 we acquired Avalon Photonics AG, a VCSEL
company, and both are now important components of our
non-telecom business segment.
Bookham, Inc., a Delaware corporation, was incorporated on
June 29, 2004. On September 10, 2004, pursuant to a
scheme of arrangement under the laws of the United Kingdom,
Bookham, Inc. 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. Our
common stock is traded on the NASDAQ Global Market under the
symbol BKHM. Pursuant to the merger agreement,
Bookham and Avanex will take all actions necessary to ensure
that the name of the combined company following the merger will
be the name mutually agreed to by Bookham and Avanex. The name
change has not yet been determined between the parties; however,
when (and if) a name change is effected, a change in
Bookhams trading symbol may be effected as well.
159
Industry
Background
In the 1990s, telecommunications network vendors and data
communications vendors increasingly incorporated optical systems
into communications infrastructures, taking advantage of the
ability of fiber optic systems to support dramatically greater
bandwidths than traditional copper networks. Widespread adoption
of fiber optic systems has significantly improved the ability of
these networks to transmit and manage the high volume of voice,
video and data traffic generated in recent years by the growth
of the Internet and other innovative communications
technologies. The continuing build-out of fiber optic networks
requires optical components that generate, detect, amplify,
combine and separate light signals as they are transmitted.
The business climate for telecommunications companies became
less favorable in late 2000, as network service providers began
to experience significant financial difficulties. Many equipment
providers stopped buying components, which severely affected
optical component manufacturers, who were left with significant
inventories, excess production capacity and cost structures not
aligned with industry demand levels. In response to these
conditions, optical component suppliers reduced manufacturing
and operating cost overheads dramatically in order to sustain
their businesses during a period of reduced demand and to
achieve cost efficiencies required to meet their customers
pricing objectives, and certain optical systems vendors
divested, or closed, their own optical components businesses. As
a result, these optical systems vendors began seeking component
suppliers with a depth of technology expertise, a breadth of
product portfolio and access to manufacturing capabilities no
longer existing within their own organizations. These conditions
have all contributed to significant consolidation among optical
component suppliers. We played an active role in this industry
consolidation, acquiring the optical components businesses of
Nortel Networks and Marconi, both in 2002, among others. We
believe that the trend toward consolidation will continue,
providing companies positioned as consolidators with the
opportunity to capture increased market share and to improve
profitability through increased capacity utilization and other
operating efficiencies.
There are four particular drivers in the optical component
market: (i) wireless and wire-line spending by
telecommunications networking equipment companies, (ii) the
introduction of new, more cost-effective product technologies,
such as tunable products, (iii) the expansion of optical
networking in the metro space, driven by the build out of
broadband access networks such as fiber-to-the-home initiatives
and (iv) the growing competition among cable network
operators offering voice, video and data services and
traditional telephony service providers which results in
increased utilization of optical networking technologies,
including the long-haul backbone where many of our product
offerings are utilized. We believe drivers (i), (iii) and
(iv) contribute to the overall demand for broadband
capacity and therefore to the demand for the substantial portion
of our telecom product offerings, while driver (ii) is of
particular relevance to the demand for our tunable telecom
products.
In addition, optical technologies originally developed for the
communications industry, such as high-power lasers, are also
being deployed in a variety of non-telecom applications. We
believe that optical component suppliers have the opportunity to
leverage their existing research and development expertise into
non-telecom markets that are less subject to the cycles of the
telecommunications industry.
Our
Strategy
Our goal is to maintain and enhance our position as a leading
provider of optical component, module and subsystem solutions
for telecommunications providers while also broadening our
leadership into new markets by:
|
|
|
|
|
Leveraging broad product portfolio and technology
expertise. We believe that our broad product
portfolio positions us to increase our penetration of existing
customers and gives us a competitive advantage in winning new
customers. In addition, we intend to continue to apply our
optical component technologies to opportunities in other,
non-telecommunications markets, including material processing,
inspection and instrumentation, and research and development,
where we believe the use of those technologies is expanding.
|
160
|
|
|
|
|
Providing more comprehensive and technologically advanced
solutions. We intend to continue to invest in
innovative component level technologies that we believe will
allow us to be a market leader in terms of quality, price and
performance. We also plan to leverage our component level
technologies into a series of components, modules and
subsystems, enabling us to meet our customers growing
demand for complete solutions.
|
|
|
|
Continuing to improve cost structure. We
intend to continue to focus on managing our variable costs
through yield improvements, labor productivity gains, component
substitutions and aggressive supply chain management, including
the sourcing of certain internal manufacturing and other
operations to our lower cost Shenzhen facility when appropriate.
|
|
|
|
Selectively pursuing acquisitions. As we have
done in the past, we will continue to consider the use of
acquisitions as a means to enhance our scale, obtain critical
technologies and enter new markets.
|
Our
Product Offerings
We design, manufacture and market optical components, modules
and subsystems that generate, detect, amplify, combine and
separate light signals with primary application in fiber optic
telecommunications networks. We have significant expertise in
technology such as III-V optoelectronic semiconductors utilizing
InP and gallium arsenide substrates, thin film filters and
micro-optic assembly and packaging technology. In addition to
these technologies, we also have electronics design, firmware
and software capabilities to produce transceivers, transponders,
optical amplifiers and other value-added subsystems.
Telecom
Products
Our telecom products provide functionality for the various
elements within the optical networking system from transmitting
to receiving light signals, and include products that generate,
detect, amplify, combine and separate light signals. Our product
offerings, which are principally aimed at the metro and
long-haul telecommunications marketplace, include:
|
|
|
|
|
Transmitters. Our transmitter product lines
include products with fixed and tunable wavelength designed for
both long-haul and metro applications at 2.5 Gb/s and 10 Gb/s.
This product line includes lasers that are either directly or
externally modulated depending on the application.
|
|
|
|
Transceivers. Our small form factor pluggable
transceiver portfolio includes SFP products operating at 2.5
Gb/s and XFP products operating at 10 Gb/s.
|
|
|
|
Transponder modules. Our transponder modules
provide both transmitter and receiver functions. A transponder
includes electrical circuitry to control the laser diode and
modulation function of the transmitter as well as the receiver
electronics.
|
|
|
|
Tunable lasers and transmitter modules. Our
tunable laser products include discrete lasers and co-packaged
laser modulators to optimize performance and reduce the size of
the product. Our tunable products include an InP tunable laser
chip, a 10Gb/s iTLA tunable laser, a 10Gb/s iTTA transmitter
module, and a SFF tunable transponder. We also supply our
tunable components into our customers 40Gb/s products, and are
developing technology to deliver wide band electronic tunability
into our own products at data rates of 40Gb/s and beyond.
|
|
|
|
Receivers. Our portfolio of discrete receivers
for metro and long-haul applications at 2.5 Gb/s and 10 Gb/s
includes avalanche photodiode, or APD, preamp receivers, as well
as photodiode, or PIN, preamp receivers, and PIN and APD modules
and products that feature integrated attenuators.
|
|
|
|
Amplifiers. Erbium doped fiber amplifiers, or
EDFAs, are used to boost the brightness of optical signals and
offer compact amplification for ultra long-haul, long-haul and
metro networks. We offer a semi-custom product portfolio of
multi-wavelength amplifiers from gain blocks to full card level
or subsystem solutions designed for use in wide bandwidth wave
division multiplexing, or WDM, optical transmission systems. We
also offer lower cost narrow band
mini-amplifiers.
|
161
|
|
|
|
|
Pump laser chips. Our 980 nanometer pump laser
diodes are designed for use as high-power, reliable pump sources
for EDFAs in terrestrial and undersea, or submarine,
applications. Uncooled modules are designed for low-cost,
reliable amplification for metro, cross-connect or other
single/multi channel amplification applications, and submarine
applications.
|
|
|
|
Thin Film Filters. Our thin film filter, or
TFF, products are used for multiplexing and demultiplexing
optical signals within dense WDM transmission systems. In
addition to this, TFF products are used to attenuate and control
light within our amplifier product range.
|
Non-Telecom
Products
The optical technology originally developed for the
telecommunications industry is increasingly being deployed in
other markets, such as industrial, consumer display and life
sciences, in addition to the test and measurement market where
it has been deployed for some time. Advancements in laser
technology have improved the cost, size and power of devices,
making them more suitable for non-telecommunications
applications. Our non-telecom product offerings include:
|
|
|
|
|
Photonics and Microwave Products. In the area
of photonics and microwave solutions, we sell two primary
product families to diversified markets such as research
institutions and semiconductor capital equipment manufacturers
as follows:
|
|
|
|
|
|
Advanced photonic tools principally used for generating,
measuring, moving, manipulating, modulating and detecting
optical signals.
|
|
|
|
Tunable lasers for test and measurement applications.
|
|
|
|
|
|
High Powered Laser Products. We currently
market our advanced pump laser technology for material
processing and printing applications.
|
|
|
|
Thin Film Filter Products. We deploy our
optical TFF technology to markets outside of telecommunications,
with applications available in the life sciences, biotechnology
and consumer display industries.
|
|
|
|
VCSEL Products. We sell low power polarized
products for mouse and datacom applications.
|
Customers,
Sales and Marketing
We operate in two business segments: (i) telecom and
(ii) non-telecom. Telecom relates to the design,
development, manufacture, marketing and sale of optical
component products to telecommunications systems vendors.
Non-telecom relates to the design, manufacture, marketing and
sale of optics and photonics solutions for certain other markets
including material processing, inspection and instrumentation,
and research and development.
The following table sets forth our revenues by segment for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Years Ended
|
|
|
|
December 27,
|
|
|
December 29,
|
|
|
June 28,
|
|
|
June 30,
|
|
|
July 1,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telecom
|
|
$
|
89.7
|
|
|
$
|
85.5
|
|
|
$
|
176.9
|
|
|
$
|
153.8
|
|
|
$
|
195.5
|
|
Non-telecom
|
|
|
27.0
|
|
|
|
27.7
|
|
|
|
58.6
|
|
|
|
49.0
|
|
|
|
36.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenues
|
|
$
|
116.7
|
|
|
$
|
113.2
|
|
|
$
|
235.5
|
|
|
$
|
202.8
|
|
|
$
|
231.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For additional information on the telecom and non-telecom
segments, see Note 12 Segments of an
Enterprise and Related Information to our consolidated
financial statements as of June 28, 2008 and June 30,
2007 and for the fiscal years ended June 28, 2008 and
June 30, 2007 and July 1, 2006, and
Note 13 Segments of an Enterprise and
Related Information to our condensed consolidated
financial statements as of
162
December 27, 2008 and June 28, 2008 and for the three
and six month periods ended December 27, 2008 and
December 29, 2007. appearing elsewhere in this joint proxy
statement/prospectus.
We believe it is essential to maintain a comprehensive and
capable direct sales and marketing organization. As of
December 27, 2008, we had an established direct sales and
marketing force of 78 people for all of our products sold
in the U.K., China, France, Germany, Switzerland, Canada, Italy
and the U.S.
In addition to our direct sales and marketing organization, we
also sell and market our products through international sales
representatives and resellers that extend our commercial reach
to smaller geographic locations and customers that are not
currently covered by our direct sales and marketing efforts.
Our non-telecom products targeted at research applications are
also sold under the New Focus brand name through catalogs and
on-line via our website at www.newfocus.com. Neither this
website, nor any information that may be accessed through links
on such website, are part of this joint proxy
statement/prospectus and shall not be deemed to be incorporated
by reference herein.
Our telecom products and many of our non-telecom 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 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.
We offer support services in connection with the sale and
purchase of certain products, primarily consisting of customer
service and technical support. Customer service representatives
assist customers with orders, warranty returns and other
administrative functions. Technical support engineers provide
customers with answers to technical and product-related
questions. Technical support engineers also provide application
support to customers who have incorporated our products into
custom applications.
In 2002, when we acquired the optical components business of
Nortel Networks, Nortel Networks entered into a supply agreement
with us which specified a minimum amount of products to be
purchased from us. This supply agreement was amended three
times. Pursuant to the second addendum to our supply agreement,
Nortel Networks issued non-cancelable purchase orders, based on
revised pricing, totaling approximately $100 million, for
certain products to be delivered through March 2006, which
included $50 million of products we were discontinuing.
Pursuant to the third addendum to the supply agreement, Nortel
Networks was obligated to purchase $72 million of our
products. These obligations expired in December 2006 and Nortel
Networks is no longer subject to any minimum purchase
obligations. Our revenues from Nortel Networks were
$17.5 million, $35.2 million, $39.9 million and
$110.5 million in the six months ended December 27,
2008 and in the fiscal years ended June 28, 2008,
June 30, 2007 and July 1, 2006, respectively. These
revenues from Nortel Networks represented 15%, 15%, 20% and 48%
of our total revenues in the six months ended December 27,
2008 and in the fiscal years ended June 28, 2008,
June 30, 2007 and July 1, 2006, respectively. On
January 14, 2009, Nortel Networks filed for bankruptcy
relief and there can be no assurance that Nortel Networks will
continue to purchase our products at previously or currently
anticipated levels, or at all, while it is in insolvency
proceedings for reasons including, but not limited to, Nortel
Networks distractions from its core business execution and
the reaction of its own customers.
In the six months ended December 27, 2008, we issued
billings of $4.1 million for products that were shipped to
Nortel Networks, but for which payment was not received prior to
its bankruptcy filing on January 14, 2009, and
$1.3 million for products that were shipped to a contract
manufacturer for Nortel Networks for which payment may not be
received as a result of the Nortel Networks bankruptcy filing.
As a result, an aggregate of $5.4 million in revenue was
not recognized as revenues or accounts receivable at the time of
such billings, and such amounts were therefore deferred as we
determined that such amounts were not reasonably assured of
collectability in accordance with our revenue recognition
policy. The corresponding costs associated with these billings
for the six months ended December 27, 2008 were fully
included in costs of revenues in the condensed consolidated
financial statements for such period, which are included
elsewhere in this joint proxy statement/prospectus, as title to
the products passed to the customer upon shipment or delivery,
depending on the terms of the individual sale. Accordingly,
revenue deferrals for the six months ended December 27,
2008 to financially distressed customers reduced revenues and
gross margin and increased
163
net loss by $5.4 million, and decreased our gross margin
rate by approximately 8 percentage points. To the extent
that collectability becomes reasonably assured for these
deferred billings in future periods, our future results will
benefit from the recognition of these amounts.
One of our strategic objectives has been to increase our telecom
revenues from customers other than Nortel Networks. Excluding
revenues from Nortel Networks, our telecom segment revenues
increased to $141.7 million in the fiscal year ended
June 28, 2008, from $114.0 million in the fiscal year
ended June 30, 2007, and to $114.0 million in the
fiscal year ended June 30, 2007 from $85.0 million, in
the fiscal year ended July 1, 2006. In addition, excluding
revenues from Nortel Networks, our telecom segment revenues
increased to $72.1 million in the six months ended
December 27, 2008, from $68.5 million in the six
months ended December 29, 2007.
Huawei Technologies Co., Ltd. accounted for 14% and 11% of our
total revenue in the six months ended December 27, 2008 and
the fiscal year ended June 28, 2008, respectively. Cisco
Systems, Inc. accounted for 12% of our revenue in the fiscal
year ended June 30, 2007.
We principally sell our telecom products to telecommunications
systems and components vendors, as well as to customers in data
communications, military and aerospace. Customers for our
non-telecom products include semiconductor capital equipment
manufacturers, life-sciences companies, industrial printing
companies, and consumer electronics components companies, as
well as academic, military and governmental research
institutions that engage in advanced research and development
activities.
The following table sets forth our revenues by geographic region
for the periods identified, determined based on the country
shipped to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Years Ended
|
|
|
|
December 27,
|
|
|
December 29,
|
|
|
June 28,
|
|
|
June 30,
|
|
|
July 1,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
United States
|
|
$
|
31.0
|
|
|
$
|
28.3
|
|
|
$
|
59.5
|
|
|
$
|
46.0
|
|
|
$
|
47.8
|
|
Canada
|
|
|
7.9
|
|
|
|
21.4
|
|
|
|
39.1
|
|
|
|
56.1
|
|
|
|
107.4
|
|
China
|
|
|
27.4
|
|
|
|
25.3
|
|
|
|
59.1
|
|
|
|
37.7
|
|
|
|
27.8
|
|
Europe
|
|
|
26.9
|
|
|
|
22.6
|
|
|
|
47.6
|
|
|
|
34.4
|
|
|
|
28.8
|
|
Asia other than China
|
|
|
13.3
|
|
|
|
11.5
|
|
|
|
22.4
|
|
|
|
25.2
|
|
|
|
15.6
|
|
Rest of the World
|
|
|
10.2
|
|
|
|
4.1
|
|
|
|
7.8
|
|
|
|
3.4
|
|
|
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
116.7
|
|
|
$
|
113.2
|
|
|
$
|
235.5
|
|
|
$
|
202.8
|
|
|
$
|
231.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We are subject to risks related to operating in foreign
countries. These risks include, among others: currency
fluctuations; 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. Any of these risks, or any other risks related to
our foreign operations, could materially adversely affect our
business, financial condition and results of operations and
could result in increased operating expenses and reduced
revenues.
Intellectual
Property
We believe that our proprietary technology provides us with a
competitive advantage, and we intend to continue to protect our
technology, as appropriate, including design, process and
assembly aspects. We believe that our intellectual property
portfolio is a strategic asset that we can use to develop our
own sophisticated solutions and applications, or in conjunction
with the technologies of the companies with whom we collaborate,
for use in optical networking and certain other functions. Our
intellectual property portfolio includes technology that we
obtained from our acquisitions of businesses and companies in
addition to our own internally developed technology. Our
expertise in applications and process engineering is
supplemented by the know-how of personnel who joined us as a
result of these acquisitions. We believe that the future
164
success of our business will depend on our ability to translate
our intellectual property portfolio and the technological
expertise and innovation of our personnel into new and enhanced
products.
As of December 27, 2008, we held 245 U.S. patents and
74
non-U.S. patents,
and we had approximately 141 patent applications pending in
various jurisdictions. The patents we currently hold expire at
various times between 2009 and 2026. We maintain an active
program designed to identify technology appropriate for patent
protection. We 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 remain confidential. While such agreements are
intended to be binding, we may not be able to enforce these
non-disclosure and proprietary rights agreements in all
jurisdictions.
Although we continue to take steps to identify and protect our
patentable technology and to obtain and protect proprietary
rights to our technology, we cannot be certain the steps we have
taken will prevent misappropriation of our technology. We may,
as appropriate, take legal action to enforce our patents and
trademarks and otherwise to protect our intellectual property
rights, including our trade secrets, which may not be
successful. In the future, situations may arise in which we may
decide to grant licenses to third parties to certain of our
proprietary technology in which case other parties will be able
to exploit our technology in the marketplace.
For example, on March 4, 2008, we filed a declaratory
judgment complaint captioned Bookham, Inc. v. JDS
Uniphase Corp. and Agility Communications, Inc., Civil
Action
No. 5:08-CV-01275-RMW,
in the United States District Court for the Northern District of
California, San Jose Division. Our complaint seeks
declaratory judgments that our tunable laser products do not
infringe any valid, enforceable claim of U.S. Patent Nos.
6,658,035, 6,654,400, 6,687,278, and that all claims of the
aforementioned patents are invalid and unenforceable. Our
complaint also contains affirmative claims for relief against
JDS Uniphase Corp. and Agility Communications, Inc. for
statutory unfair competition, and for intentional interference
with economic advantage.
On July 21, 2008, JDS Uniphase Corp. and Agility
Communications, Inc. answered our complaint and asserted
counterclaims against us for infringement of U.S. Patent
Nos. 6,658,035, 6,654,400, 6,687,278, which JDS Uniphase Corp.
acquired from Agility Communications, Inc. On October 6,
2008, JDS Uniphase Corp. indicated that its infringement claims
are directed at our
LamdaFlexTM
TL500 VCJ; TL5000VLJ; TL3000; TL7000; TL8000 and TL9000
products. JDS Uniphase Corp. seeks unspecified compensatory
damages, treble damages and attorneys fees from us, and an
order enjoining us from future infringement of the
patents-in-suit
This litigation has been stayed due to JDS Uniphase Corp.s
commencement of a U.S. International Trade Commission
Investigation, which is described below.
On November 7, 2008, JDS Uniphase Corp. petitioned the
U.S. International Trade Commission to commence an
investigation into alleged violations by us of Section 337
of the Tariff Act of 1930. On December 8, 2008, the
U.S. International Trade Commission commenced investigation
No. 337-TA-662
into our alleged importation into the United States, sale for
importation, and sale within the United States after importation
of tunable laser chips, assemblies, and products containing the
same that infringe U.S. Patent Nos. 6,658,035 and
6,687,278. JDS Uniphase Corp. seeks a general exclusion order
prohibiting the importation of any Bookham tunable laser chip,
assembly, or product containing the same that infringes any
claim of the aforementioned patents, as well as an order
prohibiting sales after importation into the United States of
any allegedly infringing products. The U.S. International
Trade Commission has adopted a target completion date of
March 19, 2010 for the investigation, and indicated that a
final initial determination should be filed by November 19,
2009. Any adverse ruling by the U.S. International Trade
Commission, including an exclusion order that could prohibit us
from importing into the United States tunable laser chips,
assemblies, or products containing the same, or prolonged
litigation may have an adverse effect on our business, financial
condition and results of operations and any resolution may not
be in our favor.
165
Research
and Development
We believe that continued focus on the development of our
technology is critical to our future competitive success. Our
goal is to expand and develop our line of telecom products,
particularly in the area of wideband tunable products, expand
and develop our line of non-telecom products and technologies
for use in a variety of different applications, enhance our
manufacturing processes to reduce production costs, provide
increased device performance and reduce product time to market.
We have significant expertise in optical technologies such as
optoelectronic semiconductors utilizing InP and gallium arsenide
substrates, thin film filters and micro-optic assembly and
packaging technology. In addition to these technologies, we also
have electronics design, firmware and software capabilities to
produce transceivers, transponders, optical amplifiers and other
value-added subsystems. We at times will also consider
supplementing our in-house technical capabilities with
capabilities acquired by means of strategic alliances or
technology development arrangements with third parties when we
deem appropriate. We spent $14.8 million,
$32.6 million, $43.0 million and $42.6 million on
research and development during the six months ended
December 27, 2008 and the years ended June 28, 2008,
June 30, 2007, and July 1, 2006, respectively. As of
December 27, 2008, our research and development
organization comprised 148 people.
Our research and development facilities in Paignton and Caswell,
U.K., Santa Rosa and San Jose, California, Zurich,
Switzerland, Shenzhen, China and Ottawa, Canada include
computer-aided design stations, modern laboratories and
automated test equipment. Our research and development
organization has optical and electronic integration expertise
that facilitates meeting customer-specific requirements as they
arise.
Manufacturing
Our manufacturing capabilities include fabrication processing
operations for InP substrates, gallium arsenide substrates and
thin film filters, including clean room facilities for each of
these fabrication processes, along with assembly and test
capability and reliability/quality testing. We utilize
sophisticated semiconductor processing equipment in these
operations, such as epitaxy reactors, metal deposition systems,
and photolithography, etching, analytical measurement and
control equipment. Our assembly and test facilities include
specialized automated assembly equipment, temperature and
humidity control and reliability and testing facilities.
We lease a facility which houses our advanced
3-inch wafer
InP semiconductor fabrication operation, which we believe is one
of our key competitive differentiators. This facility is located
in Caswell U.K. and is leased pursuant to a 20 year lease,
commencing in March 30, 2006, with an option to extend an
additional 5 years after the initial 20 year period
and for additional 2 year increments indefinitely after the
initial 25 year period. We previously owned this facility,
but in March 2006 we sold it to a subsidiary of Scarborough
Development as a part of a sale-leaseback arrangement. For
additional information about the sale-leaseback arrangement of
the Caswell facility, (see Note 6
Commitments and Contingencies Caswell
Sale-Leaseback to our consolidated financial statements
appearing elsewhere in this joint proxy statement/prospectus).
We also have assembly and test facilities in Shenzhen, China and
San Jose, California. We have a wafer fabrication facility
in Zurich, Switzerland, and a thin film filter manufacturing
facility in Santa Rosa, California. In 2004, we implemented a
restructuring plan which included the transfer of a majority of
our assembly and test operations from Paignton to Shenzhen in
order to take advantage of the comparatively low manufacturing
costs in China. The transfer of assembly and test operations
from our Paignton facility was completed in the quarter ended
March 31, 2007. In calendar 2007, we consolidated certain
activities within our Caswell, U.K. wafer facility in an effort
to rationalize our capacity to match our near term fabrication
requirements. In 2008, we transferred substantially all of the
manufacturing operations and processes of certain of our
non-telecom products from our San Jose, California facility
to our Shenzhen facility, in order to take advantage of the
comparatively low manufacturing costs in China.
166
Long-Lived
Tangible Assets
The following table sets forth our long-lived tangible assets by
geographic region as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 27,
|
|
|
June 28,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
China
|
|
$
|
22.8
|
|
|
$
|
20.5
|
|
|
$
|
18.5
|
|
United Kingdom
|
|
|
3.3
|
|
|
|
6.3
|
|
|
|
9.7
|
|
Europe other than United Kingdom
|
|
|
4.4
|
|
|
|
4.1
|
|
|
|
3.9
|
|
United States
|
|
|
1.8
|
|
|
|
1.8
|
|
|
|
1.3
|
|
Canada
|
|
|
0.2
|
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
32.5
|
|
|
$
|
33.0
|
|
|
$
|
33.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
The following table sets forth our total assets by geographic
region as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 27,
|
|
|
June 28,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
United States
|
|
$
|
42.2
|
|
|
$
|
65.2
|
|
|
$
|
21.0
|
|
United Kingdom
|
|
|
45.7
|
|
|
|
61.3
|
|
|
|
58.8
|
|
China
|
|
|
65.9
|
|
|
|
56.3
|
|
|
|
69.6
|
|
Europe other United Kingdom
|
|
|
25.8
|
|
|
|
28.5
|
|
|
|
52.7
|
|
Canada
|
|
|
0.5
|
|
|
|
0.8
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
180.1
|
|
|
$
|
212.1
|
|
|
$
|
204.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Competition
The markets for our telecom and non-telecom products are highly
competitive. We believe we compete favorably with respect to the
following factors:
|
|
|
|
|
product quality, performance and price;
|
|
|
|
on-going product evolution;
|
|
|
|
manufacturing capabilities; and
|
|
|
|
customer service and support.
|
With respect to our telecom products, we also believe we compete
favorably on the basis of our historical customer relationships
and the breadth of our product lines.
Although we believe that we compete favorably with respect to
these factors, there can be no assurance that we will continue
to do so. We encounter substantial competition in most of our
markets, although no one competitor competes with us across all
product lines or markets.
We believe that our principal competitors in telecom are the
major suppliers of optical components and modules, including
both vendors selling to third parties and components companies
owned by large telecommunications equipment manufacturers.
Specifically, we believe that our telecom segment competes
against two main categories of competitors in the telecom market:
|
|
|
|
|
broad-based merchant suppliers of components, principally JDS
Uniphase Corporation, Avanex, Opnext, Inc. and Finisar
Corporation; and
|
|
|
|
vertically integrated equipment manufacturers, such as Fujitsu
and Sumitomo.
|
167
Our non-telecom segment competes with a number of companies
including JDS Uniphase Corporation, Newport, and Thorlabs.
Employees
As of December 27, 2008 we employed 2,324 persons,
including 148 in research and development, 1,994 in
manufacturing, 78 in sales and marketing, and 104 in finance and
administration. None of our employees are subject to collective
bargaining agreements. We believe that our relations with our
employees are good.
Properties
We lease our corporate headquarters in San Jose,
California, which has approximately 52,000 square feet, and
includes manufacturing, research and development and office
space, under a lease agreement that will expire on
March 31, 2011. We lease our wafer fabricating facility in
Zurich, Switzerland, which is approximately 124,000 square
feet, under a lease that will expire in June 30, 2012. We
lease a thin film manufacturing facility in Santa Rosa,
California, which has approximately 33,000 square feet,
under a lease that expires on December 31, 2011. We lease a
183,000 square foot facility in Caswell, U.K., which
includes wafer fabricating, assembly and test capabilities,
manufacturing support functions and research and development
capabilities and office space, under a lease that expires in
March 2026, with options to extend the lease term an additional
5 years immediately after 2026 and for two-year increments
indefinitely after 2031. We lease an 18,000 square foot
research and development facility in Paignton, U.K. under a
lease that expires on December 31, 2017. We own our
facility in Shenzhen, China, which is approximately
247,000 square feet comprising manufacturing space,
including clean rooms, assembly and test capabilities,
packaging, storage, research and development and office space.
In addition, we lease approximately 145,000 square feet of
facilities in Ventura County California, pursuant to a lease
agreement which expires in April 2011, which we currently do not
utilize.
Our telecom business segment utilizes the Paignton facility,
substantial portions of the Shenzhen and Caswell facilities, and
it shares the Santa Rosa and Zurich facilities with our
non-telecom business segment. Our non-telecom business segment
utilizes the majority of the San Jose facility, shares the
Santa Rosa and Zurich facility with our telecom segment, and
utilizes a comparatively small portion of our Caswell facility.
Our non-telecom business segment recently transferred
substantially all of its manufacturing operations from our
San Jose facility to our Shenzhen facility.
Legal
Proceedings
On June 26, 2001, a putative securities class action
captioned Lanter v. New Focus, Inc. et al., Civil Action
No. 01-CV-5822
was filed against New Focus, Inc., or New Focus, 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 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
Class Action Complaint, described below. The Amended
Class Action 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 Bookham Technology plcs initial
public offering.
Various plaintiffs have filed similar actions asserting
virtually identical allegations against more than 300 other
public companies, their underwriters, and their officers and
directors arising out of each companys initial public
offering. These actions, including the action against New Focus
and the action against Bookham
168
Technology plc, have been coordinated for pretrial purposes and
captioned In re Initial Public Offering Securities Litigation,
21 MC 92.
On April 19, 2002, plaintiffs filed a Consolidated Amended
Class Action Complaint in the New Focus action and an
Amended Class Action Complaint in the Bookham Technology
plc action (together, the Amended Class Action
Complaints). The Amended Class Action 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 Class Action
Complaints seek unspecified damages (or, in the alternative,
rescission for those class members who no longer hold our or New
Focus common stock), costs, attorneys fees, experts
fees, interest and other expenses. In October 2002, the
Individual Defendants were dismissed, without prejudice, from
the action subject to their execution of tolling agreements. In
July 2002, all defendants filed Motions to Dismiss the Amended
Class Action Complaints. The motions were 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.
The plaintiffs and most of the issuer defendants and their
insurers entered into a stipulation of settlement for the claims
against the issuer defendants, including Bookham Technology plc
and New Focus. This stipulation of settlement was subject to,
among other things, certification of the underlying class of
plaintiffs. Under the stipulation of settlement, the plaintiffs
would 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
District Court issued an Opinion and Order preliminarily
approving the settlement provided that the defendants and
plaintiffs agree to a modification narrowing the scope of the
bar order set forth in the original settlement agreement. The
parties agreed to the modification narrowing the scope of the
bar order, and on August 31, 2005, the District Court
issued an order preliminarily approving the settlement.
On December 5, 2006, following an appeal from the
underwriter defendants the United States Court of Appeals for
the Second Circuit overturned the District Courts
certification of the class of plaintiffs who are pursuing the
claims that would be settled in the settlement against the
underwriter defendants. Plaintiffs filed a Petition for
Rehearing and Rehearing En Banc with the Second Circuit on
January 5, 2007 in response to the Second Circuits
decision and have informed the District Court that they would
like to be heard as to whether the settlement may still be
approved even if the decision of the Court of Appeals is not
reversed. The District Court indicated that it would defer
consideration of final approval of the settlement pending
plaintiffs request for further appellate review.
On April 6, 2007, the Second Circuit denied
plaintiffs petition for rehearing, but clarified that the
plaintiffs may seek to certify a more limited class in the
District Court. In light of the overturned class certification
on June 25, 2007, the District Court signed an Order
terminating the settlement. The actions against Bookham
Technology plc and New Focus remain stayed while litigation
proceeds in six test cases against other companies which involve
claims virtually identical to those that have been asserted
against Bookham Technology plc and New Focus. On
November 13, 2007, the issuer defendants in certain
designated focus cases filed a motion to dismiss the
second consolidated amended class action complaints that were
filed in those cases. On March 26, 2008, the District Court
issued an Opinion and Order denying, in large part, the motions
to dismiss the amended complaints in the focus cases.
It is uncertain if the litigations will settle. If settlement of
the litigations does not occur and litigation against Bookham
Technology plc and New Focus continues, we believe that both
Bookham Technology plc and New Focus have meritorious defenses
to the claims made in the Amended Class Action Complaints
and
169
therefore we believe that such claims will not have a material
effect on its financial position, results of operations or cash
flows.
On March 4, 2008, we filed a declaratory judgment complaint
captioned Bookham, Inc. v. JDS Uniphase Corp. and
Agility Communications, Inc., Civil Action
No. 5:08-CV-01275-RMW,
in the United States District Court for the Northern District of
California, San Jose Division. Our complaint seeks
declaratory judgments that its tunable laser products do not
infringe any valid, enforceable claim of U.S. Patent Nos.
6,658,035, 6,654,400 and 6,687,278, and that all claims of the
aforementioned patents are invalid and unenforceable. Our
complaint also contains affirmative claims for relief against
JDS Uniphase Corp. and Agility Communications, Inc. for
statutory unfair competition, and for intentional interference
with economic advantage.
On July 21, 2008, JDS Uniphase Corp. and
Agility Communications, Inc. answered our complaint and asserted
counterclaims against us for infringement of U.S. Patent
Nos. 6,658,035, 6,654,400 and 6,687,278, which JDS Uniphase
Corp. acquired from Agility Communications Inc. On
October 6, 2008, JDS Uniphase Corp. indicated that its
infringement claims are directed at our
LamdaFlexTM
TL500 VCJ; TL5000VLJ; TL3000; TL7000; TL8000 and TL9000
products. JDS Uniphase Corp. seeks unspecified compensatory
damages, treble damages and attorneys fees from us, and an
order enjoining us from future infringement of the
patents-in-suit.
This litigation has been stayed due to JDS Uniphase Corp.s
commencement of a U.S. International Trade Commission
Investigation, which is described below.
On November 7, 2008, JDS Uniphase
Corp. petitioned the U.S. International
Trade Commission to commence an investigation into alleged
violations by us of Section 337 of the Tariff Act of 1930.
On December 8, 2008, the U.S. International Trade
Commission commenced investigation
No. 337-TA-662
into our alleged importation into the United States, sale for
importation, and sale within the United States after importation
of tunable laser chips, assemblies, and products containing the
same that infringe U.S. Patent Nos. 6,658,035 and
6,687,278. JDS Uniphase Corp. seeks a general exclusion order
prohibiting the importation of any Bookham tunable laser chip,
assembly, or product containing the same that infringes any
claim of the aforementioned patents, as well as an order
prohibiting sales after importation into the United States of
any allegedly infringing products. The U.S. International
Trade Commission has adopted a target completion date of
March 19, 2010 for the investigation, and indicated that a
final initial determination should be filed by November 19,
2009. Any adverse ruling by the U.S. International Trade
Commission, including an exclusion order that could prohibit us
from importing into the United States tunable laser chips,
assemblies, or products containing the same, or prolonged
litigation may have an adverse effect on our business, financial
condition and results of operations and any resolution may not
be in our favor.
We and merger sub are also named as defendants in the litigation
described under Bookham Proposal No. 1 and
Avanex Proposal No. 1 The
Merger Legal Proceedings Related to the Merger
of this joint proxy statement/prospectus.
170
AVANEX
BUSINESS
Overview
Avanex is a global provider of high-performance, intelligent,
photonic products including optical components, modules and
subsystems. Avanexs products enable optical communication
networks to regenerate, transmit and manage voice, video and
data optical signals efficiently. Telecommunication system
integrators and their network carrier customers use
Avanexs products to enhance system performance and
increase network speed and capacity. Avanex believes it is one
of the largest broad-based suppliers of telecom optical
equipment.
In 2003, Avanex acquired all of the outstanding equity of
Alcatel Optronics France, a subsidiary of Alcatel, certain
assets of the optical components business of Corning
Incorporated, and substantially all of the assets of
Vitesses Optical Components Systems Division. As part of
these acquisitions, Alcatel and Corning Incorporated licensed
certain intellectual property rights to Avanex. Over the past
five years, Avanex has integrated and restructured these assets
and have shifted most of its manufacturing operations and
portions of its development resources to lower-cost geographic
regions. For instance, in March 2005, Avanex announced that it
had opened an operations center in Bangkok, Thailand to
centralize global manufacturing and operational overhead
functions in a lower-cost region. In July 2005, Avanex announced
the opening of a development and marketing office in Shanghai,
China. In April 2007, Avanex sold ninety percent (90%) of its
share capital and voting rights of its wholly-owned subsidiary
in France, including Avanexs Indium Phosphide (InP) and
Gallium Arsenide (GaAs) semiconductor fabs, and its laser,
terrestrial pump, submarine pump and Fiber Bragg Grating (FBG)
product lines, to 3S Photonics.
In order to expand Avanexs transmission product portfolio,
in July 2007, it acquired the assets relating to the MSA 300-pin
transponder and XFP transceiver businesses of the Commercial
Communication Products Division of Essex Corporation, a
subsidiary of Northrop Grumman Space and Mission Systems
Corporation.
Avanex has one of the broadest optical product portfolio
platforms available, with a scalable and efficient global
operating model.
Avanex was incorporated in October 1997 as a California
corporation, and in January 2000, it was reincorporated as a
Delaware corporation. Avanexs principal executive office
is located at 40919 Encyclopedia Circle, Fremont, California,
94538. Avanex also maintains facilities in Horseheads, New York;
Shanghai, China; Villebon Sur Yvette, France; San Donato,
Italy; and Bangkok, Thailand. Avanexs main telephone
number is
(510) 897-4188,
and its web site address is www.avanex.com. Avanexs annual
reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to such reports are available, free of charge,
through its internet web site, as soon as reasonably
practicable, after it electronically files such material with,
or furnishes it to the Securities and Exchange Commission (SEC).
Avanex and the Avanex logo are registered trademarks of Avanex
Corporation. This joint proxy statement/prospectus also includes
other trade names, trademarks and service marks of Avanexs
and of other companies.
Industry
Optical technology transfers information in the form of light
signals along optical fibers. The light signals are transmitted
through fiber optic cable. Beyond lasers, many other optical
components and subsystems are utilized within optical networks
to generate, clean, amplify, isolate, route, or otherwise
enhance light signals.
Over the last several years, the optical components, modules and
subsystems industry has experienced a modest increase in
business levels, as compared to previous years, because network
carriers and cable companies have been deploying new
communication networks or have been upgrading the backbone of
existing communication networks. The increasing demand for
optical solutions is in response to growing bandwidth demand
driven by increased transmission of video, voice and data over
optical communication networks, and by a need among network
carriers to decrease the total cost of ownership of their
networks. Certain large telecommunications network carriers have
also disclosed that they plan to deploy, and have begun to
deploy, new broadband access networks based on fiber optic
technologies. These fiber-to-the-premise
171
networks significantly increase the capacity and expand the type
of services that can be utilized by residential users.
Products
Avanexs product portfolio is comprised of the following
product families (depicted visually above):
Amplification Avanexs Amplification
product family includes products that optically amplify
transmission signals, including Erbium doped fiber amplifiers.
Wavelength Management Avanexs
Wavelength Management platform includes Switching and Routing
solutions, Multiplexing and Signal Processing solutions and
Micro-Optics and Integrated Modules, including products that
optically add and drop transmission signals in both fixed and
reconfigurable versions, products that optically multiplex or
demultiplex signals based on thin film filters, planar and
interleaver technologies, and products that optically attenuate
signal power across a single or multiple wavelength bands.
Dispersion Compensation Management
Avanexs Dispersion Compensation product family
consists of products that optically compensate for chromatic
dispersion and dispersion degradation of transmission signals,
including fixed and tunable products based on dispersion
compensating fiber and cascaded etalons.
Transmission Avanexs Transmission
product family includes transceivers and transponders. These
products transmit and receive optical signals on optical fibers.
Avanexs Transmission product family also includes Lithium
Niobate Modulators, which are optical devices fabricated from
Lithium Niobate and other optical devices that manipulate the
phase of magnitude of an optical signal. Their primary function
is to transfer information on an optical carrier by modulating
the light.
Competition
The optical communications markets are rapidly evolving. Avanex
expects these markets to continue to be highly competitive
because of the available capacity and easily obtained funding.
Avanex believes that its principal competitors in the optical
subsystems, modules and components industry include Bookham,
Inc., EMCORE Corporation, JDS Uniphase Corporation, Oplink
Communications, Inc., Opnext, Inc. and Optium Corporation.
Avanex believes it differentiates itself from its competitors by
offering high levels of customer value through collaborative
product design, technology innovation, optical/mechanical
performance, intelligent
172
features for configuration, control and monitoring,
multi-function integration and overall customization. The
principal competitive factors upon which Avanex competes include
breadth of product line, availability, performance, product
reliability, innovation and selling price. Avanex believes that
it competes favorably with its competitors with respect to the
foregoing factors.
Consolidation in the optical systems and components industry in
the past has intensified, and future consolidation could further
intensify, the competitive pressures that Avanex faces. For
example, Finisar Corporation and Optium Corporation, and Opnext
Inc. and StrataLight Communications, Inc. have recently
consummated combinations. In addition, Oplink Communications and
EMCORE Corporation have expanded their businesses through
acquisitions. Significant consolidation has also taken place
recently at the carrier level and at Avanexs customer
level. Recent mergers among Avanexs customers include that
of ADVA Optical Networking with Movaz Networks Inc., Alcatel
with Lucent Technologies Inc., Ericsson AB with Marconi, and the
merger of the optical businesses of Siemens AG and Nokia.
Avanex also faces competition from companies that may expand
into its industry and introduce additional competitive products.
Existing and potential customers are also Avanexs
potential competitors. These customers may develop or acquire
additional competitive products or technologies, which may cause
them to reduce or cease their purchases from us. Please see
Risks Relating to Avanex in this joint proxy
statement/prospectus, including in Section II: Market
and Competitive Risks.
Research
and Development
Avanex believes that research and development is critical to its
strategic growth objectives. Avanexs research and
development activities are focused on new products that
integrate multiple optical functions and that offer intelligent
features for configuration, control and monitoring. To
accomplish this, Avanexs research and development team
possesses expertise in the areas of optical components,
micro-optic and integrated-optic design, as well as in
electronics, firmware, and software. Most of Avanexs
efforts are directed toward the development of platforms with
new revenue potential, but Avanex does continue to invest in
current technological platforms to ensure its continued
competitiveness in the future.
Avanexs research and development expenses totaled
$28.3 million for the fiscal year ended June 30, 2008,
$25.2 million for the fiscal year ended June 30, 2007,
and $23.5 million for the fiscal year ended June 30,
2006. During fiscal 2008, research and development expenditures
increased due to higher prototype parts spending and additional
staff in the U.S. and China. During fiscal 2007, research
and development expenditures increased as Avanex added staff in
China and increased patent-related expenses; however, by the end
of fiscal 2007, expenses had decreased to comparable levels with
the prior year with the sale of Avanexs subsidiary in
France. In addition, Avanex has moved significant engineering
resources to its Shanghai location to increase the cost
effectiveness of its overall research and development activities
and to provide support to its third-party contract
manufacturers. As of February 11, 2009, Avanex employed
143 people in its research and development groups in
Fremont, California; Horseheads, New York; Villebon Sur Yvette,
France; San Donato, Italy; and Shanghai, China.
During fiscal 2006, 2007 and 2008, Avanex saw an increase in the
number of customers purchasing integrated subsystem products, as
well as an increase in the complexity of such products with
existing customers as the demand for more intelligent, efficient
and flexible optical fiber networks increases. Avanex continues
to invest in such products, as it believes applications for
these types of products will become increasingly important in
the future. For risks associated with Avanexs research and
development efforts, please see Risks Relating to
Avanex in this joint proxy statement/prospectus, including
in Section IV: Operations and Research and
Development Risks.
Sales and
Marketing
Avanex primarily markets its products to telecommunications
system integrators. Avanexs marketing efforts are centered
on the demonstration of, and education about, its products
performance at trade shows and customer visits. Avanex sells and
markets its products through a combination of direct sales,
distributors and representatives.
173
As of February 11, 2009, Avanexs direct sales
organization consisted of directly employed account managers in
the United States, Europe and Asia, supported by application
engineers and product line managers. Avanex focuses its direct
sales efforts on service providers and telecommunications
systems and optical module manufacturers. The direct sales
account managers cover the market on an assigned-account,
regional basis and work as a team with systems engineers and
product line managers. As of February 11, 2009,
Avanexs sales and marketing organization consisted of
51 people. Avanex provides customer service directly to its
customers.
In order to further Avanexs international sales
objectives, it has established relationships with distributors
and manufacturers representatives geographically as needed
to support its customers. These distributors and representatives
have expertise in distributing complex telecommunications
equipment in their markets and provide basic customer service to
the end customers they serve.
While Avanex has diversified its customer base, it expects that
a substantial proportion of its sales will continue to be
concentrated with a limited number of customers. During fiscal
2008, Alcatel-Lucent accounted for 25% of Avanexs net
revenue and Tellabs accounted for 21% of Avanexs net
revenue. During fiscal 2007, Alcatel-Lucent accounted for 29% of
Avanexs net revenue and Tellabs accounted for 17% of
Avanexs net revenue. During fiscal 2006, Alcatel accounted
for 27% of Avanexs net revenue and Nortel accounted for
11% of Avanexs net revenue.
A summary of certain financial information by geographic
location is found in Note 15 in the Notes to Consolidated
Financial Statements.
Backlog
Avanex does not believe that backlog as of any particular date
is meaningful, as its sales are made primarily pursuant to
standard purchase orders for delivery of products. Only a small
portion of Avanexs orders are non-cancelable, and the
dollar amount associated with the non-cancelable portion is not
significant.
Manufacturing
During fiscal 2007, Avanex completed the transition of most of
its manufacturing operations to third party contract
manufacturers located in Thailand and China, whose operations
are coordinated through Avanexs Asian Operations Center in
Bangkok, Thailand; however, Avanex continues to manufacture
Lithium Niobate chips that are used in its products in
San Donato, Italy. As of February 11, 2009,
Avanexs manufacturing support organization consisted of
196 people.
Avanex currently purchases several key components used in its
products and equipment from single or limited sources of supply,
including Bookham Inc., Corning, Eudyna Devices Inc., JDS
Uniphase Corporation and Photop, Inc. These key components
include lasers, variable optical attenuators, thin film filters,
gain flattening filters, and optical fiber. Avanex also
purchases turnkey solutions from OEM manufacturers, such as
Browave Corporation, Fabrinet, Optiworks, and Photop Inc. For
risks associated with Avanexs manufacturing strategy,
please see Risks Relating to Avanex in this joint
proxy statement/prospectus, including Section IV:
Operations and Research and Development Risks.
Avanexs United States, Europe and Asia sites are currently
TL-9000 certified. Avanex will continue to refine its quality
processes to ensure that it maintains its high standards of
product quality and customer satisfaction.
Patents
and Intellectual Property
As of February 11, 2009, Avanex held approximately 543
U.S. patents and approximately 313 foreign patents (issued
and pending), covering a broad range of photonics and optical
communications products and technologies. These technologies are
incorporated into Avanexs products and are covered by
patents that expire through November 2028; however, Avanex also
has patents that have not been incorporated into its products.
In addition, Avanexs intellectual property includes trade
secrets, trademarks, and copyrights. Avanex does not expect to
maintain or enhance its market position primarily through the
exercise of its intellectual
174
property rights because the rapid evolution of technology and
the wide distribution of patents in its industry preclude such
market positioning through intellectual property. Avanex will
pursue opportunities to license its intellectual property if it
believes that it can be adequately compensated or if there is
the potential for a beneficial cross-license agreement.
Avanexs engineering teams have significant expertise in
photonic, micro-optic and systems-level design and
manufacturing. While Avanex relies on patent, copyright, trade
secret and trademark law to protect its technology, Avanex also
believes that other factors, such as the technological and
creative skills of its personnel, new product developments,
frequent product enhancements and reliable product maintenance
are essential to establishing and maintaining a technology
leadership position.
Avanex generally enters into confidentiality or license
agreements with Avanexs employees, consultants and
corporate partners, and generally controls access to and
distribution of its proprietary information.
In addition, Avanex has been granted licenses to use other
intellectual property, including patents of Alcatel, Corning and
various other third parties. For risks associated with
Avanexs patents and intellectual property, please see
Risks Relating to Avanex in this joint proxy
statement/prospectus, including Section V:
Intellectual Property and Litigation Risks.
Employees
As of February 11, 2009, Avanex had 459 employees and
consultants comprised of 196 employees in manufacturing
support, 143 employees in research and development,
51 employees in sales and marketing, and 69 employees
in general and administrative capacities. The work force is
located in Canada, China, France, Germany, Italy, Japan,
Thailand, the United Kingdom, and the United States.
As of February 11, 2009, some of Avanexs employees
located in Europe were represented by labor organizations.
Avanex considers its relations with its employees to be good.
Avanexs future success depends on its continuing ability
to attract, train and retain highly qualified technical, sales
and managerial personnel. Please see Risks Relating to
Avanex in this joint proxy statement/prospectus, including
Section IV: Operations and Research and Development
Risks, specifically the risk factor entitled We
depend on key personnel to manage our business effectively, and
if we are unable to hire, retain or motivate qualified
personnel, our ability to sell our products could be
harmed.
175
Properties
Avanex leases the following properties:
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Square
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Location
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Feet
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Principal Operations
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Date Lease Expires
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Bangkok, Thailand
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15,610
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Administrative office
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February 28, 2010
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Bangkok, Thailand
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3,300
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Warehouse
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May 31, 2009
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Horseheads, New York
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15,000
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Administrative office and Research & Development
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January 31, 2010
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Fremont, California #1
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54,000
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Corporate headquarters and partial sublease
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October 17, 2009
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Fremont, California #2
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91,000
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Administrative office (subleased)
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April 15, 2010
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Newark, California #1
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48,000
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Administrative office (subleased)
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November 30, 2010
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Newark, California #2
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62,000
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Administrative office (subleased)
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November 30, 2010
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Melbourne, Florida
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6,000
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Administrative office and Research & Development (vacant)
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May 15, 2009
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Villebon, France
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8,830
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Administrative office and Research & Development
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April 25, 2010
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San Donato, Italy
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65,700
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Manufacturing and Administrative
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June 30, 2011
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Shanghai, China
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12,200
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Administrative office and Research & Development
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December 31, 2009
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Avanex believes that existing facilities are in excess of its
needs. Avanex is currently evaluating the most appropriate use
of its existing facilities and the possibility of subleasing
more of its space to third parties. Avanex currently sublease
some of the space at its facilities in Fremont and Newark,
California to other companies.
Legal
Proceedings
From time to time, Avanex is subject to various legal
proceedings that arise from the normal course of business
activities. In addition, from time to time, third parties assert
patent or trademark infringement claims against us in the form
of letters and other forms of communication. Avanex does not
believe that any of these legal proceedings or claims is likely
to have a material adverse effect on its consolidated results of
operations, financial condition, or cash flows. However, it is
possible that an unfavorable resolution of one or more such
proceedings could in the future materially affect Avanexs
future results of operations, cash flows, or financial position
in a particular period.
IPO
Class Action Lawsuit
On August 6, 2001, Avanex, certain of its officers and
directors, and various underwriters in its initial public
offering (IPO) were named as defendants in a class
action filed in the United States District Court for the
Southern District of New York, captioned Beveridge v.
Avanex Corporation et al., Civil Action
No. 01-CV-7256.
This action and other subsequently filed substantially similar
class actions have been consolidated into In re Avanex Corp.
Initial Public Offering Securities Litigation, Civil Action
No. 01 Civ. 6890. The consolidated amended complaint in the
action generally alleges that various investment bank
underwriters engaged in improper and undisclosed activities
related to the allocation of shares in Avanexs IPO.
Plaintiffs have brought claims for violation of several
provisions of the federal securities laws against those
underwriters, and also against Avanex and certain of its
directors and officers, seeking unspecified damages on behalf of
a purported class of purchasers of Avanexs common stock
between February 3, 2000 and December 6, 2000. Various
plaintiffs have filed similar actions asserting virtually
identical allegations against more than 40 investment banks and
250 other companies. All of these IPO allocation
securities class actions currently pending in the Southern
District of New York have been assigned to Judge Shira A.
Scheindlin for coordinated pretrial proceedings as In re Initial
Public Offering Securities Litigation, 21 MC 92. On
October 9, 2002, the claims against Avanexs directors
and officers were dismissed without prejudice pursuant to a
tolling agreement. The issuer defendants filed a coordinated
motion to dismiss all common pleading issues, which the
176
Court granted in part and denied in part in an order dated
February 19, 2003. The Courts order did not dismiss
the Section 10(b) or Section 11 claims against Avanex.
In June 2004, a stipulation of settlement and release of claims
against the issuer defendants, including Avanex, was submitted
to the Court for approval. In August 2005, the Court
preliminarily approved the settlement. In December 2006, the
appellate court overturned the certification of classes in the
six test cases that were selected by the underwriter defendants
and plaintiffs in the coordinated proceedings. The case
involving Avanex is not one of the six test cases. Because class
certification was a condition of the settlement, it was unlikely
that the settlement would receive final Court approval. On
June 25, 2007, the Court entered an order terminating the
proposed settlement based upon a stipulation among the parties
to the settlement. Plaintiffs filed amended master allegations
and amended complaints in the six focus cases. On March 26,
2008, the Court largely denied the defendants motion to
dismiss the amended complaints. The parties have reached a
global settlement of the litigation and have so advised the
Court. Under the settlement, which remains subject to Court
approval, the insurers would pay the full amount of settlement
share allocated to Avanex, and Avanex would bear no financial
liability. Avanex, as well as the officer and director
defendants who were previously dismissed from the action
pursuant to tolling agreements, would receive complete
dismissals from the case. It is uncertain whether the settlement
will receive final Court approval. If the settlement does not
receive final Court approval, and litigation against Avanex
continues, Avanex believes it has meritorious defenses and
intends to defend the action vigorously. Nevertheless, an
unfavorable result in litigation may result in substantial costs
and may divert managements attention and resources, which
could harm our business, financial condition, results of
operations or cash flow in a particular period.
Section 16(b)
Demand
On October 3, 2007, a purported Avanex stockholder filed a
complaint for violation of Section 16(b) of the Securities
Exchange Act of 1934, which prohibits short-swing trading,
against Avanexs IPO underwriters. The complaint, Vanessa
Simmonds v. Morgan Stanley, et al., Case
No. C07-01568,
filed in District Court for the Western District of Washington,
seeks the recovery of short-swing profits. Avanex is named as a
nominal defendant. No recovery is sought from Avanex. On
March 12, 2009, the district court entered its order and
judgment dismissing with prejudice the claims against the
underwriter defendants. An appeal may be filed within
30 days after the judgment was entered.
Merger
Purported Class Action Lawsuit
On February 3, 2009, a purported class action complaint was
filed against Avanex and its directors, Bookham, Inc., and
Ultraviolet Acquisition Sub, Inc. in the Superior Court of
California, Alameda County by two individuals who purport to be
stockholders of Avanex. Plaintiffs purport to bring this action
on behalf of all stockholders of Avanex. On March 3, 2009,
these individuals filed an amended complaint. The amended
complaint alleges that the defendants breached their fiduciary
duties by failing to maximize stockholder value in connection
with the contemplated merger of Avanex and Bookham, and that the
joint proxy statement/prospectus fails to provide stockholders
with material information or contains materially misleading
information thereby rendering the stockholders unable to cast an
informed vote on the proposed merger. The complaint also alleges
that Avanex, Bookham, and Ultraviolet Acquisition Sub aided and
abetted the individual defendants alleged breach of
fiduciary duties. Plaintiffs seek to permanently enjoin the
merger with Bookham, monetary damages in an unspecified amount
attributable to the alleged breach of duties, and legal fees and
expenses. Avanex and the individual defendants intend to defend
against the complaint vigorously. If Avanex fails to prevail in
these legal matters or if these matters are resolved against
Avanex, the operating results of a particular reporting period
could be materially adversely affected or the merger with
Bookham could be halted.
Other
Litigation
On February 13, 2009, a lawsuit was filed against Avanex,
its chief executive and chief financial officers, and one of its
secretaries in the Superior Court of California, Los Angeles
County, by an individual claiming to be a former stockholder of
Avanex. Plaintiff claims that defendants made false statements
to him about the reasons for the departure of the prior chief
executive officer of Avanex and about Avanexs business and
prospects, which allegedly caused him to purchase and hold
Avanex stock. Plaintiff asserts claims for intentional
misrepresentation, negligent misrepresentation, deceit
(concealment), and breach of fiduciary duty. Plaintiff seeks
compensatory damages of $5 million, punitive damages,
interest, and costs of suit. Avanex and the individual
defendants intend to defend themselves vigorously.
177
MANAGEMENT
AND OTHER INFORMATION OF THE COMBINED COMPANY
Executive
Officers and Directors of the Combined Company
Resignation
of Avanexs Current Officers and Directors
Pursuant to the merger agreement, it is contemplated that each
corporate officer and director of Avanex and any of its
subsidiaries will resign at or prior to the effective time of
the merger agreement, provided that in the case of each director
of Avanex such resignation will be effective 24 hours after
the effective time of the merger.
Executive
Officers and Directors of Bookham Following the
Merger
The Bookham board of directors is currently comprised of eight
directors and is divided into three classes, with each class
serving a staggered three-year term.
Pursuant to the merger agreement, the Bookham board of directors
immediately following the effective time of the merger will be
comprised of three members of the Avanex board of directors
(currently expected to be Giovanni Barbarossa, Greg Dougherty
and Joel Smith) and four members to be designated by Bookham
(currently expected to be Alain Couder, Bernard Couillaud, Lori
Holland and Edward Collins). The merger agreement provides that
the parties will take all actions necessary to ensure that
effective immediately following the effective time of the merger
agreement, the board of directors of Bookham will consist of the
following members in the following director classes, each to
hold an office from and after the effective time of the merger
until the earliest of appointment of his or her respective
successor, resignation or proper removal in accordance with
Bookhams charter documents and applicable legal
requirements:
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Two members to be chosen by Bookham (in its sole discretion), or
to the extent any such person determines not to serve (or is
unable to serve) as a member of the board, another person
designated by Bookham; and
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Giovanni Barbarossa, or, to the extent Dr. Barbarossa
determines not to serve (or is unable to serve) as a member of
the board, another person designated by Avanex.
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One member to be chosen by Bookham (in its sole discretion), or,
to the extent any such person determines not to serve (or is
unable to serve) as a member of the board, another person
designated by Bookham; and
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Greg Dougherty, or, to the extent Mr. Dougherty determines
not to serve (or is unable to serve) as a member of the board,
another person designated by Avanex.
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One member to be chosen by Bookham (in its sole discretion), or,
to the extent any such person determines not to serve (or is
unable to serve) as a member of the board, another person
designated by Bookham; and
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Joel A. Smith, III, or, to the extent Mr. Smith determines
not to serve (or is unable to serve) as a member of the board,
another person designated by Avanex.
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The merger agreement further provides that Bernard Couillaud (to
the extent he becomes a director immediately following the
effective time) will serve as the chairman of the board of
directors of Bookham immediately following the effective time of
the merger.
The following table lists the names and ages as of
February 23, 2009, and positions of the individuals who are
currently expected to serve as directors of Bookham immediately
following the completion of the merger. However, as of the date
of this joint proxy statement/prospectus, a final determination
as to who will be appointed to the Bookham board of directors
has not been made and the requisite corporate action to
appoint the persons who will serve as directors of Bookham
following the completion of the merger has not
178
been effected; accordingly, the persons who will serve as
directors Bookham following the completion of the merger may
differ from the persons currently expected to serve in such
capacity. For example, a person currently expected to serve as a
Bookham director immediately following the completion of the
merger may determine, prior to the completion of the merger, not
to serve in such capacity (or may be unable to so serve), in
which case, Bookham or Avanex, as applicable, may designate a
substitute person to serve in such capacity.
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Name
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Age
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Position
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Alain Couder
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62
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President, Chief Executive Officer and Director
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Bernard Couillaud
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65
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Chairman of the Board
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Giovanni Barbarossa
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47
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Director
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Edward Collins
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66
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Director
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Greg Dougherty
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49
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Director
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Lori Holland
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50
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Director
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Joel A. Smith III
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63
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Director
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Alain Couder, President, Chief Executive Officer and
Director. Mr. Couder has served as a
director and the President and Chief Executive Officer of
Bookham since August 2007. Prior to joining Bookham,
Mr. Couder was the President and CEO of Solid Information
Technology Inc., a supplier of database solutions, from March
2005 to August 2007. From May 2004 to February 2005,
Mr. Couder was a Venture Advisor to Sofinnova Ventures,
Inc., a venture capital company. From April 2003 to March 2004,
Mr. Couder was the President and CEO of Confluent Software,
Inc., a software company. From August 2002 to March 2003,
Mr. Couder was President and CEO of IP Dynamics, Inc., a
software company. Mr. Couder served as Chief Operating
Officer of Agilent Technologies, Inc., a measurement and
analysis company, from February 2000 to May 2002. Earlier in his
career, Mr. Couder worked for Packard-Bell NEC, Groupe
Bull, Hewlett Packard and IBM, each a computer hardware company.
Mr. Couder is a director at Sanmina-SCI, an electronic
manufacturing services firm, since February 2007.
Mr. Couder holds a masters degree in electrical
engineering from the Ecole Superieure dElectricite in
Paris.
Bernard Couillaud, Chairman of the
Board. Mr. Couillaud has served as a
director of Bookham since May 2008. The majority of
Dr. Couillauds career was spent with the
Santa Clara, California-based laser manufacturer, Coherent,
Inc., where he served as President and Chief Executive Officer
from July 1996 until 2002. Dr. Couillaud was the Chairman
of Coherents Board of Directors from October 2002 until
his retirement in June 2007. From 2000 to 2005,
Dr. Couillaud was the Chairman of the Supervisory Board of
Lambda Physik AG, a German public company. Dr. Couillaud
was a full Professor at the University of Bordeaux and a CNRS
Fellow and he is also a member of the French National Academy of
Technology.
Giovanni Barbarossa,
Director. Dr. Barbarossa has served as the
Chief Executive Officer of Avanex since July 2008 and as the
Senior Vice President and Chief Technology Officer of Avanex
since May 2002. Dr. Barbarossa led the Active Component
Business Unit from August 2004 to June 2005 and served as Vice
President of Product Development from May 2001 to August 2004.
Prior to being promoted to Vice President of Product
Development, Dr. Barbarossa was Director of Research and
Development from February 2000 until May 2001. From 1999 to
February 2000, Dr. Barbarossa served as Project Manager in
the Optical Networking Division of Agilent Technologies.
Dr. Barbarossa held various positions, including Team
Leader in the Optical Application Specific Integrated Circuits
Department and Member of Technical Staff of Bell Laboratories at
Lucent Technologies, a developer and manufacturer of
communications products, from 1995 through 1999.
Dr. Barbarossa received his Ph.D. degree in Electronics
Engineering from the University of Glasgow, U.K. and a B.S.
degree in Electrical Engineering from the University of Bari,
Italy.
Edward Collins, Director. Mr. Collins has
served as a director of Bookham since May 2008. From 1995 to
present, Mr. Collins has served as the Managing Director
and a Partner at ChinaVest Group, a private equity group
investing in China. In addition, from 2007 to present,
Mr. Collins has served as chairman of California Bank of
Commerce and from 1999 to present he has served as chairman of
the Taiwan Greater China Fund. From 1988 to 1994,
Mr. Collins was a partner at the law firm of McCutchen,
Doyle, Brown, & Enersen where he was responsible for the
Greater China practice. He has served as counsel to various
investment groups, banks, and manufacturing companies in Hong
Kong and Taiwan, and has been a member of the State Bars of
179
California and Texas. Mr. Collins also serves as
non-executive Chairman of Branded Spirits, Ltd., a privately
held company.
Greg Dougherty, Director. Mr. Dougherty
has served as a director of Avanex since April 2005.
Mr. Dougherty is a Senior Advisor and previously served as
Chief Executive Officer of Picarro, Inc., a company focused on
developing lasers and optical instruments. He has also served as
a director of Picarro since October 2002. From February 2001 to
September 2002, Mr. Dougherty held a number of positions at
JDS Uniphase, an optical technology company, including Chief
Operating Officer, Executive President and Chief Operating
Officer of the Amplification and Transmission Business Group.
Mr. Dougherty held a number of positions at SDL, Inc., an
optical technology company, from March 1997 to February 2001,
including Chief Operating Officer, Vice President of the
Communications Business Unit and Corporate Marketing and Sales,
Vice President of Communications and Information Products, Vice
President of the Components Group and President of SDL Optics.
Prior to joining SDL, from 1989 to 1997, Mr. Dougherty was
the Director of Product Management and Marketing at Lucent
Technologies Microelectronics in the Optoelectronics Strategic
Business Unit. Mr. Dougherty received a B.Sc. degree in
optics from Rochester University.
Lori Holland, Director. Ms. Holland has
served as a director of Bookham since September 2004.
Ms. Holland served as a director of Bookham Technology plc
from April 1999 until September 2004. Ms. Holland has
served as a consultant to various technology startups since
January 2001. From November 1999 until December 2000,
Ms. Holland was the Chief Financial Officer of Zaffire,
Inc., a telecommunication company in California.
Ms. Holland served as a director and audit committee member
of Credence Systems Corporation, a test equipment supplier to
the semiconductor industry based in Silicon Valley, from
September 2004 until August 2008 when Credence merged with LTX
Corporation. Ms. Holland currently serves as a director and
audit committee member of LTX-Credence Corporation.
Ms. Holland received a BS in Economics from California
Polytechnic State University.
Joel A. Smith III, Director. Mr. Smith
has served as a director of Avanex since December 1999.
Mr. Smith was the Dean of the Darla Moore School of
Business of the University of South Carolina from October 2000
to December 2007. Previously, Mr. Smith served as the
President of Bank of America East, a financial institution, from
October 1998 to September 2000. From July 1991 to October 1998,
Mr. Smith served as President of Nations Bank Carolinas, a
financial institution. Mr. Smith serves on the board of
directors of First National Bank of the South. Mr. Smith
received a B.A. from the University of the South in Sewanee,
Tennessee.
It is currently expected that the executive officers of Bookham
following the merger will be substantially similar to the
current executive officers of Bookham. In addition, following
the effective time of the merger Bookham contemplates that
certain employees of Avanex will join Bookham as officers of
Bookham and thus may become executive officers of Bookham. In
the event that new personnel become executive officers of
Bookham, certain persons who currently serve as executive
officers of Bookham may no longer serve in such capacity. As of
the date of this joint proxy statement/prospectus it is not
known which Avanex employees, if any, will become executive
officers of Bookham and no determinations by Bookham have been
made in this regard. Similarly, it is not known which of
Bookhams current executive officers, if any, will cease to
serve in such capacity. Any executive officers of Bookham
following the completion of the merger will serve in such
capacity at the discretion of the Bookham board of directors.
The following table lists the names and ages as of
February 23, 2009, and positions of the individuals who are
currently serving as executive officers of Bookham.
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Name
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Age
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Current Position with Bookham
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Alain Couder
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62
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President, Chief Executive Officer and Director
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Jerry Turin
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46
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Chief Financial Officer
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James Haynes
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47
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Chief Operating Officer
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Adrian Meldrum
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38
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Executive Vice President, Telecom Division
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Kate Rundle
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52
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Executive Vice President, General Counsel and Corporate
Secretary
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Jerry Turin, Chief Financial
Officer. Mr. Turin has served as the Chief
Financial Officer of Bookham since August 1, 2008. From
July 2005 to July 2008, Mr. Turin served as Bookhams
Corporate Controller.
180
From April 2008 to July 2008, Mr. Turin served as
Bookhams Vice President of Finance. From 1999 to 2002,
Mr. Turin served as Controller of Silicon Spice Inc. (which
was acquired by Broadcom Corporation in October 2000), a
developer of gateway and carrier access chipsets, software and
development tools. Mr. Turin received his bachelors
degree in Business Administration and Commerce from the
University of Alberta in Alberta, Canada and is a member of the
Canadian Institute of Chartered Accountants and the Institute of
Chartered Accountants of Alberta.
James Haynes, Chief Operating
Officer. Mr. Haynes has served as the Chief
Operating Officer of Bookham since March 2005 and as acting
Chief Technology Officer since June 2005. From August 2004 to
March 2005, Mr. Haynes was the Officer VP, U.K. Operations,
of Bookham Technology plc. From June 2003 to August 2004,
Mr. Haynes served as VP Operations and Site Leader, Caswell
for Bookham, Inc. From December 2000 to June 2003,
Mr. Haynes served as Chief Operating Officer of Agility
Communications, Inc., a tunable laser company. From 1998 to
December 2000, Mr. Haynes served as Director of Technology
of Nortel Networks Corporation. Mr. Haynes received his BSc
(Hons) in Materials Science and Technology from Swansea
University, United Kingdom.
Adrian Meldrum, Executive Vice President, General Manager of
Telecom Division. Mr. Meldrum has served as
the Executive Vice President, General Manager of Telecom
Division of Bookham since October 2007. He was Vice President,
Sales and Marketing from July 2005 to October 2007. From
November 2004 to July 2005, Mr. Meldrum served as our Vice
President, Communication Sales. Mr. Meldrum previously
served as Vice President, Business Development and held various
positions in business development and product management roles
after joining Bookham in 2001. From 2000 to 2001,
Mr. Meldrum served as Product Line Manager for JDS Uniphase
Corp., in the United Kingdom and joined JDS Uniphase Corp.
through its acquisition of SDL in 2000. Mr. Meldrum holds a
BSc in Physics from Manchester Metropolitan University.
Kate Rundle, Executive Vice President, General Counsel and
Corporate Secretary. Ms. Rundle has served
as the Executive Vice President, General Counsel and Corporate
Secretary of Bookham since November 2007. Prior to joining
Bookham, from February 2006 to May 2007, Ms. Rundle was
Vice President, General Counsel and Corporate Secretary of MIPS,
Inc., a publicly-traded semiconductor technology licensing
company. Ms. Rundle worked at Sun Microsystems from 1997 to
2006, holding a number of positions including Senior Director
responsible for the world wide legal support of the
companys marketing organization. Ms. Rundle completed
her BA from the University of California, Berkeley and she
received her J.D. from the University of California, Hastings
College of the Law.
The executive officers are elected by, and serve at the
discretion of, the board of directors. There are no family
relationships among any of the currently expected directors and
current executive officers of Bookham.
Director
Independence
Under applicable NASDAQ rules, a director will only qualify as
an independent director if the director does not
have a relationship with the listed company that would impair
his/her
independence, and, in the determination of Bookhams board
of directors, that person does not have a relationship which
would interfere with the exercise of independent judgment in
carrying out the responsibilities of a director of Bookham.
Of the eight current members of the Bookham board of directors,
seven have been determined to be independent within the meaning
of applicable NASDAQ rules. These seven current Bookham
directors are Peter Bordui, Bernard Couillaud, Edward Collins,
Joseph Cook, Lori Holland, W. Arthur Porter and David Simpson.
Alain Couder, a current member of Bookhams board and
Bookhams President and Chief Executive Officer, is not
independent within the meaning of applicable NASDAQ rules. Prior
to the appointment of Giovanni Barbarossa, Greg Dougherty and
Joel A. Smith, III (or any substitute persons designated by
Avanex) to the Bookham board of directors, the Bookham board of
directors will determine whether these individuals are
independent (as to Bookham) within the meaning of applicable
NASDAQ rules, and whether those individuals expected to serve as
members of Bookhams audit committee immediately following
the completion of the merger meet the additional independence
requirements set forth in
Rule 10A-3
under the Securities Exchange Act of 1934, as amended.
181
Board
Committees
The board of directors of Bookham following the completion of
the merger will have an audit committee, a compensation
committee and a nominating and corporate governance committee.
Audit
Committee
The responsibilities of the audit committee of the Bookham board
following the completion of the merger will include: appointing,
approving the compensation of, and evaluating the independence
of Bookhams independent registered public accounting firm,
overseeing the work of Bookhams independent registered
public accounting firm, including through the receipt and
consideration of certain reports from the firm, reviewing and
discussing with management and Bookhams independent
registered public accounting firm Bookhams annual and
quarterly financial statements and related disclosures,
monitoring Bookhams internal control over financial
reporting, disclosure controls and procedures and code of
business conduct and ethics, establishing procedures for the
receipt and retention of accounting related complaints and
concerns, and meeting independently with Bookhams
independent registered public accounting firm and management.
Immediately following completion of the merger, it is currently
expected that Ms. Holland, as the chairperson, and two
additional directors to be appointed by the Bookham board (one
of which is currently expected to be either Mr. Dougherty
or Mr. Smith) will serve on the audit committee.
Bookhams board has previously determined that
Ms. Holland, who currently serves on Bookhams audit
committee, is an audit committee financial expert as
defined in Item 407(d)(5)(ii) of
Regulation S-K.
Compensation
Committee
The responsibilities of the compensation committee of the
Bookham board following the completion of the merger will
include: reviewing and approving, or making recommendations to
the Bookham board with respect to, the compensation of
Bookhams chief executive officer and other executive
officers, making recommendations to the Bookham board with
respect to incentive compensation and equity-based plans, and
administering Bookhams incentive compensation and
equity-based plans.
Immediately following completion of the merger, it is currently
expected that Mr. Dougherty, as the chairperson, and two
additional directors to be appointed by the Bookham board will
serve on the compensation committee.
Nominating
and Corporate Governance Committee
The responsibilities of the nominating and corporate governance
committee of the Bookham board following the completion of the
merger will include: reviewing with the Bookham board, on an
annual basis, the requisite skills and criteria for new Bookham
board members and the composition of the Bookham board as a
whole, recommending to the Bookham board the persons to be
nominated for election as directors and to each of the Bookham
board committees, reviewing and making recommendations to the
Bookham board with respect to director compensation, developing
and recommending to the Bookham board corporate governance
guidelines, overseeing the self-evaluation of the Bookham board,
and overseeing an annual review by the Bookham board of
succession planning.
Immediately following completion of the merger, it is currently
expected that Mr. Smith, as the chairperson, and two
additional directors to be appointed by the Bookham board will
serve on the nominating and corporate governance committee.
182
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF BOOKHAM
The following discussion and analysis of Bookhams
financial condition and results of operations should be read in
conjunction with Selected Historical Consolidated
Financial Data of Bookham and Bookhams consolidated
financial statements and condensed consolidated financial
statements and the notes related to those financial statements
appearing elsewhere in this joint proxy statement/prospectus.
This discussion and analysis contains forward-looking statements
that involve risks and uncertainties. Bookhams actual
results may differ materially from those anticipated by the
forward-looking statements due to, among other things,
Bookhams critical accounting estimates discussed below and
other important factors set forth in this joint proxy
statement/prospectus, including the factors described under
Risks Related to the Merger and Risks Related
to Bookham in this joint proxy statement/prospectus.
Overview
We design, manufacture and market optical components, modules
and subsystems that generate, detect, amplify, combine and
separate light signals principally for use in high-performance
fiber optics communications networks. Due to its advantages of
higher capacity and transmission speed, optical transmission has
become the predominant technology for large-scale communications
networks. Our primary operating segment, which we refer to as
our telecom segment, addresses the optical communications
market. There are four particular drivers which we believe are
contributing to growth in this market: (i) wireless and
wire-line spending by telecommunications networking equipment
companies, (ii) the introduction of new, more
cost-effective product technologies, such as tunable products,
(iii) the expansion of optical networking in the metro
space, driven by the build out of broadband access networks such
as fiber-to-the-home initiatives and (iv) the growing
competition among cable network operators offering voice, video
and data services and traditional telephony service providers
which results in increased utilization of optical networking
technologies, including the long-haul backbone where many of our
product offerings are utilized. We believe drivers (i),
(iii) and (iv) contribute to the overall demand for
broadband capacity and therefore to the demand for the
substantial portion of our telecom product offerings, while
driver (ii) is of particular relevance to the demand for
our tunable telecom products.
We are one of the largest vertically-integrated vendors of
optical components used for fiber optic telecommunications
network applications. Our customers include leading equipment
systems vendors, including ADVA AG Optical Networking,
Alcatel-Lucent, Ciena Corporation, Cisco Systems, Inc., Huawei
Technologies Co., Ltd., Tellabs, Inc., Tyco Electronics, Ltd.
and Nortel Networks Corporation, which we refer to as Nortel
Networks.
Our remaining product lines, which comprise our non-telecom
segment, leverage our optical component technologies and
expertise in manufacturing optical subsystems to address
opportunities in other markets, including industrial, research,
semiconductor capital equipment, military and biotechnology.
Our products typically have a long sales cycle. The period of
time between our initial contact with a customer and the receipt
of a purchase order is frequently 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.
Since the beginning of 2002, we have acquired a total of eight
companies and businesses. In 2002, we acquired the optical
components businesses of Nortel Networks and Marconi Optical
Components Limited. In 2003, we purchased substantially all of
the assets of Cierra Photonics and acquired all of the
outstanding capital stock of Ignis Optics, Inc. During 2004, we
acquired New Focus, Inc., and Onetta, Inc. In fiscal 2006, we
acquired Avalon Photonics AG, or Avalon, and City Leasing
(Creekside) Limited, or Creekside.
Prior to 2002, we reduced manufacturing overhead and our
operating expenses in response to the initial decline in demand
in the optical components industry. Since 2002, we have
announced and implemented a series of restructuring plans in
connection with the integration of acquisitions, the transfer of
certain manufacturing operations to our China facility which is
a lower cost manufacturing center, and in an effort to
183
streamline and reduce our manufacturing and operating expenses.
On January 31, 2007, we adopted our most recent initiative,
which was an overhead cost reduction plan that included
workforce reductions, facility and site consolidation of our
Caswell, U.K. semiconductor operations within our existing U.K.
facilities and the transfer of certain research and development
activities to our Shenzhen facility. These actions were
substantially completed in our quarter ended December 29,
2007. We continue to consider opportunities to reduce our cost
base by moving activities to the comparatively lower cost base
of our China facility, and we have recently transferred
substantially all of the manufacturing operations and processes
of certain of our non-telecom products from our San Jose,
California facility to our Shenzhen, China facility.
Since the acquisition of Nortel Networks Optical Components, or
NNOC, in 2002, we have diversified our revenue base by
increasing our revenues from customers other than Nortel
Networks, on both an absolute basis and as a percentage of total
revenues. This has been one of our key strategic objectives. For
example, in our fiscal years ended June 28, 2008,
June 30, 2007 and July 1, 2006, our revenues from
customers other than Nortel Networks were $200.3 million,
$162.9 million and $121.2 million of our total
revenues, respectively, which represented increases of 23% in
fiscal 2008 compared to fiscal 2007 and 34% in fiscal 2007
compared to fiscal 2006. In addition, in the six months ended
December 27, 2008 and December 29, 2007, our revenues
from customers other than Nortel Networks were
$99.2 million and $96.2 million of our total revenues,
respectively, which represented an increase of 3% in the 2008
period compared to the 2007 period.
A substantial portion of our revenues are, and historically have
been, denominated in U.S. dollars, while a substantial
portion of our costs have been incurred in U.K. pounds sterling.
Despite our change in domicile from the United Kingdom to the
United States in 2004 and the transfer of our assembly and test
operations from Paignton, U.K. to Shenzhen, China, a significant
portion of our expenses are still denominated in U.K. pounds
sterling and substantially all of our revenues are denominated
in U.S. dollars. Fluctuations in the exchange rate between
these two currencies and, to a lesser extent, other currencies,
including the Chinese Yuan and the Swiss Franc, in which we
collect revenues or pay expenses, will continue to have a
material effect on our operating results.
Because of recent changes in the spending plans of certain
telecom customers, leading them to draw down their existing
inventories, we anticipate that our revenues in the near term
will decline. Further, because of the worldwide financial
uncertainty, it is possible that network providers will
significantly reduce capital expenditures in the near term and
that more of the equipment providers whom we supply will
therefore draw down inventories, reduce production levels of
existing products and defer introduction of new products. We
cannot currently predict the duration or the overall impact of
any such reduced demand in our markets over the next several
quarters. We intend to respond to these trends through
management efforts and actions that include carefully
controlling our expenses, focusing on continuing to improve our
direct product costs and monitoring our inventory levels and our
capital spending. However, we do expect that the anticipated
reductions in revenues in our third fiscal quarter, and any
further reductions beyond such quarter, will have an impact on
our gross margins, income (loss) from operations and net income
(loss).
Recent
Accounting Pronouncements
In September 2006, the Financial Accounting Standard Board, or
the FASB, issued Statement of Financial Accounting Standards, or
SFAS, No. 157, Fair Value Measurements, or
SFAS No. 157. SFAS No. 157 provides guidance
for using fair value to measure assets and liabilities. It also
requires expanded information about the extent to which a
company measures assets and liabilities at fair value, the
information used to measure fair value, and the effect of fair
value measurements on earnings. SFAS No. 157 applies
whenever other standards require (or permit) assets or
liabilities to be measured at fair value, and does not expand
the use of fair value in any new circumstances.
SFAS No. 157 became effective for us on June 29,
2008. The adoption of SFAS No. 157 will not have a
material impact on our financial position, results of operations
or cash flows.
In February 2007, the FASB, issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities Including an Amendment to FASB
Statement No. 115, or SFAS No. 159.
SFAS No. 159 gives companies the option of applying at
specified election dates fair value accounting to certain
financial instruments and other items that are not currently
required to be measured at fair value. If a company chooses
184
to record eligible items at fair value, the company must report
unrealized gains and losses on those items in earnings at each
subsequent reporting date. SFAS No. 159 also
prescribes presentation and disclosure requirements for assets
and liabilities that are measured at fair value pursuant to this
standard and pursuant to the guidance in SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities. SFAS 159 became effective for us on
June 29, 2008. The adoption of SFAS No. 159 will
not have a material impact on our financial position, results of
operations or cash flows.
In June 2007, the FASB also ratified Emerging Issues Task Force
07-3,
Accounting for Nonrefundable Advance Payments for Goods or
Services Received for Use in Future Research and Development
Activities, or
EITF 07-3.
EITF 07-3
requires that nonrefundable advance payments for goods or
services that will be used or rendered for future research and
development activities be deferred and capitalized and
recognized as an expense as the goods are delivered or the
related services are performed.
EITF 07-3
is effective, on a prospective basis, for fiscal years beginning
after December 15, 2007. The adoption of
EITF 07-3
will not have a material effect on our financial position,
results of operations or cash flows.
In December 2007, the FASB issued SFAS No. 141R,
Business Combinations. This standard establishes
principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any non-controlling interest
in the acquiree and the goodwill acquired in a business
combination. This standard also establishes disclosure
requirements intended to enable users to evaluate the nature and
financial effects of a business combination.
SFAS No. 141R is effective for us for acquisitions
made after June 27, 2009. We do not anticipate that the
adoption of this pronouncement will have a significant impact on
our financial statements; however, the implementation of
SFAS No. 141R may have a material impact on our
accounting for businesses we acquire post-adoption.
In December 2007, the FASB issued SFAS No. 160,
Non-controlling Interests in Consolidated Financial
Statements, an amendment to ARB No. 51, or
SFAS No. 160. SFAS No. 160 changes the
accounting and reporting for minority interests, which are to be
re-characterized as non-controlling interests and classified as
a component of equity on the balance sheet and statement of
stockholders equity. This consolidation method will
significantly change the accounting for transactions with
minority interest holders. We are required to adopt
SFAS No. 160 at the beginning of the first quarter of
fiscal 2010, which begins on June 27, 2009. We are
currently evaluating the effect, if any, that the adoption of
SFAS No. 160 will have on our financial position,
results of operations or cash flows.
In February 2008, the FASB issued FASB Staff Position, or FSP,
No. 157-2,
Effective Date of FASB Statement No. 157. FSP
No. 157-2
delays the effective date of SFAS No. 157, Fair
Value Measurements for all non-financial assets and
non-financial liabilities, except for items that are recognized
or disclosed at fair value in the financial statements on a
recurring basis (at least annually), until the beginning of the
first quarter of fiscal 2010. We are currently evaluating the
impact that SFAS No. 157 will have on our consolidated
financial statements when it is applied to non-financial assets
and non-financial liabilities that are not measured at fair
value on a recurring basis beginning in the first quarter of
fiscal 2010. The major categories of non-financial assets and
non-financial liabilities that are measured at fair value, for
which we have not yet applied the provisions of
SFAS No. 157, are goodwill and intangible assets.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, an amendment to FASB Statement No. 133.
SFAS No. 161 requires enhanced disclosures for
derivative instruments, including those used in hedging
activities. It is effective for fiscal years and interim periods
beginning after November 15, 2008, and will be applicable
to us in the third quarter of fiscal 2009. We are currently
evaluating the effect, if any, that the adoption of
SFAS No. 161 may have on our consolidated results of
operations and financial condition.
In April 2008, the FASB issued FSP
No. 142-3,
Determination of the Useful Life of Intangible Assets.
FSP
No. 142-3
amends the factors that should be considered in developing
assumptions about renewal or extension used in estimating the
useful life of a recognized intangible asset under
SFAS No. 142, Goodwill and Other Intangible
Assets. FSP
No. 142-3
is intended to improve the consistency between the useful life
of a recognized intangible asset under SFAS No. 142
and the period of expected cash flows used to measure the fair
value of the asset under SFAS No. 141R and other
generally accepted accounting principles. FSP
185
No. 142-3
is effective for financial statements issued for fiscal years
beginning after December 15, 2008. The measurement
provisions of this standard will apply only to intangible assets
we acquire after June 27, 2009.
In May 2008, the FASB issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles.
SFAS No. 162 supersedes the existing hierarchy
contained in the U.S. auditing standards. The existing
hierarchy was carried over to SFAS No. 162 essentially
unchanged. SFAS No. 162 becomes effective 60 days
following the Securities and Exchange Commissions approval
of the Public Company Accounting Oversight Board amendments to
the auditing literature. The new hierarchy is not expected to
change our current accounting practice in any area.
In October 2008, the FASB issued FSP
No. 157-3,
Determining the Fair Value of a Financial Asset When the
Market for That Asset Is Not Active. FSP
No. 157-3
clarifies the application of SFAS No. 157 for
financial assets in a market that is not active. FSP
No. 157-3
was effective upon issuance. SFAS No. 157 was adopted
by us, as it applies to our financial instruments, in the first
quarter of fiscal 2009. The impact of our adoption of
SFAS No. 157 is discussed in Note 3 to our
condensed consolidated financial statements appearing elsewhere
in this joint proxy statement/prospectus.
Application
of Critical Accounting Policies
The discussion and analysis of our financial condition and
results of operations is based on our consolidated financial
statements and our condensed consolidated financial statements
contained elsewhere in this joint proxy statement/prospectus,
which have been prepared in accordance with accounting
principles generally accepted in the United States, or GAAP. The
preparation of our financial statements requires us to make
estimates and judgments that affect our reported assets and
liabilities, revenues and expenses and other financial
information. Actual results may differ significantly from those
based on our estimates and judgments or could be materially
different if we used different assumptions, estimates or
conditions. In addition, our financial condition and results of
operations could vary due to a change in the application of a
particular accounting standard.
We regard an accounting estimate or assumption underlying our
financial statements as a critical accounting
estimate where:
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the nature of the estimate or assumption is material due to the
level of subjectivity and judgment necessary to account for
highly uncertain matters or the susceptibility of such matters
to change; and
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the impact of such estimates and assumptions on our financial
condition or operating performance is material.
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Our significant accounting policies are described in our
consolidated financial statements and in our condensed
consolidated financial statements included elsewhere in this
joint proxy statement/prospectus. Not all of these significant
accounting policies, however, require that we make estimates and
assumptions that we believe are critical accounting
estimates. We have discussed our accounting policies with
the audit committee of our board of directors, and we believe
that the policies described below involve critical
accounting estimates.
Revenue
Recognition and Sales Returns
Revenue represents the amounts, excluding sales taxes, derived
from the provision of goods and services to third-party
customers during a given period. Our revenue recognition policy
follows Securities and Exchange Commission Staff Accounting
Bulletin, or SAB, No. 104, Revenue Recognition in
Financial Statements. Specifically, we recognize product
revenue when persuasive evidence of an arrangement exists, the
product has been shipped, title has transferred, collectibility
is reasonably assured, fees are fixed or determinable and there
are no uncertainties with respect to customer acceptance. For
certain sales, we are required to determine, in particular,
whether the delivery has occurred, whether items will be
returned and whether we will be paid under normal commercial
terms. For certain products sold to customers, we specify
delivery terms in the agreement under which the sale was made
and assess each shipment against those terms, and only recognize
revenue when we are certain that the delivery terms have been
met. For shipments to new
186
customers and evaluation units, including initial shipments of
new products, where the customer has the right of return through
the end of the evaluation period, we recognize revenue on these
shipments at the end of an evaluation period, if not returned,
and when collection is reasonably assured. We record a provision
for estimated sales returns in the same period as the related
revenues are recorded, which is netted against revenue. These
estimates for sales returns are based on historical sales
returns, other known factors and our return policy. Before
accepting a new customer, we review publicly available
information and credit rating databases to provide ourselves
with reasonable assurance that the new customer will pay all
outstanding amounts in accordance with our standard terms. For
existing customers, we monitor historic payment patterns to
assess whether we can expect payment in accordance with the
terms set forth in the agreement under which the sale was made.
We recognize revenues from financially distressed customers when
collectibility becomes reasonably assured, assuming all other
criteria for revenue recognition have been met. In the three
months ended December 27, 2008, we issued billings of
(i) $4.1 million for products that were shipped to
Nortel Networks, but for which payment was not received prior to
its bankruptcy filing on January 14, 2009 and
(ii) $1.3 million for products that were shipped to a
contract manufacturer to Nortel Networks for which payment may
not be received as a result of the Nortel Networks bankruptcy
filing. As a result, an aggregate of $5.4 million in
revenue was not recognized as revenues or accounts receivable in
our condensed consolidated financial statements included
elsewhere in this joint proxy statement/prospectus at the time
of such billings, and such amounts were therefore deferred as we
determined that such amounts were not reasonably assured of
collectability in accordance with our revenue recognition
policy. The corresponding costs associated with these billings
for the second quarter of fiscal 2009 are fully included in
costs of revenues in our condensed consolidated financial
statements included elsewhere in this joint proxy
statement/prospectus, as title to the products passed to the
customer upon shipment or delivery, depending on the terms of
the individual sale. Accordingly, revenue deferrals for the
second quarter of fiscal 2009 to financially distressed
customers reduced revenues and gross margin and increased net
loss by $5.4 million, and decreased our gross margin rate
by approximately eight percentage points. To the extent that
collectability becomes reasonably assured for these deferred
billings in future periods, our future results will benefit from
the recognition of these amounts.
Inventory
Valuation
In general, our inventories are valued at the lower of cost to
acquire or manufacture our products or market value, less
write-offs of inventory we believe could prove to be unsaleable.
Manufacturing costs include the cost of the components purchased
to produce our products and related labor and overhead. We
review our inventory on a quarterly basis to determine if it is
saleable. Products may be unsaleable because they are
technically obsolete due to substitute products, specification
changes or excess inventory relative to customer forecasts. We
currently reserve for inventory using methods that take these
factors into account. In addition, if we find that the cost of
inventory is greater than the current market price, we will
write the inventory down to the selling price, less the cost to
complete and sell the product.
Accounting
for Acquisitions and Goodwill
We have accounted for acquisitions using the purchase accounting
method in accordance with SFAS No. 141. Under this
method, the total consideration paid, excluding the contingent
consideration that has not been earned, is allocated over the
fair value of the net assets acquired, including in-process
research and development, with any excess allocated to goodwill
(defined as the excess of the purchase price over the fair value
allocated to the net assets). Our judgments as to fair value of
the assets will, therefore, affect the amount of goodwill that
we record. These judgments include estimating the useful lives
over which periods the fair values will be amortized to expense.
For tangible assets acquired in any acquisition, such as plant
and equipment, we estimate useful lives by considering
comparable lives of similar assets, past history, the intended
use of the assets and their condition. In estimating the useful
life of acquired intangible assets with definite lives, we
consider the industry environment and specific factors relating
to each product relative to our business strategy and the
likelihood of technological obsolescence. Acquired intangible
assets primarily include core and current technology, patents,
supply agreements, capitalized licenses and customer contracts.
187
We are currently amortizing our acquired intangible assets with
definite lives over periods generally ranging from three to six
years and, in the case of one specific customer contract,
fifteen years.
Impairment
of Goodwill and Other Intangible Assets
We review our goodwill and other intangible assets for
impairment whenever events or changes in circumstances indicate
that the carrying amount of these assets may not be recoverable,
and also review goodwill annually in accordance with
SFAS No. 142, Goodwill and Other Intangibles.
In addition, we review identifiable intangibles, excluding
goodwill, for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not
be recoverable. Circumstances which could trigger an impairment
test include, but are not limited to, significant decreases in
the market price of the asset, significant adverse changes to
the business climate or legal factors, current period cash flow
or operating losses or a forecast of continuing losses
associated with the use of the asset and a current expectation
that the asset will more likely than not be sold or disposed of
significantly below carrying value before the end of its
estimated useful life. The values assigned to goodwill and other
intangible assets are based on estimates and judgments regarding
expectations for the success and life cycle of products and
technologies acquired.
Goodwill is tested for impairment using a two-step process.
SFAS No. 142 requires that the first phase of testing
goodwill for impairment be based on a reporting units
fair value, which is generally determined through
market prices. In certain cases, due to the absence of market
prices for a particular element of our business, 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 of directors. 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 for determining discounted future cash flows are generally
based on our weighted average cost of capital and are then
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 reporting
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 in
our models are susceptible to change due to global and regional
economic conditions as well as competitive factors in the
industry in which we operate. 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, various
economic factors could cause the results of our goodwill testing
to vary significantly.
If the fair value of a reporting unit exceeds the carrying value
of the net assets assigned to a reporting unit, goodwill is
considered not impaired and no further testing is required. If
the carrying value of the net assets assigned to a reporting
unit exceeds the fair value of a reporting unit, a second step
of the impairment test is performed in order to determine the
implied fair value of a reporting units goodwill.
During the three month period ended December 27, 2008, we
observed indicators of potential impairment of our goodwill,
including the impact of the current general economic downturn on
our future prospects and the continued decline of our current
market capitalization, which caused us to conduct a preliminary
interim goodwill impairment analysis. Specifically, indicators
emerged within the New Focus reporting unit for
SFAS No. 142 purposes, which includes the technology
acquired in the March 2004 acquisition of New Focus and is in
our non-telecom segment, and one other reporting unit in our
non-telecom segment that includes the technology acquired in the
March 2006 acquisition of Avalon, which we refer to as the
Avalon reporting unit, that led us to conclude that a
SFAS No. 142 impairment test was required to be
performed during the second quarter for goodwill in these
reporting units.
188
Our management has determined, in our preliminary first step
goodwill impairment analysis, that our goodwill in our New Focus
and Avalon reporting units was in fact impaired. In the second
step, the measurement of the impairment, we hypothetically apply
purchase accounting to these reporting units using the fair
values from the first step. Due to the timing and complexity of
step two, we have yet to complete this step. However, based upon
preliminary calculations, we have recorded a preliminary
estimate of $7.9 million for the impairment loss in our
statements of operations for the three and six months ended
December 27, 2008 as we concluded that the loss was
probable and that the amount of loss was reasonably
determinable. This is a preliminary estimate only. We are
continuing to evaluate the impairment of our goodwill, and the
amount of the actual impairment charge may vary from this
initial estimate. We expect that we will complete the full
evaluation of the impairment analysis during the quarter ending
March 28, 2009. The impairment will not result in any
current or future cash expenditures.
We also tested the intangible assets of these two reporting
units during the second quarter of 2009 in accordance with
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Based on this testing, we
have determined that no impairment charge was necessary. At
December 27, 2008, intangible assets subject to the
amortization provisions of SFAS No. 142, net of
accumulated amortization and impairment charges, were
$6.2 million.
Accounting
for Share-Based Payments
SFAS No. 123R, Share-Based Payment, or
SFAS No. 123R, requires companies to recognize in
their statement of operations all share-based payments,
including grants of employee stock options and restricted stock,
based on their fair values on the grant dates. The application
of SFAS No. 123R involves significant amounts of
judgment in the determination of inputs into the
Black-Scholes-Merton valuation model which we use to determine
the fair value of share-based awards. These inputs are based
upon highly subjective assumptions as to the volatility of the
underlying stock, risk free interest rates and the expected life
of the options. Judgment is also required in estimating the
number of share-based awards that are expected to be forfeited
during any given period. As required under the accounting rules,
we review our valuation assumptions at each grant date, and, as
a result, our valuation assumptions used to value employee
stock-based awards granted in future periods may change. If
actual results or future changes in estimates differ
significantly from our current estimates, stock-based
compensation expense and our consolidated results of operations
could be materially impacted. During the six months ended
December 27, 2008 and the years ended June 28, 2008
and June 30, 2007, we recognized $2.2 million,
$8.8 million and $6.7 million of stock-based
compensation expense, respectively. See the notes to our
consolidated financial statements and our condensed consolidated
financial statement included elsewhere in this joint proxy
statement/prospectus for further information.
189
Results
of Operations
Comparison
of the Three and Six Months Ended December 27, 2008 and
December 29, 2007
The following table sets forth our condensed consolidated
results of operations for the three month periods indicated,
along with amounts expressed as a percentage of net revenues,
and comparative information regarding the absolute and
percentage changes in these amounts:
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Three Months Ended
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December 27,
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December 29,
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Increase
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2008
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2007
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Change
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(Decrease)
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(Thousands)
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|
%
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(Thousands)
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%
|
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|
(Thousands)
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%
|
|
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Revenues
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$
|
50,204
|
|
|
|
100.0
|
|
|
$
|
58,956
|
|
|
|
100.0
|
|
|
$
|
(8,752
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)
|
|
|
(14.8
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)
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Cost of revenues
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41,499
|
|
|
|
82.7
|
|
|
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45,522
|
|
|
|
77.2
|
|
|
|
(4,023
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)
|
|
|
(8.8
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)
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|
|
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|
|
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Gross margin
|
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8,705
|
|
|
|
17.3
|
|
|
|
13,434
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|
|
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22.8
|
|
|
|
(4,729
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)
|
|
|
(35.2
|
)
|
|
|
|
|
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|
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|
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|
|
|
|
|
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Operating expenses:
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|
|
|
|
|
|
|
|
|
|
|
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Research and development
|
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6,897
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|
|
|
13.7
|
|
|
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8,168
|
|
|
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13.9
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|
|
|
(1,271
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)
|
|
|
(15.6
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)
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Selling, general and administrative
|
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9,282
|
|
|
|
18.5
|
|
|
|
12,162
|
|
|
|
20.6
|
|
|
|
(2,880
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)
|
|
|
(23.7
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)
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Amortization of intangible assets
|
|
|
444
|
|
|
|
0.9
|
|
|
|
1,353
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|
|
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2.3
|
|
|
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(909
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)
|
|
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(67.2
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)
|
Restructuring and severance charges
|
|
|
482
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|
|
|
0.9
|
|
|
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562
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|
|
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0.9
|
|
|
|
(80
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)
|
|
|
(14.2
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)
|
Legal settlement
|
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|
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|
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|
|
|
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877
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1.5
|
|
|
|
(877
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)
|
|
|
(100.0
|
)
|
Impairment of goodwill
|
|
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7,881
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|
|
|
15.7
|
|
|
|
|
|
|
|
|
|
|
|
7,881
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|
|
|
n/m (1
|
)
|
(Gain) loss on sale of property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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and equipment
|
|
|
(8
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)
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|
|
|
|
|
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(1,481
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)
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|
|
(2.5
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)
|
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|
1,473
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|
|
|
(99.5
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)
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|
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|
|
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|
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|
|
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|
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|
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Total operating expenses
|
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24,978
|
|
|
|
49.7
|
|
|
|
21,641
|
|
|
|
36.7
|
|
|
|
3,337
|
|
|
|
15.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Operating loss
|
|
|
(16,273
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)
|
|
|
(32.4
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)
|
|
|
(8,207
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)
|
|
|
(13.9
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)
|
|
|
(8,066
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)
|
|
|
98.3
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
(95
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(95
|
)
|
|
|
n/m (1
|
)
|
Interest income
|
|
|
209
|
|
|
|
0.4
|
|
|
|
494
|
|
|
|
0.8
|
|
|
|
(285
|
)
|
|
|
(57.7
|
)
|
Interest expense
|
|
|
(132
|
)
|
|
|
(0.3
|
)
|
|
|
(253
|
)
|
|
|
(0.4
|
)
|
|
|
121
|
|
|
|
(47.8
|
)
|
Gain on foreign exchange
|
|
|
9,866
|
|
|
|
19.7
|
|
|
|
2,732
|
|
|
|
4.6
|
|
|
|
7,134
|
|
|
|
261.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
9,848
|
|
|
|
19.6
|
|
|
|
2,973
|
|
|
|
5.0
|
|
|
|
6,875
|
|
|
|
231.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(6,425
|
)
|
|
|
(12.8
|
)
|
|
|
(5,234
|
)
|
|
|
(8.9
|
)
|
|
|
(1,191
|
)
|
|
|
22.8
|
|
Income tax provision (benefit)
|
|
|
36
|
|
|
|
0.1
|
|
|
|
(47
|
)
|
|
|
(0.1
|
)
|
|
|
83
|
|
|
|
n/m (1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,461
|
)
|
|
|
(12.9
|
)
|
|
$
|
(5,187
|
)
|
|
|
(8.8
|
)
|
|
$
|
(1,274
|
)
|
|
|
24.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
190
The following table sets forth our condensed consolidated
results of operations for the six month periods indicated, along
with amounts expressed as a percentage of net revenues, and
comparative information regarding the absolute and percentage
changes in these amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
December 27,
|
|
|
December 29,
|
|
|
|
|
|
Increase
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
(Decrease)
|
|
|
|
(Thousands)
|
|
|
%
|
|
|
(Thousands)
|
|
|
%
|
|
|
(Thousands)
|
|
|
%
|
|
|
Revenues
|
|
$
|
116,735
|
|
|
|
100.0
|
|
|
$
|
113,238
|
|
|
|
100.0
|
|
|
$
|
3,497
|
|
|
|
3.1
|
|
Cost of revenues
|
|
|
91,401
|
|
|
|
78.3
|
|
|
|
87,467
|
|
|
|
77.2
|
|
|
|
3,934
|
|
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
25,334
|
|
|
|
21.7
|
|
|
|
25,771
|
|
|
|
22.8
|
|
|
|
(437
|
)
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
14,832
|
|
|
|
12.7
|
|
|
|
16,860
|
|
|
|
14.9
|
|
|
|
(2,028
|
)
|
|
|
(12.0
|
)
|
Selling, general and administrative
|
|
|
19,966
|
|
|
|
17.1
|
|
|
|
23,488
|
|
|
|
20.7
|
|
|
|
(3,522
|
)
|
|
|
(15.0
|
)
|
Amortization of intangible assets
|
|
|
907
|
|
|
|
0.8
|
|
|
|
3,350
|
|
|
|
3.0
|
|
|
|
(2,443
|
)
|
|
|
(72.9
|
)
|
Restructuring and severance charges
|
|
|
1,968
|
|
|
|
1.7
|
|
|
|
1,779
|
|
|
|
1.6
|
|
|
|
189
|
|
|
|
10.6
|
|
Legal settlement
|
|
|
(184
|
)
|
|
|
(0.2
|
)
|
|
|
877
|
|
|
|
0.8
|
|
|
|
(1,061
|
)
|
|
|
n/m (1
|
)
|
Impairment of goodwill
|
|
|
7,881
|
|
|
|
6.8
|
|
|
|
|
|
|
|
|
|
|
|
7,881
|
|
|
|
n/m (1
|
)
|
(Gain) loss on sale of property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and equipment
|
|
|
8
|
|
|
|
|
|
|
|
(1,716
|
)
|
|
|
(1.5
|
)
|
|
|
1,724
|
|
|
|
n/m (1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
45,378
|
|
|
|
38.9
|
|
|
|
44,638
|
|
|
|
39.5
|
|
|
|
740
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(20,044
|
)
|
|
|
(17.2
|
)
|
|
|
(18,867
|
)
|
|
|
(16.7
|
)
|
|
|
(1,177
|
)
|
|
|
6.2
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
(695
|
)
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
(695
|
)
|
|
|
n/m (1
|
)
|
Interest income
|
|
|
457
|
|
|
|
0.4
|
|
|
|
746
|
|
|
|
0.7
|
|
|
|
(289
|
)
|
|
|
(38.7
|
)
|
Interest expense
|
|
|
(324
|
)
|
|
|
(0.3
|
)
|
|
|
(387
|
)
|
|
|
(0.3
|
)
|
|
|
63
|
|
|
|
(16.3
|
)
|
Gain on foreign exchange
|
|
|
16,362
|
|
|
|
14.0
|
|
|
|
2,320
|
|
|
|
2.0
|
|
|
|
14,042
|
|
|
|
605.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
15,800
|
|
|
|
13.5
|
|
|
|
2,679
|
|
|
|
2.4
|
|
|
|
13,121
|
|
|
|
489.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(4,244
|
)
|
|
|
(3.7
|
)
|
|
|
(16,188
|
)
|
|
|
(14.3
|
)
|
|
|
11,944
|
|
|
|
(73.8
|
)
|
Income tax provision (benefit)
|
|
|
24
|
|
|
|
|
|
|
|
(47
|
)
|
|
|
|
|
|
|
71
|
|
|
|
n/m (1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,268
|
)
|
|
|
(3.7
|
)
|
|
$
|
(16,141
|
)
|
|
|
(14.3
|
)
|
|
$
|
11,873
|
|
|
|
(73.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
Revenues for the three months ended December 27, 2008
decreased by $8.8 million, or 14.8 percent, compared
to the three months ended December 29, 2007. The decrease
was largely due to a decrease in sales from our telecom segment
of $7.4 million and a decrease in non-telecom segment sales
of $1.4 million.
Our decrease in telecom sales for the three months ended
December 27, 2008 was primarily attributable to a decrease
in sales to Nortel Networks (including its contract
manufacturers) of $3.4 million, due to the deferral of
recognition of $5.4 million in billings during the period
in accordance with our revenue recognition policy, and decreased
sales to other telecom customers of $4.0 million which we
believe was due to the uncertainty in the worldwide financial
markets and resulting impact on the markets for our products,
which was partially offset by increases in sales to Huawei
Technologies of $2.3 million and smaller increases in sales
from other customers. For the three months ended
December 27, 2008, Nortel Networks accounted for
$5.4 million, or 11 percent, of our total revenues,
and Huawei Technologies accounted for $7.4 million, or
15 percent, of our total revenues. For the three months
ended December 29, 2007, Nortel Networks accounted
191
for $8.8 million, or 15 percent, of our revenues, and
Cisco Systems accounted for $6.6 million, or
11 percent, of our total revenues.
Revenues for the six months ended December 27, 2008
increased by $3.5 million, or 3.1 percent, compared to
the six months ended December 29, 2007. The increase was
largely due to an increase in sales from our telecom segment of
$4.1 million and a decrease in non-telecom segment sales of
$0.6 million.
Our increase in telecom sales for the six months ended
December 27, 2008 compared to the same period in the prior
year was primarily attributable to increases in sales to Huawei
Technologies of $7.5 million and Nortel Networks of
$0.5 million. For the six months ended December 27,
2008, Nortel Networks accounted for $17.5 million, or
15 percent, of our total revenues, and Huawei Technologies
accounted for $16.4 million, or 14 percent, of our
total revenues. For the six months ended December 29, 2007,
Nortel Networks accounted for $17.1 million, or
15 percent, of our revenues, and Cisco Systems accounted
for $12.7 million, or 11 percent, of our total
revenues.
As noted previously, we anticipate that our revenues, primarily
our telecom revenues, will be negatively affected in our third
quarter of fiscal 2009, and that our revenues in the next
several quarters may be negatively impacted by the uncertainty
in the worldwide financial markets and resulting impact on the
markets for our products.
Cost
of Revenues
Our cost of revenues consists of the costs associated with
manufacturing our products and includes the costs to purchase
raw materials and manufacturing-related labor costs and related
overhead, including stock-based compensation expense. It also
includes 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 the manufacturing
resources which relate to the development of new products are
included in research and development expense.
Our cost of revenues for the three months ended
December 27, 2008 decreased $4.0 million, or
8.8 percent, from the three months ended December 29,
2007. This decrease was primarily due to lower costs associated
with lower sales volumes, which was partially offset by
$0.4 million in additional manufacturing overhead costs in
connection with the transfer of manufacturing operations of our
non-telecom segment from our San Jose, California facility
to our facility in Shenzhen, China. Cost of revenues for the
three months ended December 27, 2008 relative to the three
months ended December 29, 2007, were also favorably
impacted by a $0.5 million reduction in our U.K.
manufacturing costs associated with the weakening of the U.K.
pound sterling relative to the U.S. dollar. Cost of
revenues for the three months ended December 27, 2008
included $0.3 million of stock-based compensation charges
compared to $0.7 million for the three months ended
December 29, 2007.
Our cost of revenues for the six months ended December 27,
2008 increased $3.9 million, or 4.5 percent, from the
six months ended December 29, 2007. This increase was
primarily due to higher costs associated with higher sales
volumes and $0.9 million in additional manufacturing
overhead costs in connection with the transfer of manufacturing
operations of our non-telecom segment from our San Jose,
California facility to our facility in Shenzhen, China. Our cost
of revenues for the six months ended December 27, 2008
included $0.7 million of stock-based compensation charges
compared to $1.3 million for the six months ended
December 29, 2007.
The costs associated with the $5.4 million of products
shipped to two customers in the second quarter of fiscal 2009,
but for which revenue was deferred in accordance with our
revenue recognition policy, as described above, are fully
included in costs of revenues as title to the products passed to
the customer upon shipment or delivery, depending on the terms
of the individual sale.
Gross
Margin
Gross margin is calculated as revenues less cost of revenues.
The gross margin rate is gross margin reflected as a percentage
of revenues.
192
Our gross margin decreased by $4.7 million, or
35.2 percent, for the three months ended December 27,
2008, compared to the three months ended December 29, 2007.
Our gross margin rate decreased to 17.3 percent for the
three months ended December 27, 2008, compared to
22.8 percent for the three months ended December 29,
2007. The decreases in gross margin and gross margin rate were
primarily associated with (i) decreased sales volumes in
both of our operating segments for the three months ended
December 27, 2008 as compared to December 29, 2007 due
to the fixed nature of certain overheads spread over lower
volume, (ii) recognizing the costs associated with the
$5.4 million of products shipped to two customers in the
second quarter of fiscal 2009, but for which revenue was
deferred in accordance with our revenue recognition policy; and
(iii) increased expenses for the three months ended
December 27, 2008 of $0.4 million of additional
manufacturing overhead costs in connection with the transfer of
manufacturing operations of our non-telecom segment from our
San Jose, California facility to our facility in Shenzhen,
China. Gross margin for the three months ended December 27,
2008 relative to the three months ended December 29, 2007,
was also favorably impacted by a $0.5 million reduction in
our U.K. manufacturing costs associated with the weakening of
the U.K. pound sterling relative to the U.S. dollar.
Our gross margin decreased by $0.4 million, or
1.7 percent, for the six months ended December 27,
2008, compared to the six months ended December 29, 2007.
Our gross margin rate decreased to 21.7 percent for the six
months ended December 27, 2008, compared to
22.8 percent in the six months ended December 29,
2007. The decreases in gross margin and gross margin rate were
primarily associated with recognizing the costs associated with
the $5.4 million of products shipped to two customers in
the second quarter of fiscal 2009, but for which revenue was
deferred in accordance with our revenue recognition policy, and
increased expenses for the six months ended December 27,
2008 of $0.9 million of additional manufacturing overhead
costs in connection with the transfer of manufacturing
operations of our non-telecom segment from our San Jose,
California facility to our facility in Shenzhen, China.
The decrease in gross margin rate for the three and six months
ended December 27, 2008, relative to the same periods of
the previous year, included declines of 8.0 percentage
points and 3.5 percentage points, respectively, due to
recognizing the costs associated with the $5.4 million of
products shipped to major customers in the second quarter of
fiscal 2009, but for which revenue was deferred in accordance
with our revenue recognition policy.
As previously noted, we anticipate our revenues to be lower in
our third quarter of fiscal 2009, and accordingly we expect
gross margins in the same quarter to be lower due to lower sales
volumes associated with that revenue decrease, only partly
offset by reductions in our manufacturing overhead expenses
implemented in response to the expected revenue decrease.
Research
and Development Expenses
Research and development expenses consist primarily of salaries
and related costs of employees engaged in research and design
activities, including stock-based compensation charges related
to those employees, costs of design tools and computer hardware,
costs related to prototyping and facilities costs for certain
research and development focused sites.
Research and development expenses decreased to $6.9 million
for the three months ended December 27, 2008 from
$8.2 million for the three months ended December 29,
2007. The decrease was primarily due to decreases in personnel
costs of $0.8 million and stock-based compensation of
$0.4 million due to reductions in personnel and other
miscellaneous decreases in spending of $0.9 million, as a
result of our restructurings and cost reduction plans, which
were partially offset by increased costs for materials used in
research and development of $0.8 million. Approximately
$1.0 million of the cost reductions was associated with
lower expenses in our U.K. research and development activities
as a result of the U.K. pound sterling weakening relative to the
U.S. dollar.
Research and development expenses decreased to
$14.8 million for the six months ended December 27,
2008 from $16.9 million for the six months ended
December 29, 2007. The decrease was primarily due to
decreases in personnel costs of $1.5 million and
stock-based compensation of $0.6 million due to reductions
in personnel and other miscellaneous decreases in spending of
$1.3 million, as a result of our restructurings and
193
cost reduction plans, which were partially offset by increased
costs for materials used in research and development of
$1.4 million. Approximately $1.0 million of the cost
reductions was associated with lower expenses in our U.K.
research and development activities as a result of the U.K.
pound sterling weakening relative to the U.S. dollar.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses consist primarily
of personnel-related expenses, including stock-based
compensation charges related to employees engaged in sales,
general and administrative functions, legal and professional
fees, facilities expenses, insurance expenses and certain
information technology costs.
Selling, general and administrative expenses decreased to
$9.3 million for the three months ended December 27,
2008 from $12.2 million for the three months ended
December 29, 2007. The decrease was primarily the result of
decreases in personnel costs of $1.4 million and
stock-based compensation of $0.8 million as a result of
restructuring and cost reduction plans and a reduction of
$0.7 million in other miscellaneous expenses. Approximately
$0.8 million of the cost reductions was associated with
lower expenses in our U.K. selling, general and administrative
activities as a result of the U.K. pound sterling weakening
relative to the U.S. dollar.
Selling, general and administrative expenses decreased to
$20.0 million for the six months ended December 27,
2008 from $23.5 million for the six months ended
December 29, 2007. The decrease was primarily the result of
decreases in personnel costs of $1.8 million and
stock-based compensation of $0.9 million as a result of
restructuring and cost reduction plans and a reduction of
$0.8 million in other miscellaneous expenses. Approximately
$0.9 million of the cost reductions was associated with
lower expenses in our U.K. selling, general and administrative
activities as a result of the U.K. pound sterling weakening
relative to the U.S. dollar.
Amortization
of Intangible Assets
In previous years we acquired six optical components companies
and businesses and one photonics and microwave company. Our last
such acquisition was in March 2006. Each of these business
combinations added to the balance of our purchased intangible
assets, and the related amortization of these intangible assets
was recorded as an expense in each of the three and six month
periods ended December 27, 2008 and December 29, 2007.
Subsequent to the three months ended December 29, 2007, the
purchased intangible assets from certain of these business
acquisitions became fully amortized, which reduced our expense
for amortization of purchased intangible assets for the three
and six months ended December 27, 2008 by $0.9 million
and $2.4 million, respectively, as compared to the same
three and six month periods in the prior year. We expect the
amortization of intangible assets to continue to decrease in the
year ending June 27, 2009 as more of the purchased
intangible assets associated with these acquisitions become
fully amortized during the fiscal year.
Restructuring
and Severance Charges
In connection with earlier plans of restructuring, and the
assumption of restructuring accruals upon the March 2004
acquisition of New Focus, we continue to make scheduled payments
drawing down the related lease cancellations and commitments as
well as making termination payments to employees and related
costs. For the three months ended December 27, 2008 and
December 29, 2007 we accrued $0.5 million and
$0.6 million, respectively, in expenses for revised
estimates related to these cancellations and commitments and
termination payments to employees and related costs. For the six
months ended December 27, 2008 and December 29, 2007
we accrued $2.0 million and $1.8 million,
respectively, in expenses for the same items.
Impairment
of Goodwill
During the three month period ended December 27, 2008, we
saw indicators of potential impairment of our goodwill,
including the impact of the current general economic downturn on
our future prospects and the continued decline of our current
market capitalization, which caused us to conduct a preliminary
interim goodwill impairment analysis. Our management has
determined, in our preliminary first step goodwill
194
impairment analysis, that our goodwill in our New Focus and
Avalon reporting units was in fact impaired. Based upon
preliminary calculations, we have recorded a preliminary
estimate of $7.9 million for the impairment loss in our
statements of operations for the three and six months ended
December 27, 2008 as we concluded that the loss was
probable and that the amount of loss was reasonably
determinable. This is a preliminary estimate only. We are
continuing to evaluate the impairment of our goodwill, and the
amount of the actual impairment charge may vary materially from
this initial estimate. We expect that we will complete the full
evaluation of the impairment analysis during the quarter ending
March 28, 2009. The impairment will not result in any
current or future cash expenditures.
Other
Income (Expense)
The increase in other income (expense) for the three and six
months ended December 27, 2008 when compared to the three
and six months ended December 29, 2007 was primarily
related to an increase of $7.1 million and
$14.0 million, respectively, in income related to the
re-measurement of short term balances between our international
subsidiaries due to the strong appreciation of the dollar during
the three and six months ended December 27, 2008 relative
to our other local functional currencies during such periods and
an expense for the three and six months ended December 27,
2008 of $0.1 million and $0.7 million, respectively,
related to the fair value impairment of our short-term
investment in a debt security of Lehman Brothers.
Income
Tax Benefit
We recognize income taxes under the liability method. Deferred
income taxes are recognized for differences between the
financial reporting and tax bases of assets and liabilities at
enacted statutory tax rates in effect for the years in which the
differences are expected to reverse. The effect on deferred
taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.
We have incurred substantial losses to date and expect to incur
additional losses in the future, and accordingly our income tax
provision is negligible in each period presented. Based upon the
weight of available evidence, which includes our historical
operating performance and the recorded cumulative net losses in
prior periods, we have provided a full valuation allowance
against our net deferred tax assets at December 27, 2008
and June 28, 2008.
195
Comparison
of the Fiscal Years Ended June 28, 2008, June 30, 2007
and July 1, 2006
The following tables set forth our condensed consolidated
results of operations for the fiscal years indicated, along with
amounts expressed as a percentage of net revenues, and
comparative information regarding the absolute and percentage
changes in these amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
Increase
|
|
|
|
June 28, 2008
|
|
|
June 30, 2007
|
|
|
Change
|
|
|
(Decrease)
|
|
|
|
(Thousands)
|
|
|
%
|
|
|
(Thousands)
|
|
|
%
|
|
|
(Thousands)
|
|
|
%
|
|
|
Revenues
|
|
$
|
235,491
|
|
|
|
100.0
|
|
|
$
|
202,814
|
|
|
|
100.0
|
|
|
$
|
32,677
|
|
|
|
16.1
|
|
Cost of revenues
|
|
|
182,518
|
|
|
|
77.5
|
|
|
|
173,493
|
|
|
|
85.5
|
|
|
|
9,025
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
52,973
|
|
|
|
22.5
|
|
|
|
29,321
|
|
|
|
14.5
|
|
|
|
23,652
|
|
|
|
80.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
32,633
|
|
|
|
13.8
|
|
|
|
43,025
|
|
|
|
21.2
|
|
|
|
(10,392
|
)
|
|
|
(24.2
|
)
|
Selling, general and administrative
|
|
|
47,941
|
|
|
|
20.4
|
|
|
|
47,820
|
|
|
|
23.6
|
|
|
|
121
|
|
|
|
0.3
|
|
Amortization of intangible assets
|
|
|
4,639
|
|
|
|
2.0
|
|
|
|
8,884
|
|
|
|
4.4
|
|
|
|
(4,245
|
)
|
|
|
(47.8
|
)
|
Restructuring and severance charges
|
|
|
3,471
|
|
|
|
1.5
|
|
|
|
10,347
|
|
|
|
5.1
|
|
|
|
(6,876
|
)
|
|
|
(66.5
|
)
|
Certain legal actions, settlements and related costs
|
|
|
(2,882
|
)
|
|
|
(1.2
|
)
|
|
|
490
|
|
|
|
0.2
|
|
|
|
(3,372
|
)
|
|
|
n/m (1
|
)
|
Impairment of other long-lived assets
|
|
|
|
|
|
|
|
|
|
|
1,621
|
|
|
|
0.8
|
|
|
|
(1,621
|
)
|
|
|
(100.0
|
)
|
Gain on sale of property and equipment and other long-lived
assets
|
|
|
(2,562
|
)
|
|
|
(1.1
|
)
|
|
|
(3,009
|
)
|
|
|
(1.5
|
)
|
|
|
447
|
|
|
|
(14.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
83,240
|
|
|
|
35.4
|
|
|
|
109,178
|
|
|
|
53.8
|
|
|
|
(25,938
|
)
|
|
|
(23.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(30,267
|
)
|
|
|
(12.9
|
)
|
|
|
(79,857
|
)
|
|
|
(39.3
|
)
|
|
|
49,590
|
|
|
|
(62.1
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,465
|
|
|
|
0.6
|
|
|
|
1,239
|
|
|
|
0.6
|
|
|
|
226
|
|
|
|
18.2
|
|
Interest expense
|
|
|
(671
|
)
|
|
|
(0.3
|
)
|
|
|
(573
|
)
|
|
|
(0.3
|
)
|
|
|
(98
|
)
|
|
|
17.1
|
|
Gain (loss) on foreign exchange
|
|
|
6,038
|
|
|
|
2.6
|
|
|
|
(2,879
|
)
|
|
|
(1.4
|
)
|
|
|
8,917
|
|
|
|
n/m (1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
6,832
|
|
|
|
2.9
|
|
|
|
(2,213
|
)
|
|
|
(1.1
|
)
|
|
|
9,045
|
|
|
|
n/m (1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(23,435
|
)
|
|
|
(10.0
|
)
|
|
|
(82,070
|
)
|
|
|
(40.4
|
)
|
|
|
58,635
|
|
|
|
(71.4
|
)
|
Income tax provision
|
|
|
5
|
|
|
|
|
|
|
|
105
|
|
|
|
0.1
|
|
|
|
(100
|
)
|
|
|
(95.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(23,440
|
)
|
|
|
(10.0
|
)
|
|
$
|
(82,175
|
)
|
|
|
(40.5
|
)
|
|
$
|
58,735
|
|
|
|
(71.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
Increase
|
|
|
|
June 30, 2007
|
|
|
July 1, 2006
|
|
|
Change
|
|
|
(Decrease)
|
|
|
|
(Thousands)
|
|
|
%
|
|
|
(Thousands)
|
|
|
%
|
|
|
(Thousands)
|
|
|
%
|
|
|
Revenues
|
|
$
|
202,814
|
|
|
|
100.0
|
|
|
$
|
231,649
|
|
|
|
100.0
|
|
|
$
|
(28,835
|
)
|
|
|
(12.4
|
)
|
Cost of revenues
|
|
|
173,493
|
|
|
|
85.5
|
|
|
|
190,085
|
|
|
|
82.1
|
|
|
|
(16,592
|
)
|
|
|
(8.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
29,321
|
|
|
|
14.5
|
|
|
|
41,564
|
|
|
|
17.9
|
|
|
|
(12,243
|
)
|
|
|
(29.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
43,025
|
|
|
|
21.2
|
|
|
|
42,587
|
|
|
|
18.4
|
|
|
|
438
|
|
|
|
1.0
|
|
Selling, general and administrative
|
|
|
47,820
|
|
|
|
23.6
|
|
|
|
52,167
|
|
|
|
22.5
|
|
|
|
(4,347
|
)
|
|
|
(8.3
|
)
|
Amortization of intangible assets
|
|
|
8,884
|
|
|
|
4.4
|
|
|
|
10,004
|
|
|
|
4.3
|
|
|
|
(1,120
|
)
|
|
|
(11.2
|
)
|
Restructuring and severance charges
|
|
|
10,347
|
|
|
|
5.1
|
|
|
|
11,197
|
|
|
|
4.8
|
|
|
|
(850
|
)
|
|
|
(7.6
|
)
|
Certain legal actions, settlements and related costs
|
|
|
490
|
|
|
|
0.2
|
|
|
|
4,997
|
|
|
|
2.2
|
|
|
|
(4,507
|
)
|
|
|
(90.2
|
)
|
Acquired in-process research and development
|
|
|
|
|
|
|
|
|
|
|
118
|
|
|
|
0.1
|
|
|
|
(118
|
)
|
|
|
(100.0
|
)
|
Impairment of goodwill and other intangible assets
|
|
|
|
|
|
|
|
|
|
|
760
|
|
|
|
0.3
|
|
|
|
(760
|
)
|
|
|
(100.0
|
)
|
Impairment (recovery) of long-lived assets
|
|
|
1,621
|
|
|
|
0.8
|
|
|
|
(832
|
)
|
|
|
(0.4
|
)
|
|
|
2,453
|
|
|
|
n/m (1
|
)
|
Gain on sale of property and equipment and other long-lived
assets
|
|
|
(3,009
|
)
|
|
|
(1.5
|
)
|
|
|
(2,070
|
)
|
|
|
(0.9
|
)
|
|
|
(939
|
)
|
|
|
45.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
109,178
|
|
|
|
53.8
|
|
|
|
118,928
|
|
|
|
51.3
|
|
|
|
(9,750
|
)
|
|
|
(8.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(79,857
|
)
|
|
|
(39.3
|
)
|
|
|
(77,364
|
)
|
|
|
(33.4
|
)
|
|
|
(2,493
|
)
|
|
|
3.2
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on conversion and early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
(18,842
|
)
|
|
|
(8.1
|
)
|
|
|
18,842
|
|
|
|
(100.0
|
)
|
Other income
|
|
|
|
|
|
|
|
|
|
|
298
|
|
|
|
0.1
|
|
|
|
(298
|
)
|
|
|
(100.0
|
)
|
Interest income
|
|
|
1,239
|
|
|
|
0.6
|
|
|
|
1,113
|
|
|
|
0.5
|
|
|
|
126
|
|
|
|
11.3
|
|
Interest expense
|
|
|
(573
|
)
|
|
|
(0.3
|
)
|
|
|
(5,128
|
)
|
|
|
(2.2
|
)
|
|
|
4,555
|
|
|
|
(88.8
|
)
|
Gain (loss) on foreign exchange
|
|
|
(2,879
|
)
|
|
|
(1.4
|
)
|
|
|
677
|
|
|
|
0.3
|
|
|
|
(3,556
|
)
|
|
|
n/m (1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(2,213
|
)
|
|
|
(1.1
|
)
|
|
|
(21,882
|
)
|
|
|
(9.4
|
)
|
|
|
19,669
|
|
|
|
(89.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(82,070
|
)
|
|
|
(40.4
|
)
|
|
|
(99,246
|
)
|
|
|
(42.8
|
)
|
|
|
17,176
|
|
|
|
(17.3
|
)
|
Income tax provision (benefit)
|
|
|
105
|
|
|
|
0.1
|
|
|
|
(11,749
|
)
|
|
|
(5.0
|
)
|
|
|
11,854
|
|
|
|
n/m (1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(82,175
|
)
|
|
|
(40.5
|
)
|
|
$
|
(87,497
|
)
|
|
|
(37.8
|
)
|
|
$
|
5,322
|
|
|
|
(6.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
Revenues for the year ended June 28, 2008 increased by
$32.7 million, or 16%, compared to the year ended
June 30, 2007. Our telecom segment revenues for the year
ended June 28, 2008 increased by $23.1 million, to
$176.9 million, from $153.8 million in the year ended
June 30, 2007, primarily related to a $22.3 million
increase in sales of our tunable products. Our non-telecom
segment revenues for the year ended June 28, 2008 increased
by $9.6 million, to $58.6 million, from
$49.0 million in the year ended June 30, 2007,
primarily related to increased sales of photonics and
measurement products, high power lasers, industrial filters and
VSCEL products.
197
Revenues for the year ended June 30, 2007 decreased by
$28.8 million, or 12%, compared to the year ended
July 1, 2006. Revenues in our telecom segment decreased by
$41.7 million, from $195.5 million in the year ended
July 1, 2006, to $153.8 million in the year ended
June 30, 2007, primarily related to a decrease in revenues
from Nortel Networks of $70.6 million, to
$39.9 million in the year ended June 30, 3007 from
$110.5 million in the year ended July 1, 2006. The
decrease in revenues from Nortel Networks was a result of the
expiration of Nortel Networks purchase obligations under
our Supply Agreement, and the addendums thereto, described
below. The decrease was partially offset by revenues from
customers other than Nortel Networks which increased by
$41.8 million in the year ended June 30, 2007 compared
to the year ended July 1, 2006, primarily due to increased
sales volumes, a reflection we believe of our strategic efforts
to diversify our revenue base to customers other than Nortel
Networks. Pursuant to the second addendum to our Supply
Agreement with Nortel Networks, entered into in May 2005, Nortel
Networks issued non-cancelable purchase orders, based on revised
pricing, totaling approximately $100 million, for certain
products delivered through March 2006, which included
$50 million of products we were discontinuing, which we
refer to as Last-Time Buy products. Our revenues in the year
ended June 30, 2007, included $3.0 million of revenues
from Last-Time Buy products, as compared to $40.6 million
in revenues attributable to Last-Time Buy products in the year
ended July 1, 2006. In addition, Nortel Networks was
obligated to, and did, purchase a minimum of $72 million of
our products pursuant to the third addendum to the Supply
Agreement, which was entered into in January 2006. These
purchase obligations expired at the end of calendar 2006.
Revenues from our non-telecom segment increased by
$12.9 million in the year ended June 30, 2007, to
$49.0 million from $36.1 million in the year ended
July 1, 2006, primarily as a result of increased sales of
photonics and measurement products and high power lasers.
Cost
of Revenues
Our cost of revenues for the year ended June 28, 2008
increased by 5% compared to the year ended June 30, 2007,
primarily associated with increased sales volumes in both our
telecom and non-telecom segments associated with our increased
revenues during the period, partially offset by a lower
manufacturing cost resulting from the restructuring and cost
reduction plans substantially completed in the second half of
the fiscal year ended June 30, 2007. During the years ended
June 28, 2008 and June 30, 2007, $2.3 million and
$1.9 million, respectively, of stock based compensation
expense was recorded to cost of revenues under
SFAS No. 123R.
Our cost of revenues for the year ended June 30, 2007
decreased by 9% compared to the year ended July 1, 2006,
primarily due to lower costs corresponding to lower sales
volumes and our restructuring efforts. Our restructuring efforts
produced reductions in our manufacturing overhead costs
primarily as a result of the transition of our assembly and test
facilities, and related activities, which was completed during
the year ended June 30, 2007, from Paignton, U.K. to our
facility in Shenzhen, China, resulting in a lower cost base, as
well as cost reductions in our Caswell U.K. wafer fabrication
facility. During each of the years ended June 30, 2007 and
July 1, 2006, $1.9 million of stock based compensation
expense was recorded to cost of revenues under
SFAS No. 123R.
Gross
Margin
Our gross margin rate increased to 22% for the year ended
June 28, 2008 compared to 14% for the year ended
June 30, 2007. The increase in gross margin was primarily
associated with increased sales volumes in both of our operating
segments for the year ended June 28, 2008 as compared to
June 30, 2007, spread against a manufacturing overhead cost
base which had decreased for the year ended June 28, 2008
as compared to the year ended June 30, 2007 as a result of
restructuring and cost reduction programs substantially
completed in the second half of the fiscal year ended
June 30, 2007.
Our gross margin rate decreased to 14% for the year ended
June 30, 2007 compared to 18% for the year ended
July 1, 2006. The decrease in gross margin rate was
primarily due to decreased revenues from sales of products to
Nortel Networks as a result of the expiration of Nortel
Networks purchase obligations under the Supply Agreement,
including its obligation to purchase Last-Time Buy products, all
of which had favorable
198
pricing terms. These decreased revenues were partially offset by
lower costs of operating our assembly and test facility in
Shenzhen, China compared to our previous assembly and test
facility in Paignton, U.K.
In addition, in the year ended June 30, 2007, we had
negligible revenues from the sale of inventory carried on our
books at zero value, which we obtained in connection with our
2003 purchase of the optical components business of Nortel
Networks, compared to revenues of $9.5 million, and related
profits, on such inventory in the year ended July 1, 2006.
Research
and Development Expenses
Research and development expenses decreased to
$32.6 million in the year ended June 28, 2008 compared
to $43.0 million in the year ended June 30, 2007,
primarily as a result of decreases in personnel and related
costs associated with restructuring and cost reduction plans
substantially completed in the second half of the fiscal year
ended June 30, 2007. In the year ended June 28, 2008
and the year ended June 30, 2007, our research and
development expenses included $2.0 million and
$1.5 million, respectively, of stock-based compensation
expense recorded under SFAS 123R.
Research and development expenses were $43.0 million in the
year ended June 30, 2007, relatively consistent with
$42.6 million in the year ended July 1, 2006.
Increases related to the costs of new product introduction
efforts, as well as the classification of additional costs as
research and development expenses in connection with a change in
the profile of our Paignton, U.K. site from primarily an
assembly and test site to primarily a research and development
site, were offset by the results of our various cost reduction
programs. In the year ended June 30, 2007 and the year
ended July 1, 2006, our research and development expenses
included $1.5 million and $1.9 million, respectively,
of stock-based compensation expense recorded under
SFAS 123R.
Selling,
General and Administrative Expenses
Our selling, general and administrative expenses were relatively
consistent at $47.9 million in the year ended June 28,
2008, compared to $47.8 million in the year ended
June 30, 2007. Decreases in professional fees including
audit and accounting services and information systems costs
savings were offset by an increase in stock-based compensation
related to stock awards with performance-based vesting. In the
years ended June 28, 2008 and June 30, 2007, our
selling, general and administrative expenses included
$4.5 million and $2.9 million, respectively, of
stock-based compensation expense recorded under
SFAS No. 123R.
Our selling, general and administrative expenses decreased to
$47.8 million in the year ended June 30, 2007 compared
to $52.2 million in the year ended July 1, 2006,
primarily due to a reduction of $1.5 million in our
stock-based compensation expense and decreases in insurance,
office and equipment costs. In the years ended June 30,
2007 and July 1, 2006, our selling, general and
administrative expenses included $2.9 million and
$4.4 million, respectively, of stock-based compensation
expense recorded under SFAS No. 123R.
Amortization
of Intangible Assets
Decreases in our amortization of intangible assets to
$4.6 million in the year ended June 28, 2008 from
$8.9 million in the year ended June 30, 2007, and to
$8.9 million in the year ended June 30, 2007 from
$10.0 million in the year ended July 1, 2006, were due
to the balances of certain of the purchased intangible assets
associated with these acquisitions becoming fully amortized in
the year ended June 30, 2007 and the year ended
June 28, 2008.
Restructuring
and Severance Charges
Decreases in our restructuring and severance charges to
$3.5 million in the year ended June 28, 2008 from
$10.3 million in the year ended June 30, 2007, and to
$10.3 million in the year ended June 30, 2007 from
$11.2 million in the year ended July 1, 2006, were due
to progress in our restructuring and cost reduction programs, as
described below.
199
On January 31, 2007, we adopted an overhead cost reduction
plan which included workforce reductions, facility and site
consolidation of our Caswell, U.K. semiconductor operations
within existing U.K. facilities and the transfer of certain
research and development activities to our Shenzhen, China
facility. We began implementing this overhead cost reduction
plan in the quarter ended March 31, 2007, and the related
actions also included consolidation of certain head office
functions in our San Jose, California facility. A
substantial portion of the costs associated with this plan were
personnel severance and retention related expenses. As of
December 29, 2007 the plan was substantially complete. We
have incurred related expenses of $7.7 million associated
with this plan. As a result of the completion of this plan, we
have saved approximately $8.0 million per fiscal quarter in
expenses when compared to the quarter ended December 30,
2006.
In May, September and December 2004, we announced restructuring
plans, including the transfer of our assembly and test
operations from Paignton, U.K. to Shenzhen, China, along with
reductions in research and development and selling, general and
administrative expenses. These cost reduction efforts were
expanded in November 2005 to include the transfer of our
chip-on-carrier
assembly from Paignton to Shenzhen. The transfer of these
operations was completed in the quarter ended March 31,
2007. In May 2006, we announced further cost reduction plans,
which included transitioning all remaining manufacturing support
and supply chain management, along with pilot line production
and production planning, from Paignton to Shenzhen, and these
plans were also substantially complete in the quarter ended
June 30, 2007. In total we spent $32.8 million on
these restructuring programs. The substantial portion of our
restructuring and severance charges for termination payments to
employees and related costs were associated with these programs.
Our recent restructuring efforts have included the transfer of
certain non-telecom manufacturing activities from our
San Jose, California facility to our Shenzhen facility.
In connection with these restructuring plans, earlier
restructuring plans, and the assumption of restructuring
accruals upon the March 2004 acquisition of New Focus, we
continue to make scheduled payments drawing down the related
lease cancellations and commitments. In the years ended
June 28, 2008, June 30, 2007 and July 1, 2006, we
recorded $1.2 million, $0.9 million and
$1.9 million, respectively, in expenses for revised
estimates related to these lease cancellations and commitments.
Restructuring and severance charges for the year ended
June 30, 2007 also include $0.3 million related to a
non-cash charge for acceleration of restricted stock and
$0.8 million related to cash payments, each made in
connection with a separation agreement we executed in May 2007
with our former chief executive officer.
Impairment
of Goodwill and Other Intangible Assets
We recorded no impairment charges related to goodwill and other
intangible assets in the year ended June 28, 2008 or in the
year ended June 30, 2007. In the year ended July 1,
2006, in connection with our annual review for impairment, we
recorded $760,000 of impairment charges related to purchased
intangible assets associated with our acquisition of Ignis
Optics.
Impairment/(Recovery)
of Other Long-Lived Assets
We had no impairments or recoveries of other long-lived assets
in the year ended June 28, 2008.
During the year ended June 30, 2007, we designated the
assets underlying our Paignton, U.K. manufacturing site as held
for sale and subsequently sold the site to a third party for
proceeds of £4.8 million (approximately
$9.4 million based on an exchange rate of $1.96 to
£1.00 in effect on the date of sale), net of selling costs.
In connection with this designation we recorded an impairment
charge of $1.9 million. During the year ended June 30,
2007 we also recovered $0.3 million from an escrow account
related to our 2004 acquisition of Onetta, Inc. and recorded
this amount as a recovery of previously impaired goodwill of
Onetta.
During the year ended July 1, 2006, we sold a parcel of
land in Swindon, U.K., which had previously been accounted for
as held for sale, and for which the recorded book value had
previously been written down as impaired. The proceeds from the
sale of this parcel of land were $15.5 million, resulting
in a recovery of previous impairment of $1.3 million, net
of transaction costs. In the fourth quarter of fiscal 2006, in
connection
200
with a review of our long-lived assets for impairment, we
recorded $433,000 of impairment charges, which partially offset
the recovery related to this land sale.
Gain
on Sale of Property and Equipment and Other Long-lived
Assets
Gain on sale of property and equipment and other long lived
assets in the year ended June 28, 2008 was
$2.6 million compared to $3.0 million in the year
ended June 30, 2007 and $2.1 million in the year ended
July 1, 2006. Gain on sale of property and equipment and
other long lived assets in each of these years was primarily
associated with the sale of fixed assets which became surplus as
a result of our various restructurings and cost reduction
programs, which included the shutting down of sites and
transfers of certain manufacturing operations, primarily to
Shenzhen, China. Because our restructuring programs are
substantially complete, we expect gain on sale of property and
equipment and other long lived assets to decrease in the next
fiscal year compared to the year ended June 28, 2008.
Legal
Settlement
In the year ended June 28, 2008 we recorded a gain from
legal settlements of $2.9 million, net of costs, associated
with the settlement of a legal action connected with our sale of
land in Swindon, U.K. to a third party in 2005.
In the year ended June 30, 2007, we recorded a charge of
$0.5 million for additional legal fees and other
professional costs related to a settlement of the litigation
with Howard Yue, the former sole stockholder of Globe Y.
Technology, Inc. (a company acquired by New Focus, Inc. in
February 2001). This settlement was reached in the fiscal year
ended July 1, 2006, and net charges of $5.0 million
were recorded in our consolidated statements of operations in
that year.
Other
Income/(Expense), Net Interest Income, Interest Expense, Other
Income/(Expense) net, Gain/(Loss) on Foreign
Exchange
On January 13, 2006, we entered into a series of
transactions to (i) retire $45.9 million aggregate
principal amount of outstanding notes payable to Nortel Networks
UK Limited and (ii) convert $25.5 million in
outstanding convertible debentures which were issued in December
2004. In connection with the satisfaction of these debt
obligations and conversion of these convertible debentures we
issued approximately 10.5 million shares of common stock
and warrants to purchase approximately 1.1 million shares
of common stock, paid approximately $22.2 million in cash,
and recorded a charge of $18.8 million in the fiscal year
ended July 1, 2006 for loss on conversion and early
extinguishment of debt (see Note 16 to our consolidated
financial statements appearing elsewhere in this joint proxy
statement/prospectus for additional information regarding the
conversion of the convertible debentures and early
extinguishment of debt).
Interest income, primarily from cash, cash equivalents and
short-term investment accounts, was relatively consistent in the
years ended June 28, 2008, June 30, 2007 and
July 1, 2006.
Interest expense was $0.7 million in the year ended
June 28, 2008, relatively consistent with $0.6 million
in the year ended June 30, 2007, and consistent with bank
charges and costs primarily associated with our $25 million
senior secured credit facility with Wells Fargo Foothill, Inc.
Interest expense of $0.6 million in the year ended
June 30, 2007 decreased from $5.1 million in the year
ended July 1, 2006 primarily due to our conversion and
extinguishment of outstanding convertible notes and payment of
promissory notes issued to Nortel Networks, pursuant to a series
of agreements entered into in January 2006 and described above.
Gain/(loss) on foreign exchange includes the net impact from the
re-measurement of intercompany balances and monetary accounts
not denominated in functional currencies, other than the
U.S. dollar, and realized and unrealized gains or losses on
foreign currency contracts not designated as hedges. The net
results for the fiscal years ended June 28, 2008,
June 30, 2007 and July 1, 2006 are largely a function
of exchange rate changes between the U.S. dollar and the
U.K. pound sterling and to a lesser degree a function of
exchange rate changes between the U.S. dollar and the Swiss
franc and the Chinese Yuan.
201
Income
Tax Provision /(Benefit)
We have incurred substantial losses to date, and may incur
additional losses in the future. Based upon the weight of
available evidence, which includes our historical operating
performance and the recorded cumulative net losses in all prior
periods, we provided a full valuation allowance against our net
deferred tax assets of $277.2 million at June 28,
2008, $391.8 million at June 30, 2007 and
$320.0 million at July 1, 2006.
During fiscal 2006, in connection with our acquisition of
Creekside in August 2005, which is described below under
Liquidity and Capital Resources Cash Flows
from Investing Activities Acquisition of
Creekside, we recorded a one time tax gain of
$11.8 million related to our anticipated use of tax
attributes to offset deferred tax liabilities assumed.
Liquidity
and Capital Resources
Cash
Flows from Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Year Ended
|
|
|
|
December 27,
|
|
|
December 29,
|
|
|
June 28,
|
|
|
June 30,
|
|
|
July 1,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Thousands)
|
|
|
Net loss
|
|
$
|
(4,268
|
)
|
|
$
|
(16,141
|
)
|
|
$
|
(23,440
|
)
|
|
$
|
(82,175
|
)
|
|
$
|
(87,497
|
)
|
Non-cash adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion on short-term investments
|
|
|
(102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired in-process research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118
|
|
Amortization of deferred gain on sale-leaseback
|
|
|
(486
|
)
|
|
|
(714
|
)
|
|
|
(1,384
|
)
|
|
|
(1,435
|
)
|
|
|
(278
|
)
|
Amortization of interest expense for warrants and beneficial
conversion feature
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,292
|
|
Depreciation and amortization
|
|
|
6,720
|
|
|
|
9,604
|
|
|
|
16,869
|
|
|
|
23,167
|
|
|
|
30,231
|
|
(Gain) loss on sale of property and equipment
|
|
|
8
|
|
|
|
(1,716
|
)
|
|
|
(2,562
|
)
|
|
|
(3,009
|
)
|
|
|
(2,070
|
)
|
Impairment (recovery) of goodwill, intangible assets and other
long-lived assets
|
|
|
7,881
|
|
|
|
|
|
|
|
|
|
|
|
1,621
|
|
|
|
(72
|
)
|
Impairment of short-term investments
|
|
|
706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal actions, settlements and related costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,997
|
|
Loss on conversion and early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,842
|
|
One time tax gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,785
|
)
|
Stock-based compensation
|
|
|
2,241
|
|
|
|
4,409
|
|
|
|
8,812
|
|
|
|
6,666
|
|
|
|
8,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-cash adjustments
|
|
|
16,968
|
|
|
|
11,583
|
|
|
|
21,735
|
|
|
|
27,010
|
|
|
|
50,138
|
|
Increase in working capital
|
|
|
(3,010
|
)
|
|
|
(4,383
|
)
|
|
|
(14,300
|
)
|
|
|
(15,608
|
)
|
|
|
(18,828
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
9,690
|
|
|
$
|
(8,941
|
)
|
|
$
|
(16,005
|
)
|
|
$
|
(70,773
|
)
|
|
$
|
(56,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended December 27, 2008
Net cash provided by operating activities for the six months
ended December 27, 2008 was $9.7 million, resulting
from non-cash adjustments of $17.0 million, primarily
consisting of a $7.9 million charge for impairment of
goodwill, $6.7 million of expense related to depreciation
and amortization of certain assets and $2.2 million of
expense related to stock-based compensation. These were
partially offset by a net loss of $4.3 million, and a
decrease in cash from a net change in our operating assets and
liabilities of $3.0 million due to an increase in
inventories and a decrease in accounts payable, partially offset
by decreases in accounts
202
receivable and prepaid expenses and other current assets, and
an increase in accrued expenses and other liabilities. Included
in net loss for the period are a gain of approximately
$6.3 million related to the revaluation of U.S. dollar
denominated operating intercompany receivables on the books of
our U.K. subsidiary, and a gain of approximately
$0.9 million related to the revaluation of foreign currency
denominated operating intercompany receivables on the books of
our Shenzhen subsidiary.
Six
Months Ended December 29, 2007
Net cash used in operating activities for the six months ended
December 29, 2007 was $8.9 million, primarily
resulting from the net loss of $16.1 million, offset by
non-cash adjustments of $11.6 million, primarily consisting
of $9.6 million of expense related to depreciation and
amortization of certain assets, $4.4 million of expense
related to stock-based compensation and a $1.7 million gain
on sale of property and equipment. A net change in our operating
assets and liabilities of $4.4 million due to increases in
accounts receivable and inventories, both associated with our
increasing revenues, as well as increases in accrued expenses
and other liabilities, partially offset by decreases in accounts
payable, prepaid expenses and other current assets, also
contributed to the use of cash. Included in net loss for the
period are a gain of approximately $0.4 million related to
the revaluation of U.S. dollar denominated operating
intercompany receivables on the books of our U.K. subsidiary,
and a gain of approximately $1.6 million related to the
revaluation of foreign currency denominated operating
intercompany receivables on the books of our Shenzhen subsidiary.
Year
ended June 28, 2008
Net cash used in operating activities for the year ended
June 28, 2008 was $16.0 million, primarily resulting
from the net loss of $23.4 million, offset by non-cash
accounting charges of $21.7 million, primarily consisting
of $8.8 million of expense related to stock based
compensation and $16.9 million of expense related to
depreciation and amortization of certain assets. Increases in
working capital of $14.3 million also contributed to the
use of cash, primarily due to decreases in accounts payables and
accrued expenses and other liabilities, and increases in prepaid
expenses and other assets, partially offset by decreases in
accounts receivable and inventories.
Year
ended June 30, 2007
Net cash used in operating activities for the year ended
June 30, 2007 was $70.8 million, primarily resulting
from the net loss of $82.2 million, offset by non-cash
accounting charges of $27.0 million, primarily consisting
of $6.7 million of expense related to stock based
compensation and $23.2 million of expense related to
depreciation and amortization of certain assets. Increases in
working capital of $15.6 million also contributed to the
use of cash, primarily due to decreases in accounts payables and
accrued expenses and other liabilities, partially offset by
increases in accounts receivable, inventories, prepaid expenses
and other assets.
Year
ended July 1, 2006
Net cash used in operating activities for the year ended
July 1, 2006 was $56.2 million, primarily resulting
from the net loss of $87.5 million, offset by non-cash
accounting charges of $50.1 million, primarily consisting
of an $18.8 million loss on conversion and early retirement
of debt, $10.3 million of expense related to stock based
compensation, including non-cash restructuring and severance and
expenses related to warrants, $5.0 million of common stock
issued to settle a legal claim brought by Howard Yue, and
$30.2 million related to depreciation and amortization of
certain assets, net of an $11.8 million one-time tax gain.
Increases in working capital of $18.8 million also
contributed to the use of cash, primarily due to decreases in
accounts payables and accrued expenses and other liabilities and
an increase in accounts receivable offset by a decrease in
prepaid expenses and other assets.
203
Cash
Flows from Investing Activities
Net cash provided by investing activities for the six months
ended December 27, 2008 was $2.1 million, primarily
consisting of $15.4 million in sales and maturities of
available-for-sale investments and $0.6 million from the
release of restricted cash, which were partially offset by
$6.9 million in purchases of available-for-sale investments
and $6.9 million used in capital expenditures.
Net cash provided by investing activities for the six months
ended December 29, 2007 was $0.6 million, primarily
consisting of $4.5 million from the release of restricted
cash which had been security on an unoccupied leased facility
and $1.8 million in proceeds from the sale of fixed assets,
which were partially offset by $5.7 million used in capital
expenditures.
In the year ended June 28, 2008, we used $19.0 million
of cash in investing activities, primarily related to our
investment of $17.8 million of cash in available for sale
securities and investments, as well as $9.1 million in
capital spending, offset by $3.0 million in proceeds from
the sale of property, equipment and long-lived assets and
$5.0 million of cash relieved of restrictions.
We generated net cash of $7.9 million from investing
activities in the year ended June 30, 2007, primarily from
$9.4 million in proceeds, net of costs, from the sale of
our Paignton, U.K. site (as described further below), and
$5.4 million in proceeds from the sale of property and
equipment. These sources of cash were partially offset by
$6.4 million in capital expenditures.
During the quarter ended December 30, 2006, Bookham
Technology plc, our wholly-owned subsidiary, sold our Paignton
U.K. manufacturing site to a third party for proceeds of
£4.8 million (approximately $9.4 million based on
an exchange rate of $1.96 to £1.00 in effect on the date of
the sale), net of selling costs. In connection with this
transaction, we recorded a loss of $0.1 million which is
included in loss on sale of property and equipment and other
long-lived assets.
We generated net cash of $42.7 million from investing
activities in the year ended July 1, 2006, primarily from
$14.7 million in proceeds, net of costs, from the sale of a
parcel of land in Swindon, U.K., $9.6 million of cash
assumed in connection with the two acquisitions completed during
the year, $23.4 million from the sale of land and building
in Caswell pursuant to a sale-leaseback transaction, as
described further below, and $2.4 million in proceeds from
the sale of property and equipment. These sources of cash were
partially offset by $10.1 million in capital expenditures.
A substantial portion of the capital spending during this year
was incurred in connection with the introduction of our Shenzhen
assembly and test operations.
Caswell
Sale-Leaseback
On March 10, 2006, Bookham Technology plc, our wholly-owned
subsidiary, entered into multiple agreements with a subsidiary
of Scarborough Development, which we refer to as Scarborough,
for the sale and leaseback of the land and buildings located at
our Caswell, U.K., manufacturing site. The sale transaction,
which closed on March 30, 2006, resulted in proceeds to
Bookham Technology plc of £13.75 million
(approximately U.S. $24.0 million using an exchange
rate of £1.00 to $1.7455). Under these agreements, Bookham
Technology plc leases back the Caswell site for an initial term
of 20 years, with options to renew the lease term for
5 years following the initial term and for rolling
2 year terms thereafter. Annual rent is
£1.1 million during the first 5 years of the
lease, approximately £1.2 million during the next
5 years of the lease, approximately £1.4 million
during the next 5 years of the lease and approximately
£1.6 million during the next 5 years of the
lease. Rent during the renewal terms will be determined
according to the then market rent for the site. We have
guaranteed the obligations of Bookham Technology plc under these
agreements. In addition, Scarborough, Bookham Technology plc and
Bookham, Inc. entered into a pre-emption agreement under which
Bookham Technology plc, within the next 20 years, has a
right to purchase the Caswell site in whole or in part on terms
acceptable to Scarborough if Scarborough agrees to terms with or
receives an offer from a third party to purchase the Caswell
facility.
204
Acquisition
of Creekside
On August 10, 2005, Bookham Technology plc, our wholly
owned subsidiary, entered into a share purchase agreement
pursuant to which Bookham Technology plc purchased all of the
issued share capital of City Leasing (Creekside) Limited, a
subsidiary of Deutsche Bank, for consideration of £1.00,
plus professional fees of approximately £455,000
(approximately $837,000, based on an exchange rate of £1 to
$1.8403). We entered into this transaction primarily for the
business purpose of raising money to fund our operations by
realizing the economic value of certain of the deferred tax
assets of Bookham Technology plc to the third parties described
more fully below. In compliance with U.K. tax law, the
transaction was structured to enable certain U.K. tax losses in
Bookham Technology plc to be surrendered in order to reduce U.K.
taxes otherwise due on sub-lease revenue payable to Creekside.
While we continue to retain additional deferred tax assets of a
similar characteristic, we have no current plans or
opportunities to enter into similar transactions to raise
additional financing, although we believe that we would consider
such opportunities should any become available. The parties to
the share purchase agreement are Bookham Technology plc,
Deutsche Bank and London Industrial Leasing Limited, a
subsidiary of Deutsche Bank, which we refer to as London
Industrial. Creekside was utilized by Deutsche Bank in
connection with the leasing of four aircraft to a third party.
The leasing arrangement was structured as follows: Phoebus
Leasing Limited, a subsidiary of Deutsche Bank, which we refer
to as Phoebus, leased the four aircraft to Creekside under the
primary leases and Creekside in turn sub-leases the aircraft to
a third party. Under the sub-lease arrangement, the third party
lessee who utilized the aircraft, whom we refer to as the
Sub-Lessee, made sublease payments to Creekside, who in turn was
required to make lease payments to Phoebus under the primary
leases. To insulate Creekside from any risk that the Sub-Lessee
failing to make payments under the sub-lease arrangement, prior
to the execution of the share purchase agreement, Creekside
assigned its interest in the Sub-Lessee payments to Deutsche
Bank in return for predetermined deferred consideration amounts,
which we refer to as Deferred Consideration, which were paid
directly from Deutsche Bank. Additionally, on closing the
transaction, Deutsche Bank loaned Creekside funds to
(i) pay substantially all of the rentals under the primary
lease with Phoebus, excluding an amount equal to £400,000
(approximately $736,000), and (ii) repay an existing loan
made by another wholly owned subsidiary of Deutsche Bank to
Creekside. The obligation of Creekside to repay the Deutsche
Bank loans could be fully offset against the obligation of
Deutsche Bank to pay the Deferred Consideration to Creekside.
As a result of these transactions, Bookham Technology plc had
available through Creekside cash of approximately
£6.63 million (approximately $12.2 million, based
on an exchange rate of £1.00 to $1.8403). Under the terms
of the agreement, Bookham Technology plc received
£4.2 million (approximately $7.5 million) of
available cash when the transaction closed on August 10,
2005. An additional £1 million (approximately
$1.8 million) has since been received on October 14,
2005, £1 million (approximately $1.8 million) was
received on July 14, 2006 and the balance of approximately
£431,000 (approximately $793,000) was received on
July 16, 2007.
At the closing of this transaction, Creekside had receivables
(including services and interest charges) of
£73.8 million (approximately $135.8 million) due
from Deutsche Bank in connection with certain aircraft subleases
of Creekside and cash of £4.7 million (approximately
$8.6 million), of which £4.2 million was
immediately available. The receivables resulted from the
assignment by Creekside to Deutsche Bank prior to Closing of the
benefit of receivables under four lease agreements pursuant to
which Creekside subleases certain aircraft that are subject to
head lease agreements with Phoebus Leasing Limited, a subsidiary
of Deutsche Bank and Creekside as head lessee. The assignment
was made in exchange for the receivables, which are to be paid
by Deutsche Bank to Creekside in three installments, and the
last payment was made on July 16, 2007.
Creekside and Deutsche Bank entered into two facility agreements
relating to a loan in the principal amount of
£18.3 million (approximately $33.7 million) and a
loan in the principal amount of £42.5 million
including interest (approximately $78.2 million), which
together have accrued approximately £3.6 million
(approximately $6.6 million) in interest during the term of
these loans. At the closing, Creekside used the loans to repay
amounts outstanding under a loan dated April 12, 2005
between Creekside, as borrower, and
205
City Leasing (Donside) Limited, a subsidiary of Deutsche Bank,
as lender, and to pay part of Creeksides rental
obligations under the lease agreements.
At August 10, 2005, Creekside had long-term liabilities to
Deutsche Bank under the loans, an agreement to pay Deutsche Bank
£8.3 million (approximately $15.3 million),
including principal and interest, to cover settlement of current
Creekside tax liabilities and £0.4 million
(approximately $0.7 million) of outstanding payments due to
Deutsche Bank under the lease agreements; we refer to these
collectively as the Obligations.
Creekside has used the Deferred Consideration to pay off the
Obligations over a period of two years, or the Term, such that
the Obligations have been offset in full by the receivables and
resulted in Bookham Technology plc having excess cash of
approximately £6.63 million (approximately
$12.2 million) available to it during the Term. Bookham
Technology plc expects to surrender certain of its tax losses
against any U.K. taxable income that may arise as a result of
the Deferred Consideration, to reduce any U.K. taxes that would
otherwise be due from Creekside.
The loans issued by Deutsche Bank could be prepaid in whole at
any time with 30 days prior written notice to
Deutsche Bank. The loan for £18.3 million plus
interest was repaid by Creekside on October 14, 2005, and
the loan for £42.5 million was repaid by Creekside in
installments: the first installment of £23.5 million
(approximately $43.2 million) was paid on July 14,
2006; and the second installment of £22.5 million
(approximately $41.4 million) was paid on July 16,
2007. Events of default under the loan include failure by
Creekside to pay amounts under the loans when due, material
breach by Creekside of the terms of the lease agreements and
related documentation, a judgment or order made against
Creekside that is not stayed or complied with within seven days
or an attachment by creditors that is not discharged within
seven days, insolvency of Creekside or failure by Creekside to
make payments with respect to all or any class of its debts,
presentation of a petition for the winding up of Creekside, and
appointment of any administrative or other receiver with respect
to Creekside or any material part of Creeksides assets.
Deutsche Bank could have accelerated repayment under the
facility agreements upon an event of default, in which case the
loan would have been fully offset against the receivables, as
described above.
Pursuant to the terms of the agreements governing this
transaction, we believe that we have not assumed any material
credit risk in connection with these arrangements. The material
cash flow obligations associated with Creekside are directly
related to Deutsche Banks obligations to pay Creekside the
Deferred Consideration, and Creeksides obligation to repay
the loans to Deutsche Bank. The obligations of Creekside to
repay the Deutsche Bank loan can be fully offset against
Deutsche Banks obligation to pay the Deferred
Consideration. Any Sub-Lessee default has no impact on Deutsche
Banks obligation to pay Creekside the Deferred
Consideration. Regarding the primary leases between Phoebus and
Creekside, all amounts have now been paid as has the loans to
Deutsche Bank. For these reasons, we believe we do not bear a
material risk and have no substantial continuing payments or
obligations.
Under the share purchase agreement and related documents, London
Industrial and Deutsche Bank have indemnified us, Bookham
Technology plc and Creekside with respect to contractual
obligations and liabilities entered into by Creekside prior to
the closing of the transaction and certain tax liabilities of
Creekside that may arise in taxable periods both prior to and
after the closing.
Pursuant to an administration agreement between Creekside, City
Leasing Limited, a subsidiary of Deutsche Bank, and Deutsche
Bank, Creekside is to be administered during the Term by City
Leasing Limited to ensure Creekside complies with its
obligations under the lease agreements.
In accordance with the terms of the primary leases and the
sub-leases, Phoebus is ultimately entitled to the four aircraft
in the event of default by the Sub-Lessee. An event of default
will not impact the payment obligations described above.
Cash
Flows from Financing Activities
There were no significant cash flows from financing activities
for the six months ended December 27, 2008.
206
Net cash provided by financing activities for each of the six
months ended December 29, 2007 and year ended June 28,
2008 was $37.1 million, primarily consisting of
$40.9 million in proceeds, net of expenses and commissions,
from an underwritten public offering of 16 million shares
of our common stock at a price to the public of $2.75 a share,
offset by the repayment of $3.8 million, net, which had
been previously drawn under our senior secured credit facility
with Wells Fargo Foothill, Inc., described below.
In the year ended June 28, 2008, we generated
$37.0 million in cash from financing activities, consisting
primarily of $40.8 million in proceeds, net of expenses and
commissions, from an underwritten public offering of
16 million shares of our common stock at a price to the
public of $2.75 a share, partially offset by the repayment of
$3.8 million drawn under our $25 million senior
secured credit facility with Wells Fargo Foothill, Inc.,
described below.
In the year ended June 30, 2007, we generated
$59.1 million of cash from financing activities, primarily
consisting of $55.4 million of net proceeds from private
placements of our common stock and warrants to purchase our
common stock on March 22, 2007 and on September 1,
2006, as described below, and $3.8 million drawn on our
senior secured credit facility with Wells Fargo Foothill, Inc.
On March 22, 2007, we entered into a definitive agreement
for a private placement, pursuant to which we issued, on
March 22, 2007, 13,640,224 shares of common stock and
warrants to purchase up to 4,092,066 shares of common stock
with certain institutional accredited investors for net proceeds
of approximately $26.9 million. The warrants have a
five-year term, expiring March 22, 2012, and are
exercisable beginning on September 23, 2007 at an exercise
price of $2.80 per share, subject to adjustment based on a
weighted average anti-dilution formula if we effect certain
equity issuances in the future for consideration per share that
is less than the then current exercise price of such warrants.
On August 31, 2006, we entered into an agreement for a
private placement of common stock and warrants pursuant to which
we issued and sold 8,696,000 shares of common stock and
warrants to purchase up to 2,174,000 shares of common stock
on September 1, 2006, and issued and sold an additional
2,898,667 shares of common stock and warrants to purchase
up to an additional 724,667 shares of common stock in a
second closing on September 19, 2006. In both cases such
shares of common stock and warrants were issued and sold to
certain institutional accredited investors. Our net proceeds
from this private placement, including the second closing, were
$28.7 million. The warrants are exercisable during the
period beginning on March 2, 2007 through September 1,
2011, at an exercise price of $4.00 a share.
In the year ended July 1, 2006, we generated
$25.2 million of cash from financing activities, primarily
consisting of $49.5 million of net proceeds from a public
offering of our common stock in October 2005, offset by
$24.3 million used in connection with the early retirement
of two promissory notes originally issued to Nortel Networks in
connection with our acquisition of their optical components
business and the payment of certain amounts in connection with
the conversion of our convertible debentures which were issued
in December 2004.
On January 13, 2006, we entered into a series of
transactions to (i) retire $45.9 million aggregate
principal amount of outstanding notes payable to Nortel Networks
UK Limited and (ii) convert $25.5 million in
outstanding convertible debentures which were issued in December
2004. In connection with the satisfaction of these debt
obligations and conversion of these convertible debentures we
issued approximately 10.5 million shares of common stock,
warrants to purchase approximately 1.1 million shares of
common stock, paid approximately $22.2 million in cash, and
recorded a charge of $18.8 million in the fiscal year ended
June 28, 2008 for loss on conversion and early
extinguishment of debt. (See Note 16 Debt to
our consolidated financial statements appearing elsewhere in
this joint proxy statement/prospectus for additional disclosures
regarding the conversion of the convertible debentures and early
extinguishment of debt).
Effect
of Exchange Rates on Cash and Cash Equivalents for the Six
Months Ended December 27, 2008 and December 29,
2007
The effect of exchange rates on cash and cash equivalents for
the six months ended December 27, 2008 was a decrease of
$9.3 million, primarily consisting of approximately
$2.2 million in net gain due to the
207
revaluation of foreign currency cash balances to the functional
currency of the respective subsidiaries, a gain of approximately
$6.3 million related to the revaluation of U.S. dollar
denominated operating intercompany receivables on the books of
our U.K. subsidiary, and a gain of approximately
$0.9 million related to the revaluation of foreign currency
denominated operating intercompany receivables on the books of
our Shenzhen subsidiary.
The effect of exchange rates on cash and cash equivalents for
the six months ended December 29, 2007 was a decrease of
$2.3 million, primarily consisting of approximately
$0.3 million in net gain due to the revaluation of foreign
currency cash balances to the functional currency of the
respective subsidiaries, a gain of approximately
$0.4 million related to the revaluation of U.S. dollar
denominated operating intercompany receivables on the books of
our U.K. subsidiary, and a gain of approximately
$1.6 million related to the revaluation of foreign currency
denominated operating intercompany receivables on the books of
our Shenzhen subsidiary.
Return/(Loss)
on Investments
Return/(loss) on investments represents net interest, which is
the difference between interest received on our cash and
interest paid on our debts. Return on investments was
$0.1 million in the six months ended December 27,
2008. Return on investments was $0.8 million in the year
ended June 28, 2008 and $0.6 million in the year ended
June 30, 2007, and loss on investments was
$4.0 million in the year ended July 1, 2006. The
changes in return/(loss) on investment over these periods is due
to the elimination of interest on balances outstanding from the
$45.9 million of notes issued to Nortel Networks in
November 2002 and the elimination of the amortization of
interest, costs and warrants associated with our issuance of
$25.5 million of convertible debt in December 2004,
resulting from the payment and retirements of the notes issued
to Nortel Networks and the conversion of $25.5 million of
convertible debt into common stock pursuant to a series of
agreements entered into on January 13, 2006.
Credit
Facility
On August 2, 2006, we, with Bookham Technology plc, New
Focus and Bookham (US) Inc., each a wholly-owned subsidiary,
which we collectively refer to as the Borrowers, entered into a
credit agreement, or Credit Agreement, with Wells Fargo
Foothill, Inc. and other lenders regarding a three year
$25.0 million senior secured revolving credit facility.
Advances are available under the Credit Agreement based on
80 percent of qualified accounts receivable, as
defined in the Credit Agreement, at the time the advance is
requested.
The obligations of the Borrowers under the Credit Agreement are
guaranteed by us, Ignis Optics, Inc., Bookham (Canada) Inc.,
Bookham Nominees Limited and Bookham International Ltd., each
also a wholly-owned subsidiary (which we refer to collectively
as the Guarantors and together with the Borrowers, as the
Obligors), and are secured pursuant to a security agreement, or
the Security Agreement, by the assets of the Obligors, including
a pledge of the capital stock holdings of the Obligors in some
of their direct subsidiaries. Any new direct subsidiary of the
Obligors is required to execute a guaranty agreement in
substantially the same form and join in the Security Agreement.
Pursuant to the terms of the Credit Agreement, borrowings made
under the Credit Agreement bear interest at a rate based on
either the London Interbank Offered Rate (LIBOR) plus
2.75 percentage points or the banks prime rate plus
1.25 percentage points. In the absence of an event of
default, any amounts outstanding under the Credit Agreement may
be repaid and re-borrowed at any time until maturity, which is
August 2, 2009.
The obligations of the Borrowers under the Credit Agreement may
be accelerated upon the occurrence of an event of default under
the Credit Agreement, which includes customary events of
default, including payment defaults, defaults in the performance
of affirmative and negative covenants, the inaccuracy of
representations or warranties, a cross-default related to
indebtedness in an aggregate amount of $1.0 million or
more, bankruptcy and insolvency related defaults, defaults
relating to such matters as ERISA and judgments and a change of
control default. The Credit Agreement contains negative
covenants applicable to the Borrowers and their subsidiaries,
including financial covenants requiring the Borrowers to
maintain a minimum
208
level of earnings before interest, taxes, depreciation and
amortization, or EBITDA, if the Borrowers have not maintained
minimum liquidity, defined as $30 million of
qualified cash and excess availability, each as also defined in
the Credit Agreement, as well as restrictions on liens, capital
expenditures, investments, indebtedness, fundamental changes to
the Borrowers business, dispositions of property, making
certain restricted payments (including restrictions on dividends
and stock repurchases), entering into new lines of business and
transactions with affiliates. As of December 27, 2008 and
June 28, 2008, there were no amounts outstanding under this
line of credit. At December 27, 2008, we were in compliance
with all covenants under the Credit Agreement and we had
$0.3 million in an outstanding standby letter of credits
with a vendor secured under the Credit Agreement which expires
in February 2009. At June 28, 2008, we had
$4.8 million in outstanding standby letters of credits with
vendors secured under this credit agreement.
In connection with the Credit Agreement, we agreed to pay a
monthly servicing fee of $3,000 and an unused line fee equal to
0.375 percentage points per annum, payable monthly on the
unused amount of revolving credit commitments. To the extent
there are letters of credit outstanding under the Credit
Agreement, the Borrowers are obligated to pay the administrative
agent a letter of credit fee at a rate equal to
2.75 percentage points per annum.
Future
Cash Requirements
As of December 27, 2008, we held $35.3 million in cash
and cash equivalents, $0.5 million in restricted cash and
$8.9 million in short-term investments. We expect that our
cash generated from operations, together with our current cash
balances, short-term investments, and amounts expected to be
available under our senior secured $25.0 million credit
facility, which are based on a percentage of accounts receivable
at the time the advance is requested, will provide us with
sufficient financial resources in order to operate as a going
concern through our next four fiscal quarters subsequent to the
quarter ended December 27, 2008. To further strengthen our
financial position, in the event of unforeseen circumstances, or
in the event needed to fund growth in future financial periods,
either as a standalone company or in connection with our
proposed merger with Avanex, we may raise additional funds by
any one or a combination of the following: issuing equity, debt
or convertible debt or the sale of certain product lines
and/or
portions of our business. There can be no guarantee that we will
be able to raise additional funds on terms acceptable to us, or
at all.
From time to time, we have engaged in discussions with third
parties concerning potential acquisitions of product lines,
technologies and businesses. In addition to our proposed merger
with Avanex, 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.
Contractual
Obligations
Our contractual obligations at June 28, 2008, by nature of
the obligation and amount due over identified periods of time,
are set out in the table below:
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|
|
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|
|
|
|
|
|
|
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FY 2009
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FY 2010
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FY 2011
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FY 2012
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FY 2013
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Thereafter
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Total
|
|
|
|
(In thousands)
|
|
|
Purchase obligations
|
|
$
|
28,386
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
28,386
|
|
Operating lease obligations
|
|
|
6,489
|
|
|
|
6,347
|
|
|
|
5,872
|
|
|
|
3,742
|
|
|
|
2,974
|
|
|
|
38,512
|
|
|
|
63,936
|
|
Long-term obligations
|
|
|
54
|
|
|
|
54
|
|
|
|
54
|
|
|
|
54
|
|
|
|
13
|
|
|
|
|
|
|
|
229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net commitments
|
|
$
|
34,875
|
|
|
$
|
6,401
|
|
|
$
|
5,926
|
|
|
$
|
3,796
|
|
|
$
|
2,987
|
|
|
$
|
38,512
|
|
|
$
|
92,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
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The purchase obligations consist of our total outstanding
purchase order commitments as at June 28, 2008. Any capital
purchases to which we are committed are included in these
outstanding purchase orders under standard terms and conditions.
Operating leases are future annual commitments under
non-cancelable
209
operating leases, including rents payable for land and
buildings. The long-term obligations are associated with our
Swiss subsidiarys unsecured loan payable to a third party
Off-Balance
Sheet Arrangements
In connection with the sale by New Focus of its passive
component line to Finisar, Inc., New Focus agreed to indemnify
Finisar for claims related to the intellectual property sold to
Finisar. This indemnification obligation expires in May 2009 and
has no limitation on maximum liability.
We indemnify our directors and certain employees as permitted by
law, and have entered into indemnification agreements with our
directors and executive officers. We have not recorded a
liability associated with these indemnification arrangements as
we historically have not incurred any costs associated with such
indemnification arrangements and do not expect to in the future.
Costs associated with such indemnification arrangements may be
mitigated by insurance coverage that we maintain, however such
insurance may not cover any, or may cover only a portion of, the
amounts we may be required to pay. In addition, we may not be
able to maintain such insurance coverage in the future.
We also have indemnification clauses in various contracts that
we enter into in the normal course of business, such as those
issued by our bankers in favor of several of our suppliers or
indemnification clauses in favor of customers in respect of
liabilities they may incur as a result of purchasing our
products should such products infringe the intellectual property
rights of a third party. We have not historically paid out any
amounts related to these indemnification obligations and do not
expect to in the future, therefore no accrual has been made for
these indemnification obligations.
Other than as set forth above, we are not currently party to any
material off-balance sheet arrangements.
Quantitative
and Qualitative Disclosures About Market Risk
Interest
rates
We finance our operations through a mixture of the issuance of
equity securities, finance leases, working capital and by
drawing on a three year $25.0 million senior secured
revolving credit facility under a credit agreement we entered
into on August 2, 2006. Our only exposure to interest rate
fluctuations is on our cash deposits and for amounts borrowed
under the credit agreement. As of December 27, 2008 and
June 28, 2008, there were no amounts outstanding under this
line of credit. As of December 27, 2008, we had
$0.3 million in outstanding standby letters of credits with
a vendor secured under this credit agreement. 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. We believe our interest rate risk is immaterial.
Foreign
currency
We are exposed to fluctuations in foreign currency exchange
rates and interest rates. As our business has grown and become
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 2004, and our movement of certain functions,
including assembly and test operations, from the United Kingdom
to China, in the future we expect that a majority of our
revenues will continue to be denominated in U.S. dollars,
while a significant portion of our expenses will continue to be
denominated in U.K. pounds sterling. Fluctuations in the
exchange rate between the U.S. dollar and the U.K. pound
sterling and, to a lesser extent, other currencies in which we
collect revenues and pay expenses, could affect our operating
results. This includes the Chinese yuan and the Swiss franc in
which we pay expenses in connection with operating our
facilities in Shenzhen, China, and Zurich, Switzerland. To the
extent the exchange rate between the U.S. dollar and the
Chinese yuan were to fluctuate more significantly than
experienced to date, our exposure would increase.
As of December 27, 2008, our U.K. subsidiary had
$9.5 million in U.S. dollar denominated operating
intercompany receivables and $32.5 million in
U.S. dollar denominated accounts receivable related to
sales to
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external customers. It is estimated that a 10 percent
fluctuation in the U.S. dollar relative to the U.K. pound
sterling would lead to a profit of $4.2 million
(U.S. dollar strengthening), or loss of $4.2 million
(U.S. dollar weakening) on the translation of these
receivables, which would be recorded in gain (loss) on foreign
exchange in our statement of operations.
Hedging
Program
We enter into foreign currency forward exchange contracts in an
effort to mitigate a significant portion of our exposure to such
fluctuations between the U.S. dollar and the U.K. pound
sterling. We do not currently hedge our exposure to the Swiss
franc or the Chinese yuan, but we may in the future if
conditions warrant. We also do not currently hedge our exposure
related to our U.S. dollar denominated intercompany
payables and receivables. We may be required to convert
currencies to meet our obligations. Under certain circumstances,
foreign currency forward exchange contracts can have an adverse
effect on our financial condition. As of December 27, 2008,
we held nineteen foreign currency forward exchange contracts
with a notional value of $22.0 million which include put
and call options which expire, or expired, at various dates from
January 2009 to December 2009 and we have recorded an unrealized
loss of $3.3 million to accumulated other comprehensive
income in connection with marking these contracts to fair value.
It is estimated that a 10 percent fluctuation in the dollar
between December 27, 2008 and the maturity dates of the put
and call instruments underlying these contracts would lead to a
profit of $1.3 million (U.S. dollar weakening), or
loss of $1.0 million (U.S. dollar strengthening) on
our outstanding foreign currency forward exchange contracts,
should they be held to maturity.
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MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF AVANEX
Certain statements contained in the following discussion that
are not purely historical are forward-looking
statements within the meaning of the federal securities
laws, including, without limitation, statements regarding
Avanexs liquidity, anticipated cost of revenue, operating
expenses, gross margins, anticipated savings from Avanexs
restructuring and cost reduction plans, and statements regarding
Avanexs expectations, beliefs, anticipations, commitments,
intentions and strategies regarding the future. In some cases
forward-looking statements can be identified by terms such as
may, could, would,
might, will, should,
expect, plan, intend,
forecast, anticipate,
believe, estimate, predict,
potential, continue or the negative of
these terms or other comparable terminology. Actual results
could differ from those projected in any forward-looking
statements, which are made as of the date of this joint proxy
statement/prospectus, including but not limited to those
presented under Risks Relating to Avanex and
elsewhere in this joint proxy statement/prospectus. Avanex
assumes no obligation to update the forward-looking statements,
or to update the reasons why actual results could differ from
those projected in the forward-looking statements.
The following discussion and analysis should be read in
conjunction with Avanexs unaudited condensed consolidated
financial statements for the three and six month periods ended
December 31, 2008 and the notes thereto included herein and
Avanexs audited consolidated financial statements and
notes for the year ended June 30, 2008, also included
herein.
Overview
Avanex designs, manufactures and markets fiber optic-based
products which increase the performance of optical networks.
Avanex sells its products to telecommunications system
integrators and their network carrier customers. Avanex was
incorporated in October 1997 in California and reincorporated in
Delaware in January 2000. Avanex began making volume shipments
of its products during the quarter ended September 30, 1999.
In fiscal 2004, Avanex assumed restructuring liabilities with
fair values of $64.1 million at the date of acquisition of
the optical components businesses of Alcatel-Lucent and Corning,
which were included in the purchase price. Subsequent to these
acquisitions, Avanex has continued to restructure its
organization, primarily through the downsizing of its workforce
and the abandonment of excess facilities. As of
December 31, 2008, Avanexs accrued restructuring
liability balance was $6.7 million, consisting primarily of
excess facilities costs payable through fiscal 2011.
The restructurings have resulted in, among other things, a
significant reduction in the size of Avanexs workforce,
consolidation of its facilities, and increased reliance on
outsourced, third-party manufacturing. In March 2005, Avanex
announced that it had opened an operations center in Bangkok,
Thailand to centralize global manufacturing and operational
overhead functions in a lower-cost region. In July 2005, Avanex
announced the opening of a development and marketing office in
Shanghai, China. In April 2007, Avanex sold ninety percent (90%)
of the share capital and voting rights of its wholly owned
subsidiary, Avanex France, which operated its semiconductor fabs
and associated product lines located in Nozay, France. In
September 2008, Avanex implemented a workforce reduction of
47 employees and announced the closure of its Melbourne,
Florida facility and the transfer of the respective product
lines, inventory, and fixed assets to another office.
Although Avanex has relocated most of its manufacturing
operations to reduce its production costs, it expects to
continuously take actions to further reduce costs and improve
its gross margins. However, there can be no assurance that
Avanexs cost structure will not increase in the future or
that it will be able to align its cost structure with its
expectations.
Following the close of market on August 12, 2008, Avanex
effected a fifteen-for-one reverse stock split of its common
stock. Accordingly, each fifteen shares of issued and
outstanding Avanex common stock and equivalents as of the close
of market on August 12, 2008 was converted into one share
of common stock, and the reverse stock split was reflected in
the trading price of Avanexs common stock at the opening
of market
212
on August 13, 2008. Unless indicated otherwise, all Avanex
share amounts and per share prices appearing in this joint proxy
statement/prospectus reflect the reverse stock split for all
periods presented.
Net Revenue. The market for optical equipment
continues to evolve and the volume and timing of orders is
difficult to predict, especially in the current recessionary
macro economic environment. A customers decision to
purchase Avanexs products typically involves a commitment
of its resources and a lengthy evaluation and product
qualification process. This initial evaluation and product
qualification process typically takes several months and
includes technical evaluation, integration, testing, planning
and implementation into the equipment design. Implementation
cycles for Avanexs products can be lengthy, and the
practice of customers in the communications industry to
sporadically place orders with short lead time may cause its net
revenue, gross margin, operating results and the identity of its
largest customers to vary significantly and unexpectedly from
quarter to quarter.
To date, a substantial proportion of Avanexs sales have
been concentrated with a limited number of customers. Two
customers accounted for 33% and 12% of Avanexs net
revenue, respectively, for the three months ended
December 31, 2008. Two customers accounted for 23% and 22%
of Avanexs net revenue, respectively, for the three months
ended December 31, 2007. During fiscal 2008, two customers
accounted for 25% and 21% of Avanexs net revenue,
respectively. During fiscal 2007, two customers accounted for
29% and 17% of Avanexs net revenue, respectively. During
fiscal 2006, two customers accounted for 27% and 11% of
Avanexs net revenue, respectively. Avanex expects that a
substantial portion of its sales will remain concentrated with a
limited number of customers, as indicated by the increase in
customer concentration.
Cost of Revenue. Avanexs cost of revenue
consists of costs of components and raw materials, direct labor,
warranty, manufacturing overhead, payments to its contract
manufacturers and inventory write-offs for obsolete and excess
inventory. Avanex rely on a single or limited number of
suppliers to manufacture some key components and raw materials
used in its products, and it relies on the outsourcing of some
turnkey solutions.
Avanex writes off the cost of inventory that it specifically
identifies and considers obsolete or in excess of future sales
estimates. Avanex defines obsolete inventory as products that it
no longer markets, for which there is no demand, or inventory
that will no longer be used in the manufacturing process. Excess
inventory is generally defined as inventory in excess of
projected usage, and is determined using managements best
estimate of future demand at the time, based upon information
then available to Avanex. The combined cost of write-offs of
excess and obsolete inventory and losses from purchase
commitments was $2.3 million and $1.8 million in the
three months ended December 31, 2008 and 2007,
respectively, and $3.9 million and $3.1 million in the
six months ended December 31, 2008 and 2007, respectively.
Avanex wrote off excess and obsolete inventory of
$4.7 million in fiscal 2008, $12.9 million in fiscal
2007, and $12.8 million in fiscal 2006.
Gross Profit. Gross profit represents revenue
less cost of revenue. During the three months ended
December 31, 2008, gross margin decreased to 15% of
revenue, which was a decrease in gross margin of
16 percentage points over Avanexs gross margin of 31%
in the three months ended December 31, 2007. During the six
months ended December 31, 2008, gross margin decreased to
16% of revenue, which was a decrease in gross margin of
13 percentage points over Avanexs gross margin of 29%
in the six months ended December 31, 2007. The decline in
gross margin percentage was primarily due to a decrease in
revenue, an increase in the write off of excess and obsolete
inventory, and a mix shift to products with lower gross margins.
During fiscal 2008, gross margin increased to 31% of revenue,
which was an increase in gross margin of 13 percentage
points over Avanexs fiscal 2007 gross margin of 18%.
The Global Distributor Agreement and legal settlement with 3S
Photonics comprised 2 percentage points of this increase.
The remainder of the increase was due to a more profitable mix
of products sold to Avanexs customers, decreased vendor
costs, improved yields, the introduction of new products with
lower production costs, and cost reductions resulting from
having Avanexs design and operations teams working with
its contract manufacturers to lower production costs.
Research and Development Expenses. Research
and development expenses consist primarily of salaries and
related personnel costs, fees paid to consultants and outside
service providers, costs of allocated facilities,
213
non-recurring engineering charges, and prototype costs related
to the design, development, testing, pre-manufacturing of new
products, and significant improvements to Avanexs existing
products. Avanex expenses its research and development costs as
they are incurred. Avanex believes that research and development
is critical to its strategic product development objectives.
Avanex further believes that, in order to meet the changing
requirements of its customers, it must continue to fund
investments in several development projects in parallel.
Sales and Marketing Expenses. Sales and
marketing expenses consist primarily of salaries, commissions,
and related personnel costs of employees in sales, marketing,
customer service, and application engineering functions, costs
of allocated facilities, and promotional and other marketing
expenses.
General and Administrative Expenses. General
and administrative expenses consist primarily of salaries and
related personnel costs for executive, finance, accounting,
legal, and human resources personnel, costs of allocated
facilities, recruiting expenses, professional fees, and other
corporate expenses.
Amortization of Intangible Assets. A portion
of the purchase price in a business combination is allocated to
goodwill and intangibles. Goodwill is not amortized, but rather
is assessed for impairment at least annually. Intangible assets
with definite lives continue to be amortized over their
estimated useful lives.
Restructuring. Restructuring expense generally
includes employee severance costs and the costs of excess
facilities associated with formal restructuring plans.
Impairment of Goodwill and
Intangibles. Impairment charges consist of the
write off of goodwill and intangible assets. Goodwill is
assessed for impairment at least annually, or if there are
indications of impairment.
Gain on Disposal of Property and
Equipment. Gain on disposals includes gains
incurred as a result of the disposal of property, plant, or
equipment for an amount greater than the net book value.
Gain (loss) on Sale of Subsidiary. Gain (loss)
on sale of subsidiary consists of the net gain (loss) from the
sale of Avanexs subsidiary in France in April 2007.
Interest and Other Income (Expense),
Net. Interest and other income consist primarily
of interest earned from the investment of Avanexs cash and
cash equivalents, short-term investments, and foreign currency
exchange rate loss. Interest and other expense consist primarily
of interest expense associated with borrowings under its capital
lease obligations.
Income Taxes. In accordance with Financial
Accounting Standard Board (FASB) Statement
No. 109, Accounting for Income Taxes, Avanex
recognizes income taxes using an asset and liability approach.
This approach requires the recognition of taxes payable or
refundable for the current year and deferred tax liabilities and
assets for the future tax consequences of events that have been
recognized in Avanexs consolidated financial statements or
tax returns. The measurement of current and deferred taxes is
based on provisions of the enacted tax law, and the effects of
future changes in tax laws or rates are not anticipated.
Critical
Accounting Policies and Estimates
The preparation of Avanexs consolidated financial
statements in accordance with U.S. generally accepted
accounting principles (GAAP) requires management to
make estimates and assumptions that affect the reported amounts
of assets, liabilities, net revenues and expenses, and related
disclosures. Avanex believes its estimates and assumptions are
reasonable; however, actual results and the timing of the
recognition of such amounts could differ from these estimates.
Avanex believes the following critical accounting policies
affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements.
Liquidity. During the six months ended
December 31, 2008, Avanex incurred a net loss of
$26.5 million, and its balance of unrestricted cash, cash
equivalents and short-term investments declined from
$55.4 million at June 30, 2008 to $33.4 million
at December 31, 2008. Avanex expects these balances of
cash, cash equivalents, and investments to continue to decline
in future periods. These factors cast substantial uncertainty on
Avanexs ability to continue as an ongoing enterprise for a
reasonable period of time. Avanexs ability to
214
continue as an ongoing enterprise is dependent on its improving
operational cash flow and securing additional funding or
consummating the proposed merger with Bookham Inc announced on
January 27, 2009. Avanex is pursuing opportunities to
streamline development efforts, reduce inventory levels and
simplify its operating structure, while maintaining customer
satisfaction. The financial statements do not include any
adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of
liabilities that might be necessary should Avanex be unable to
continue as an ongoing enterprise.
Revenue Recognition. Avanexs revenue
recognition policy complies with SEC Staff Accounting Bulletin
(SAB) No. 104, Revenue Recognition.
Avanex recognizes product revenue when persuasive evidence of an
arrangement exists, the product has been shipped, risk of loss
has been transferred, collectibility is reasonably assured, fees
are fixed or determinable and there are no uncertainties with
respect to customer acceptance. Deferred revenue consists of
shipped products where risk of loss has not transferred. Avanex
records a provision for estimated sales returns and price
adjustments in the same period as when the related revenues are
recorded. These estimates are based on historical sales returns
and adjustments, other known factors, and Avanexs return
policy. If future sales returns or price adjustment levels
differ from the historical data Avanex uses to calculate these
estimates, changes to the provision may be required. Avanex
generally does not accept product returns from customers;
however, Avanex does sell its products under warranty. The
specific terms and conditions of Avanexs warranties vary
by customer and region in which Avanex does business; the
warranty period is generally one year.
Allowance for Doubtful Accounts. In the last
three years, Avanexs uncollectible accounts experience has
been almost zero. When Avanex becomes aware, subsequent to
delivery, of a customers potential inability to meet its
obligations, it records a specific allowance for doubtful
accounts. If the financial condition of Avanexs customers
were to deteriorate, resulting in an impairment of their ability
to make payments, additional allowances may be required. Such an
allowance may be magnified due to the concentration of
Avanexs sales to a limited number of customers. At
December 31, 2008, Avanex determined that an allowance of
$0.2 million was required due to a customer filing for
bankruptcy protection in January 2009.
Excess and Obsolete Inventory. Avanex writes
off the cost of inventory that it specifically identifies and
considers obsolete or excessive to fulfill future sales
estimates. Avanex defines obsolete inventory as products that it
no longer markets or for which there is no demand, or inventory
that will no longer be used in the manufacturing process. Excess
inventory is generally defined as inventory in excess of
projected usage, and is determined using managements best
estimate of future demand at the time, based upon information
then available to Avanex.
In estimating excess inventory, Avanex uses a twelve-month
demand forecast. Avanex assesses inventory on a quarterly basis
and writes down those inventories which are obsolete or in
excess of its forecasted usage to their estimated realizable
value. Avanexs estimates of realizable value are based
upon its analysis including, but not limited to forecasted sales
levels by product, expected product life cycle, product
development plans, and future demand requirements. If actual
market conditions are less favorable than its forecasts or
actual demand from its customers is lower than its estimates,
Avanex may be required to record additional inventory write
downs. If actual market conditions are more favorable than
anticipated, inventory previously written down may be sold,
resulting in lower cost of sales and higher income from
operations than expected in that period.
Stock-based Compensation Expense. Avanex
accounts for employee stock-based compensation costs in
accordance with FASB Statement No. 123(R),
Share-Based Payment (SFAS 123(R))
and SAB No. 107, Share-Based Payment
(SAB 107). Avanex utilizes the Black-Scholes
option pricing model to estimate the fair value of employee
stock-based compensation at the date of grant, which requires
the input of highly subjective assumptions, including expected
volatility and expected life. Historical volatility was used in
estimating the fair value of Avanexs stock-based awards,
and the expected life was estimated to be 6.25 years using
the simplified method permitted under SAB 107 through
December 31, 2007. Beginning January 1, 2008, Avanex
has estimated the time-to-exercise based on historical exercise
patterns of employee and director populations. Further, as
required under SFAS 123(R), Avanex now estimates
forfeitures for options granted that are not expected to vest.
Changes in these inputs and assumptions can materially affect
the measure of
215
estimated fair value of Avanexs share-based compensation.
The estimated fair value is charged to earnings on a
straight-line basis over the vesting period of the underlying
awards, which is generally four years. The Black-Scholes option
pricing model was developed for use in estimating the fair value
of traded options having no vesting restrictions and being fully
transferable. Accordingly, Avanexs estimate of fair value
may not represent the value assigned by a third-party in an
arms-length transaction. While Avanexs estimate of fair
value and the associated charge to earnings materially impacts
its results of operations, it has no impact on Avanexs
cash position.
Goodwill. SFAS No. 142,
Goodwill and Other Intangible Assets
(SFAS 142) prescribes a two-step process for
impairment testing of goodwill. The first step screens for
impairment, while the second step, measures the impairment, if
any. SFAS 142 requires impairment testing based on
reporting units.
The first step is a comparison of each reporting units
fair value to its carrying value. Avanex estimates fair value
using the best information available, including market
information and discounted cash flow projections also referred
to as the income approach. If the carrying value of the
reporting unit is higher than its fair value, there is an
indication that impairment may exist and the second step must be
performed to measure the amount of impairment loss. The amount
of impairment is determined by comparing the implied fair value
of reporting unit goodwill to the carrying value of the goodwill
in the same manner as if the reporting unit was being acquired
in a business combination. If the implied fair value of goodwill
is less than the recorded goodwill, Avanex would record an
impairment charge for the difference.
As of December 31, 2008, Avanex continued to evaluate
goodwill due to indications of impairment including the current
economic environment, its operating results, a sustained decline
in its market capitalization, changes in management, and a
decline in the forecasted revenue for the remainder of fiscal
2009. Avanex operates in one reporting unit. The Step 2 analysis
concluded that there had been an impairment of the recorded
goodwill. This conclusion is supported by the fair value implied
by the proposed merger with Bookham, Inc. announced on
January 27, 2009. As such, Avanex has written off the book
value of $9.4 million of goodwill as of December 31,
2008.
Impairment of Long-lived Assets. Avanex
evaluates the recoverability of long-lived assets in accordance
with FASB Statement No. 144, Accounting for the
Impairment or Disposal of Long-lived Assets
(SFAS 144). Recoverability of the asset is measured
by comparison of its carrying amount to the undiscounted future
net cash flows the asset is expected to generate. If such assets
are considered to be impaired, the impairment to be recognized
is measured as the amount by which the carrying amount of the
asset exceeds its fair market value. As of December 31,
2008, Avanex performed a SFAS 144 analysis and concluded
that the intangible assets are impaired. Avanex wrote off the
remaining book value of $0.2 million as of
December 31, 2008.
Warranties. In general, Avanex provides a
product warranty for one year from the date of shipment. Avanex
accrues for the estimated cost to provide warranty services at
the time revenue is recognized. The specific terms and
conditions of Avanexs warranties vary by customer and
region in which it does business. Avanexs estimate of
costs to service its warranty obligations is based on historical
experience and expectation of future conditions. To the extent
Avanex experiences increased warranty claim activity or
increased costs associated with servicing those claims, its
warranty costs will increase resulting in decreases to gross
profit. Conversely, to the extent Avanex experiences decreased
warranty claim activity, or decreased costs associated with
servicing those claims, its warranty costs will decrease
resulting in increases to gross profit. Avanex periodically
assesses the adequacy of its recorded warranty liabilities and
adjust the amounts as necessary.
Restructuring. During the past few years
Avanex has recorded significant accruals in connection with
restructuring programs. Given the significance and complexity of
restructuring activities, and the timing of the execution of
such activities, the restructuring accrual process involves
periodic reassessments of estimates made at the time the
original decisions were made, including evaluating real estate
market conditions for expected vacancy periods and sub-lease
rents. Although Avanex believes that these estimates accurately
reflect the costs of the restructuring programs, actual results
may differ, thereby requiring it to record additional provisions
or reverse a portion of such provisions.
216
Purchase Accounting. Avanex accounts for
business combinations under the purchase method of accounting
and accordingly, the assets acquired and liabilities assumed are
recorded at their fair values. The recorded values of assets and
liabilities are based on management estimates, or if market
price information is not available, based on the best
information available. The values are based on Avanexs
judgments and estimates, and accordingly, its financial position
or results of operations may be affected by changes in these
estimates and judgments. Specifically, Avanexs valuation
of intangible assets is based on a discounted cash flow
valuation methodology that incorporates estimates of future
revenue, revenue growth, expenses, estimated useful lives,
balance sheet assumptions and weighted-average cost of capital.
Contingencies. Avanex is or has been subject
to proceedings, lawsuits and other claims related to its initial
public offering and other matters. Avanex evaluates contingent
liabilities including threatened or pending litigation in
accordance with SFAS No. 5, Accounting for
Contingencies. If the potential loss from any claim or
legal proceedings is considered probable and the amount can be
estimated, Avanex accrues a liability for the estimated loss.
Because of uncertainties related to these matters, accruals are
based upon managements judgment and the best information
available to management at the time. As additional information
becomes available, Avanex reassesses the potential liability
related to its pending claims and litigation and may revise its
estimates.
In addition to product warranties, Avanex, from time to time, in
the normal course of business, indemnifies certain customers
with whom it enters into contractual relationships. Avanex has
agreed to hold the other party harmless against third party
claims that its products, when used for their intended purpose,
infringe the intellectual property rights of such third party or
other claims made against certain parties. It is not possible to
determine the maximum potential amount of liability under these
indemnification obligations due to the limited history of prior
indemnification claims and the unique facts and circumstances
that are likely to be involved in each particular claim. The
estimated fair value of these indemnification provisions is
minimal. To date, Avanex has not incurred any costs related to
claims under these provisions, and no amounts have been accrued
in its financial statements.
Income Taxes. Avanex accounts for income taxes
under the liability method, which recognizes deferred tax assets
and liabilities for the expected future tax consequences of
temporary differences between the tax bases of assets and
liabilities and their financial statement reported amounts, and
for net operating loss and tax credit carry forwards. Avanex
records a valuation allowance against deferred tax assets when
it is more likely than not that such assets will not be realized.
While Avanex has considered future taxable income and ongoing
prudent and feasible tax planning strategies in assessing the
need for the valuation allowance, in the event Avanex was to
determine that it would be able to realize its deferred tax
assets in the future, an adjustment to the allowance for the
deferred tax assets would increase income in the period such
determination was made.
In July 2007, Avanex adopted FABS Interpretation
(FIN) No. 48, which creates a single
model to address accounting for uncertainty in tax positions by
prescribing a minimum recognition threshold that a tax position
is required to meet before being recognized in the financial
statements. FIN 48 establishes a two-step approach for
evaluating tax positions. The first step, recognition, occurs
when a company concludes (based solely on the technical aspects
of the tax matter) that a tax position is more likely than not
to be sustained on examination by a taxing authority. The second
step, measurement, is only considered after step one has been
satisfied and measures any tax benefit at the largest amount
that is deemed more likely than not to be realized upon ultimate
settlement of the uncertainty. Tax positions that fail to
qualify for initial recognition are recognized in the first
subsequent interim period that they meet the more likely than
not standard, when they are resolved through negotiation or
litigation with the taxing authority or upon the expiration of
the statute of limitations. The application of tax laws and
regulations is subject to legal and factual interpretation,
judgment and uncertainty. Tax laws and regulations themselves
are subject to change as a result of changes in fiscal policy,
changes in legislation, evolution of regulations and court
rulings. Therefore, the actual liability for U.S. or
foreign taxes may be materially different from Avanexs
estimates, which could result in the need to record additional
tax liabilities or potentially to reverse previously recorded
tax liabilities.
217
Change in
Accounting Policy
In September 2006, the FASB issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans an amendment of FASB
Statements No. 87, 88, 106, and 132(R). This
pronouncement requires an employer to recognize the overfunded
or underfunded status of a defined benefit postretirement plan
(other than a multiemployer plan) as an asset or liability on
its statement of financial position using prospective
application. SFAS No. 158 also requires an employer to
recognize changes in that funded status in the year in which the
changes occur through comprehensive income. In addition, this
statement requires an employer to measure the funded status of a
plan as of the date of its year-end statement of financial
position, with limited exceptions. Avanex adopted this statement
in fiscal 2007. Upon adoption, Avanex recorded an adjustment of
$0.3 million to the ending balance of accumulated other
comprehensive income for pension benefit plan.
Results
of Operations for the Three Month and Six Month Periods Ended
December 31, 2008
The following table sets forth, for the periods indicated,
Avanexs Condensed Consolidated Statements of Operations
(unaudited), expressed as amounts in thousands and as
percentages of net revenue.
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|
Three Months Ended December 31,
|
|
|
Six Months Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
Amounts
|
|
|
% of Net Rev.
|
|
|
Amounts
|
|
|
% of Net Rev.
|
|
|
Net revenue
|
|
$
|
38,001
|
|
|
$
|
52,007
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
$
|
83,275
|
|
|
$
|
106,716
|
|
|
|
100
|
%
|
|
|
100
|
%
|
Cost of revenue
|
|
|
32,159
|
|
|
|
35,888
|
|
|
|
85
|
%
|
|
|
69
|
%
|
|
|
69,660
|
|
|
|
75,405
|
|
|
|
84
|
%
|
|
|
71
|
%
|
Gross profit
|
|
|
5,842
|
|
|
|
16,119
|
|
|
|
15
|
%
|
|
|
31
|
%
|
|
|
13,615
|
|
|
|
31,311
|
|
|
|
16
|
%
|
|
|
29
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
6,037
|
|
|
|
7,604
|
|
|
|
16
|
%
|
|
|
15
|
%
|
|
|
12,722
|
|
|
|
14,378
|
|
|
|
15
|
%
|
|
|
13
|
%
|
Sales and marketing
|
|
|
2,827
|
|
|
|
4,202
|
|
|
|
8
|
%
|
|
|
8
|
%
|
|
|
6,879
|
|
|
|
8,117
|
|
|
|
8
|
%
|
|
|
7
|
%
|
General and administrative
|
|
|
3,777
|
|
|
|
4,980
|
|
|
|
10
|
%
|
|
|
9
|
%
|
|
|
8,665
|
|
|
|
9,455
|
|
|
|
10
|
%
|
|
|
9
|
%
|
Amortization of intangibles
|
|
|
53
|
|
|
|
101
|
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
107
|
|
|
|
660
|
|
|
|
0
|
%
|
|
|
1
|
%
|
Restructuring
|
|
|
157
|
|
|
|
2
|
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
2,476
|
|
|
|
(333
|
)
|
|
|
3
|
%
|
|
|
0
|
%
|
Impairment of goodwill and intangibles
|
|
|
9,615
|
|
|
|
|
|
|
|
25
|
%
|
|
|
0
|
%
|
|
|
9,615
|
|
|
|
|
|
|
|
12
|
%
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
22,466
|
|
|
|
16,889
|
|
|
|
59
|
%
|
|
|
32
|
%
|
|
|
40,464
|
|
|
|
32,277
|
|
|
|
48
|
%
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(16,624
|
)
|
|
|
(770
|
)
|
|
|
(44
|
)%
|
|
|
(1
|
)%
|
|
|
(26,849
|
)
|
|
|
(966
|
)
|
|
|
(32
|
)%
|
|
|
(1
|
)%
|
Interest and other income (expense), net
|
|
|
(179
|
)
|
|
|
1,083
|
|
|
|
0
|
%
|
|
|
2
|
%
|
|
|
(351
|
)
|
|
|
1,598
|
|
|
|
(1
|
)%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(16,803
|
)
|
|
|
313
|
|
|
|
(44
|
)%
|
|
|
1
|
%
|
|
|
(27,200
|
)
|
|
|
632
|
|
|
|
(33
|
)%
|
|
|
1
|
%
|
Income tax benefit (provision)
|
|
|
(11
|
)
|
|
|
(227
|
)
|
|
|
0
|
%
|
|
|
(1
|
)%
|
|
|
745
|
|
|
|
(501
|
)
|
|
|
1
|
%
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(16,814
|
)
|
|
$
|
86
|
|
|
|
(44
|
)%
|
|
|
0
|
%
|
|
$
|
(26,455
|
)
|
|
$
|
131
|
|
|
|
(32
|
)%
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Revenue
Net revenue for the three months ended December 31, 2008
was $38.0 million, which represents a decrease of
$14.0 million, or 27%, from net revenue of
$52.0 million for the three months ended December 31,
2007. Net revenue for the six months ended December 31,
2008 was $83.3 million, which represents a decrease of
$23.4 million, or 22%, from net revenue of
$106.7 million for the six months ended December 31,
2007. The decrease in net revenue for both the three and six
month periods ended December 31, 2008 was primarily
attributable to the current recessionary macro economic
environment, as well as a decrease in revenue due to the
termination of the Global Distributor Agreement with 3S
Photonics, consisting of $3.2 million and
$10.1 million for the three and six months ended
December 31, 2007, respectively. In addition, revenue for
the three and six months ended December 31, 2008 excludes
$0.4 million for products shipped to a customer now in
bankruptcy.
218
To date, a substantial portion of Avanexs sales has been
concentrated with a limited number of customers. For the three
and six months ended December 31, 2008 and 2007, sales to
customers that each comprised 10% or more of net revenue were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Net Revenue
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Company A
|
|
|
33
|
%
|
|
|
23
|
%
|
|
|
34
|
%
|
|
|
24
|
%
|
Company B
|
|
|
12
|
%
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
Company C
|
|
|
*
|
|
|
|
22
|
%
|
|
|
*
|
|
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
%
|
|
|
45
|
%
|
|
|
34
|
%
|
|
|
43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
While Avanex has substantially diversified its customer base,
Avanex expects that a substantial portion of its sales will
remain concentrated with a limited number of customers. Sales to
its major customers vary significantly from period to period,
and Avanex does not have the ability to predict future sales to
these customers.
Net revenue from customers outside the United States accounted
for $27.9 million and $32.4 million of total net
revenue, or 73% and 62%, for the three months ended
December 31, 2008 and 2007, respectively, and accounted for
$59.9 million and $69.6 million of total net revenue,
or 72% or 65%, for the six months ended December 31, 2008
and 2007, respectively. The current recessionary macro economic
environment impacted Avanexs U.S. customers more than
its international customers.
Cost of
Revenue and Gross Margin
Cost of revenue for the three months ended December 31,
2008 was $32.2 million, compared to $35.9 million for
the three months ended December 31, 2007, a decrease of
$3.7 million. Cost of revenue for the six months ended
December 31, 2008 was $69.7 million, compared to
$75.4 million for the six months ended December 31,
2007, a decrease of $5.7 million. This decrease was
primarily due to a decrease in revenue, partially offset by an
increase in excess and obsolete inventory. In addition, cost of
revenue for the three and six months ended December 31,
2008 includes $0.3 million for products shipped to a
customer now in bankruptcy, but for which Avanex recognized no
revenue.
The combined cost of write-offs of excess and obsolete inventory
and losses from purchase commitments was $2.3 million and
$1.8 million for the three months ended December 31,
2008 and 2007, respectively, and $3.9 million and
$3.1 million for the six months ended December 31,
2008 and 2007, respectively. This write-off was primarily due to
lower demand for certain products and lower expected usage of
previously purchased inventory. For the three months ended
December 31, 2008 and 2007, Avanex sold inventory
previously written-off with original costs totaling
$0.3 million and $0.9 million, respectively, and for
the six months ended December 31, 2008 and 2007, it sold
inventory previously written-off with original costs totaling
$0.5 million and $1.2 million, respectively, due to
unforeseen demand for such inventory. As a result, cost of
revenue associated with the sale of this inventory was zero.
There can be no assurance that there will not be additional
excess and obsolete inventory write-offs in the future.
Cost of revenue as a percentage of net revenue increased from
both the three and six months ended December 31, 2007 to
the three and six months ended December 31, 2008 due to an
increase in manufacturing overhead and direct manufacturing
costs as a percentage of net revenue, combined with higher
write-offs of excess and obsolete inventory. Consequently,
Avanexs gross margin percentage decreased from 31% for the
three months ended December 31, 2007 to 15% for the three
months ended December 31, 2008, and from 29% for the six
months ended December 31, 2007 to 16% for the six months
ended December 31, 2008. The decline in gross margin
percentage was primarily due to a decrease in revenue, an
increase in excess and obsolete inventory, and a mix shift to
products with lower gross margins.
219
Avanexs gross margins are and will be primarily affected
by changes in mix of products sold, manufacturing volume,
changes in sales prices, product demand, inventory write-downs,
sales of previously written-off inventory, warranty costs, and
product yields. Avanex expects cost of revenue, as a percentage
of net revenue, to fluctuate from period to period. Avanex
expects gross margin in fiscal 2009 to decline as compared to
fiscal 2008 due to the expected decrease in revenue.
Research
and Development
Research and development expenses decreased by $1.6 million
to $6.0 million for the three months ended
December 31, 2008 from $7.6 million for the three
months ended December 31, 2007. As a percentage of net
revenue, research and development expenses increased to 16% for
the three months ended December 31, 2008 from 15% for the
three months ended December 31, 2007 due to the decrease in
revenue. In the three months ended December 31, 2008, the
decrease in research and development expenses was primarily due
to decreased personnel costs of $1.2 million due to lower
headcount (largely due to the closure of Avanexs
Melbourne, Florida facility), as well as lower consulting
expenses of $0.2 million. For the six months ended
December 31, 2008, research and development expenses
decreased by $1.7 million to $12.7 million from
$14.4 million in the six months ended December 31,
2007. As a percentage of net revenue, research and development
expenses increased to 15% from 13% for the same period last
year. In the six months ended December 31, 2008, the
decrease in research and development expenses was primarily due
to decreased personnel costs of $1.1 million due to lower
headcount, decreased prototype spending of $0.3 million,
and decreased consulting expenses of $0.2 million. Avanex
expects its research and development expenses to decrease in
absolute dollars in fiscal 2009 as compared to fiscal 2008.
Despite its continued efforts to reduce expenses, there can be
no assurance that Avanexs research and development
expenses will not increase in the future.
Sales and
Marketing
For the three months ended December 31, 2008, sales and
marketing expenses decreased by $1.4 million to
$2.8 million from $4.2 million for the three months
ended December 31, 2007. As a percentage of net revenue,
sales and marketing expenses remained level at 8% for the three
months ended December 31, 2008 and 2007. For the six months
ended December 31, 2008, sales and marketing expenses
decreased by $1.2 million to $6.9 million from
$8.1 million for the six months ended December 31,
2007. As a percentage of net revenue, sales and marketing
expenses increased to 8% for the six months ended
December 31, 2008 from 7% for the six months ended
December 31, 2007 due to the decrease in revenue. In the
three and six months ended December 31, 2008, the decrease
in sales and marketing expenses was primarily due to decreased
personnel costs due to lower headcount. Avanex expects its sales
and marketing expenses to decrease in absolute dollars in fiscal
2009 as compared to fiscal 2008. Despite Avanexs continued
efforts to reduce expenses, there can be no assurance that its
sales and marketing expenses will not increase in the future.
General
and Administrative
General and administrative expenses were $3.8 million for
the three months ended December 31, 2008, a decrease of
$1.2 million from expenses of $5.0 million for the
three months ended December 31, 2007. In the three months
ended December 31, 2008, the decrease in general and
administrative expenses was primarily driven by decreased
personnel costs of $1.1 million due to lower headcount, and
decreased outside services and consulting expenses of
$0.3 million, offset by bad debt expense of
$0.2 million. For the six months ended December 31,
2008, general and administrative expenses decreased by
$0.8 million to $8.7 million from $9.5 million
for the six months ended December 31, 2007. In the six
months ended December 31, 2008, the decrease in general and
administrative expenses was primarily due to decreased personnel
costs due to lower headcount. As a percentage of net revenue,
general and administrative expenses increased to 10% in both the
three and six months ended December 31, 2008 from 9% in the
same periods the prior year due to the decrease in revenue.
Avanex expects its general and administrative expenses to
decrease in absolute dollars in fiscal 2009 as compared to
fiscal 2008. Despite Avanexs continued efforts to reduce
expenses, there can be no assurance that its general and
administrative expenses will not increase in the future.
220
Amortization
of Intangible Assets
Amortization of intangible assets remained level at
$0.1 million for the three months ended December 31,
2008 and 2007, and was $0.1 million and $0.7 million,
for the six months ended December 31, 2008 and 2007,
respectively. While a significant portion of Avanexs
intangible assets became fully amortized in fiscal 2008, it
wrote-off the remaining balance as of December 31, 2008.
Restructuring
Over the past several years, Avanex has implemented various
restructuring programs to realign resources in response to the
changes in its industry and customer demand, as well as
integration of acquired businesses, and it continues to assess
its current and future operating requirements accordingly.
For the three months ended December 31, 2008 and 2007,
restructuring expenses were $0.2 million and $0,
respectively, and for the six months ended December 31,
2008 and 2007, restructuring expenses were $2.5 million and
($0.3) million. The recovery in restructuring expense in
the first quarter of fiscal 2008 was due to Avanexs
ability to sublease excess facilities at its Fremont site.
In the three months ended September 30, 2008, Avanex
implemented a workforce reduction of 47 employees to reduce
costs, streamline operations, and improve its cost structure. In
the second quarter of fiscal 2009, Avanex closed its Melbourne,
Florida facility and transferred the respective product lines,
inventory, and fixed assets to either its France, China, or
Thailand offices. The costs associated with this restructuring
consist of one-time termination benefits of approximately
$2.1 million and facilities-related costs of approximately
$0.3 million. The $2.1 million of one-time termination
benefits includes $0.7 million of stock compensation
charges due to accelerated vesting of restricted stock units.
Impairment
of Goodwill and Intangibles
As of December 31, 2008, Avanex continued to evaluate
goodwill due to indications of impairment including the current
economic environment, its operating results, a sustained decline
in its market capitalization, changes in management, and a
decline in its forecasted revenue for the remainder of fiscal
2009. Avanex operates in one reporting unit. The Step 2 analysis
concluded that there had been an impairment of the recorded
goodwill. This conclusion is supported by the fair value implied
by the proposed merger with Bookham, Inc. announced on
January 27, 2009. As such, Avanex wrote off the book value
of $9.4 million of goodwill and $0.2 million of
intangible assets as of December 31, 2008.
Interest
and Other Income (Expense), Net
Interest and other income (expense), net, decreased by
$1.3 million to ($0.2) million in the three months
ended December 31, 2008 from $1.1 million in the three
months ended December 31, 2007. For the six months ended
December 31, 2008, interest and other income (expense), net
decreased by $2.0 million to ($0.4) million from
$1.6 million in the same period last year. These decreases
were primarily due to higher foreign exchange losses.
Provision
for Income Taxes
Avanex recorded an income tax provision of $11,000 for the three
months ended December 31, 2008. Avanex had a tax benefit of
$0.7 million for the six months ended December 31,
2008. The six month provision consists of $0.4 million
related to state and foreign income taxes, and a benefit of
$1.1 million related to federal and foreign research tax
credits. Of the $0.4 million state and foreign income
taxes, there was a one-time discrete provision of
$0.2 million related to withholding taxes in the prior
year. Of the $1.1 million federal and foreign tax benefits,
there was a one-time discrete benefit of $0.8 million in
foreign tax credits related to research conducted in the prior
year. Avanexs tax provision for the three and six months
ended December 31, 2007 was approximately $0.2 million
and $0.5 million, respectively, consisting primarily of
foreign income taxes. Avanex maintained a full valuation
allowance on its net deferred tax assets as of December 31,
2008. The valuation allowance was determined in accordance with
the provisions of Statement
221
of Financial Accounting Standards No. 109, Accounting for
Income Taxes, or SFAS No. 109, which requires an
assessment of both positive and negative evidence when
determining whether it is more likely than not that deferred tax
assets are recoverable; such assessment is required on a
jurisdiction by jurisdiction basis. Avanex intends to maintain a
full valuation allowance on the deferred tax assets until
sufficient positive evidence exists to support reversal of the
valuation allowance.
Results
of Operations for the Fiscal Years Ended June 30, 2008 and
June 30, 2007
The following table sets forth, for the periods indicated, the
percentage of net revenue of certain items in Avanexs
Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
2008
|
|
|
% of rev
|
|
|
2007
|
|
|
% of rev
|
|
|
2006
|
|
|
% of rev
|
|
|
Net revenue
|
|
$
|
208,094
|
|
|
|
100
|
%
|
|
$
|
212,755
|
|
|
|
100
|
%
|
|
$
|
162,944
|
|
|
|
100
|
%
|
Cost of revenue
|
|
|
144,509
|
|
|
|
69
|
%
|
|
|
174,550
|
|
|
|
82
|
%
|
|
|
154,484
|
|
|
|
95
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
63,585
|
|
|
|
31
|
%
|
|
|
38,205
|
|
|
|
18
|
%
|
|
|
8,460
|
|
|
|
5
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
28,325
|
|
|
|
14
|
%
|
|
|
25,231
|
|
|
|
12
|
%
|
|
|
23,471
|
|
|
|
15
|
%
|
Sales and marketing
|
|
|
16,735
|
|
|
|
8
|
%
|
|
|
15,261
|
|
|
|
7
|
%
|
|
|
13,236
|
|
|
|
8
|
%
|
General and administrative
|
|
|
18,238
|
|
|
|
9
|
%
|
|
|
23,278
|
|
|
|
11
|
%
|
|
|
16,652
|
|
|
|
10
|
%
|
Amortization of intangibles
|
|
|
771
|
|
|
|
0
|
%
|
|
|
2,703
|
|
|
|
1
|
%
|
|
|
5,448
|
|
|
|
3
|
%
|
Restructuring
|
|
|
(164
|
)
|
|
|
0
|
%
|
|
|
1,511
|
|
|
|
1
|
%
|
|
|
1,912
|
|
|
|
1
|
%
|
Gain on disposal of property and equipment
|
|
|
(23
|
)
|
|
|
0
|
%
|
|
|
(527
|
)
|
|
|
0
|
%
|
|
|
(5,064
|
)
|
|
|
(3
|
)%
|
(Gain) loss on sale of subsidiary
|
|
|
(1,996
|
)
|
|
|
(1
|
)%
|
|
|
3,216
|
|
|
|
1
|
%
|
|
|
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
61,886
|
|
|
|
30
|
%
|
|
|
70,673
|
|
|
|
33
|
%
|
|
|
55,655
|
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
1,699
|
|
|
|
1
|
%
|
|
|
(32,468
|
)
|
|
|
(15
|
)%
|
|
|
(47,195
|
)
|
|
|
(29
|
)%
|
Interest and other income
|
|
|
4,100
|
|
|
|
2
|
%
|
|
|
2,292
|
|
|
|
1
|
%
|
|
|
2,787
|
|
|
|
1
|
%
|
Interest and other expense
|
|
|
(152
|
)
|
|
|
0
|
%
|
|
|
35
|
|
|
|
0
|
%
|
|
|
(10,284
|
)
|
|
|
(6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
5,647
|
|
|
|
3
|
%
|
|
|
(30,141
|
)
|
|
|
(14
|
)%
|
|
|
(54,692
|
)
|
|
|
(34
|
)%
|
Provision for income taxes
|
|
|
(927
|
)
|
|
|
(1
|
)%
|
|
|
(464
|
)
|
|
|
0
|
%
|
|
|
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,720
|
|
|
|
2
|
%
|
|
$
|
(30,605
|
|
|
|
(14
|
)%
|
|
$
|
(54,692
|
)
|
|
|
(34
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Revenue
Net revenue for fiscal 2008 was $208.1 million, which
represents a decrease of $4.7 million or 2% from net
revenue of $212.8 million for fiscal 2007. The decrease in
revenue was attributable to a slight decrease in demand for
Avanexs products from existing customers.
Net revenue for fiscal 2007 was $212.8 million, which
represents an increase of $49.9 million or 31% from net
revenue of $162.9 million for fiscal 2006. The increase in
revenue was attributable to an overall increase in demand for
Avanexs products from existing customers and the
introduction of new products.
During fiscal 2008, sales to Alcatel-Lucent and Tellabs
accounted for 25% and 21% of Avanexs net revenue,
respectively. During fiscal 2007, sales to Alcatel-Lucent and
Tellabs accounted for 29% and 17% of Avanexs net revenue,
respectively. During fiscal 2006, sales to Alcatel and Nortel
accounted for 27% and 11% of Avanexs net revenue,
respectively.
Net revenue from customers outside the United States accounted
for $137.2 million, $137.6 million and
$113.8 million of total net revenue, or 66%, 65% and 70%,
for the years ended June 30, 2008, 2007 and 2006,
respectively.
222
Cost of
Revenue and Gross Margin
Cost of revenue decreased to $144.5 million for fiscal 2008
from $174.6 million for fiscal 2007. The decrease was
primarily due to the decrease in excess and obsolete inventory
and manufacturing overhead. Cost of revenue increased to
$174.6 million for fiscal 2007 from $154.5 million for
fiscal 2006. The increase was primarily due to the increase in
total net revenue.
Avanex wrote off excess and obsolete inventory of
$4.7 million in fiscal 2008, $12.9 million in fiscal
2007 and $12.8 million in fiscal 2006. These write-offs
were primarily due to lower demand for certain products and
lower expected usage of previously purchased inventory. The
reduction in the write-off of excess and obsolete inventory in
fiscal 2008 was primarily due to improved accuracy in predicting
the demand for Avanexs products and the product mix
ordered by its customers. Avanex sold inventory previously
written-off with original cost totaling $2.9 million,
$1.2 million and $0.2 million for fiscal 2008, 2007
and 2006, respectively, due to unforeseen demand for such
inventory. As a result, cost of revenue associated with the sale
of this inventory was zero. The selling price of the finished
goods that included these components was similar to the selling
price of products that did not include components that were
written-off. These items were subsequently used or sold because
customers ordered products that included these components in
excess of Avanexs estimates.
Gross margin as a percentage of net revenue improved to 31% in
fiscal 2008 from 18% in fiscal 2007 due to a number of factors.
Manufacturing overhead as a percentage of net revenue decreased
as Avanex improved productivity of its centralized supply-chain
operational center in a lower-cost region. Also, direct
manufacturing costs as a percentage of net revenue decreased due
to improvements in Avanexs supply chain procurement. These
favorable factors were assisted by a higher volume of sales of
products with higher gross margin, as well as lower write-offs
of excess and obsolete inventory. Additionally, Avanex reduced
cost of goods sold by approximately $3.7 million in fiscal
2008 due to the Global Distributor and legal settlement with 3S
Photonics, accounting for approximately 2% of the increase.
Avanexs gross margin percentage improved to 18% for fiscal
2007 from 5% for fiscal 2006, primarily due to cost reductions
associated with shifting global manufacturing operations to
contract manufacturers in lower-cost regions and increased focus
on design for manufacturability to achieve lower costs. In
addition, the improvement in gross margin percentage was driven
by a shift to products with higher volume and higher gross
margin.
Avanexs gross margin is and will be primarily affected by
changes in mix of products sold, manufacturing volume, changes
in sales prices, product demand, inventory write-downs, sales of
previously written-off inventory, warranty costs, and production
yields.
Research
and Development
Research and development expenses increased $3.1 million to
$28.3 million for fiscal 2008 from $25.2 million for
fiscal 2007. As a percentage of net revenue, research and
development expenses increased to 14% for fiscal 2008 from 12%
for fiscal 2007. The increase in research and development
expenses was primarily due to increased personnel-related costs
due to increased headcount in the U.S. and China, as well
as increased prototype-parts spending.
Research and development expenses increased $1.7 million to
$25.2 million for fiscal 2007 from $23.5 million for
fiscal 2006. As a percentage of net revenue, research and
development expenses decreased to 12% for fiscal 2007 from 15%
for fiscal 2006. The increase in research and development
expenses was primarily due to increased personnel-related costs
(such as stock-based compensation expenses and increased
headcount in China, offset by closure of Avanexs R&D
office in Thailand and sale of Avanexs office in France)
and patent-related legal expenses.
Sales and
Marketing
Sales and marketing expenses increased $1.4 million to
$16.7 million for fiscal 2008 from $15.3 million for
fiscal 2007. As a percentage of net revenue, sales and marketing
expenses increased to 8% in fiscal 2008
223
from 7% in fiscal 2007. The increase in sales and marketing
expenses was primarily due to personnel-related costs (such as
commissions) and increased travel expenses.
Sales and marketing expenses increased $2.1 million to
$15.3 million for fiscal 2007 from $13.2 million for
fiscal 2006. As a percentage of net revenue, sales and marketing
expenses decreased to 7% in fiscal 2007 from 8% in fiscal 2006.
The increase in sales and marketing expenses was primarily due
to personnel-related costs (such as stock-based compensation
expense and commissions), increased travel expenses and
increased corporate marketing expenses.
General
and Administrative
General and administrative expenses decreased $5.1 million
to $18.2 million for fiscal 2008 from $23.3 million
for fiscal 2007. As a percentage of net revenue, general and
administrative expenses decreased to 9% in fiscal 2008 from 11%
in fiscal 2007. The primary reasons for the decrease were
decreased personnel-related expenses, audit and legal expenses,
and consulting due diligence expenses than in the prior year.
General and administrative expenses increased $6.6 million
to $23.3 million for fiscal 2007 from $16.7 million
for fiscal 2006. As a percentage of net revenue, general and
administrative expenses increased to 11% in fiscal 2007 from 10%
in fiscal 2006. The primary reasons for the increase were
increased audit and legal expenses, consulting due diligence
expenses related to a potential acquisition that Avanex decided
not to pursue, and increased personnel-related expenses (such as
stock-based compensation expense).
Amortization
of Intangible Assets
Amortization of intangible assets decreased by $1.9 million
to $0.8 million for fiscal 2008, from $2.7 million for
fiscal 2007. The decrease was primarily attributable to the
remaining intangible assets becoming fully amortized during
fiscal 2008, which resulted in less expense during the remainder
of fiscal 2008.
Amortization of intangible assets decreased by $2.7 million
to $2.7 million for fiscal 2007, from $5.4 million for
fiscal 2006. The decrease was primarily attributable to some of
the intangible assets becoming fully amortized during fiscal
2007, which resulted in less expense during the remainder of
fiscal 2007.
Restructuring
Over the past several years, Avanex has implemented various
restructuring programs to realign resources in response to the
changes in its industry and customer demand, and Avanex
continues to assess its current and future operating
requirements accordingly.
For fiscal 2008, Avanex had a recovery in restructuring expenses
of $0.2 million due to changes in its estimate of sublease
income from excess facilities at its Fremont site. For fiscal
2007, restructuring expenses of $1.5 million resulted from
an additional provision for severance benefits totaling
$0.3 million, combined with expenses for abandoned
facilities in the amount of $1.2 million. Avanexs
accrued restructuring liability balance at June 30, 2008
was $8.0 million and will be payable through 2011.
(Gain)
loss on Sale of Subsidiary
In April 2007, Avanex sold ninety percent (90%) of the share
capital and voting rights of its wholly owned subsidiary, Avanex
France, which operated its semiconductor fabs and associated
product lines located in Nozay, France, to 3S Photonics. In
fiscal 2007, the sale resulted in a loss to Avanex of
approximately $3.2 million primarily as a result of the
approximately $24.9 million cash paid, transaction expenses
incurred of approximately $1.0 million, and transfer of
approximately $4.3 million of assets, partially offset by
approximately $15.9 million of liabilities written-off, the
assumption of approximately $6.7 million of liabilities by
3S Photonics, the write-off of cumulative translation gain
related to Nozay of approximately $3.3 million, and a
reduction of the pension obligation of approximately
$1.1 million related to the sale.
In July 2007, Avanex entered into a Settlement Agreement with 3S
Photonics that finalized the cash payments between the two
parties under the share purchase agreement entered into in
February 2007. As part
224
of the Settlement Agreement, Avanex placed in an escrow account
the amount of 2 million to provide for payment of
certain vendor liabilities claimed by 3S Photonics. In March
2008, the parties finalized the liabilities and the remaining
escrow funds of 1,512,506 were returned to Avanex and
recognized as a gain on the subsidiary sale.
Interest
and Other Income
Interest and other income increased $1.8 million to
$4.1 million in fiscal 2008 from $2.3 million in
fiscal 2007. The primary reason for this increase was foreign
currency transaction gains.
Interest and other income decreased $0.5 million to
$2.3 million in fiscal 2007 from $2.8 million in
fiscal 2006. The primary reason for this decrease was the
release of a previously accrued property tax accrual in the
prior year, partially offset by a slight increase in interest
income.
Interest
and Other Expense
Interest and other expense decreased slightly by
$0.2 million in fiscal 2008 to $0.2 million from a
credit of $35,000 in fiscal 2007. Interest and other expense
decreased by $10.3 million in fiscal 2007 to a credit of
$35,000 from $10.3 million in fiscal 2006. The primary
reason for the decrease was the loss on extinguishment of debt
recorded in fiscal 2006, a decrease in interest expense due to
the conversion of the senior convertible notes, and a decrease
in foreign currency transaction gains.
Provision
for Income Taxes
The provisions for income taxes of $0.9 million and
$0.5 million were recorded for estimated taxes due on
income generated in certain foreign and state tax jurisdictions
for fiscal 2008 and 2007, respectively. The income tax provision
for fiscal 2008 and fiscal 2007 reflects an effective tax rate
of 16% and (2)%, respectively, which differs from the statutory
tax rate due to the tax impact of income from foreign operations
and unbenefited losses on U.S. taxes due to the full
valuation allowance on Avanexs net deferred tax assets in
accordance with FASB Statement No. 109.
As of June 30, 2008, Avanexs net deferred tax assets
are fully offset by a valuation allowance. FASB Statement
No. 109 Accounting for Income Taxes, provides
for the recognition of deferred tax assets if realization of
such assets is more likely than not to occur. Based upon the
weight of available evidence, which includes its historical
operating performance and reported cumulative net losses since
inception, Avanex provides a full valuation allowance against
its net deferred tax assets. Avanex reassesses the need for its
valuation allowance on a quarterly basis.
In June 2006, the FASB issued FASB Interpretation
(FIN) No. 48, Accounting for Uncertainty
in Income Taxes an interpretation of FASB Statement
No. 109. This interpretation clarifies the accounting
for uncertainty in income taxes recognized in an entitys
financial statements in accordance with SFAS No. 109,
Accounting for Income Taxes. It prescribes a
recognition threshold and measurement attribute for financial
statement disclosure of tax positions taken or expected to be
taken on a tax return. Avanex adopted FIN 48 on
July 1, 2007 and the adoption did not have a material
impact on Avanexs consolidated balance sheet and statement
of operations for fiscal 2008.
Liquidity
and Capital Resources
Prior to its initial public offering, Avanex financed its
operations primarily through private sales of convertible
preferred stock. In February 2000, Avanex received net proceeds
of approximately $238.0 million from the initial public
offering of its common stock and a concurrent sale of stock to
corporate investors. Subsequent to its initial public offering,
Avanex has financed its operations through the sale of equity
securities, issuance of convertible notes and warrants, bank
borrowings, equipment lease financing and acquisitions.
On March 6, 2006, Avanex sold 1.6 million shares of
common stock at a price per share of $30.00 for an aggregate
purchase price of $48.1 million. The net proceeds from such
sale of the shares of common stock
225
were $44.7 million, after deducting the placement fee and
offering expenses. The purchasers also received warrants to
purchase up to an aggregate of 0.5 million shares of common
stock at an exercise price of $40.95 per share, subject to
adjustment for anti-dilution, exercisable on and after
September 9, 2006 and on or before March 9, 2010.
In connection with Avanexs March 1, 2007 financing,
the holders of such warrants received an antidilution adjustment
pursuant to the terms of such warrants resulting in up to 7,815
additional shares to be issued upon the exercise of such
warrants and the reduction of the exercise price of the warrants
from $40.95 per share to $40.30 per share. The sale of common
stock and issuance of the warrants was made pursuant to an
effective registration statement on
Form S-3.
On March 1, 2007, Avanex sold 719,670 shares of its
common stock at a price per share of $27.79 for an aggregate
purchase price of $20 million. The purchaser also received
a warrant to purchase up to an additional 179,918 shares of
common stock. The warrant is exercisable at an exercise price of
$32.18 per share and for a term starting March 31, 2007 and
ending March 1, 2011. For more information, please see
Note 12 in the Notes to Avanexs Consolidated
Financial Statements.
As of December 31, 2008, Avanex had cash and cash
equivalents of $13.9 million and short-term investments of
$19.5 million for an aggregate of $33.4 million,
excluding restricted cash of $3.8 million.
Net cash used by operating activities of $19.0 million for
the six months ended December 31, 2008 was due primarily to
a net loss of $26.5 million, partially offset by
$17.7 million of non-cash charges (consisting primarily of
the impairment to goodwill and intangibles assets of
$9.6 million). Changes in operating assets and liabilities
during the six months ended December 31, 2008 used
$10.2 million of cash.
Net cash provided by investing activities during the six months
ended December 31, 2008 was $17.9 million, which was
primarily due to net maturities of short-term investments of
$21.2 million, partially offset by capital expenditures of
$3.3 million due to the expansion of Avanexs contract
manufacturing capabilities in Thailand.
Net cash provided by financing activities was $0.1 million
during the six months ended December 31, 2008, which was
the result of proceeds generated through the sale of common
stock through the Employee Stock Purchase Plan.
Contractual
Obligations
Avanexs contractual obligations and commercial commitments
have not materially changed from June 30, 2008.
Avanexs contractual obligations at June 30, 2008 were
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations Due by Period
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
After
|
|
|
|
|
|
|
1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
5 years
|
|
|
Total
|
|
|
Capital lease obligations
|
|
$
|
15
|
|
|
$
|
18
|
|
|
$
|
3
|
|
|
$
|
|
|
|
$
|
36
|
|
Operating leases, net of subleases
|
|
|
4,767
|
|
|
|
6,969
|
|
|
|
183
|
|
|
|
|
|
|
|
11,919
|
|
Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
306
|
|
|
|
306
|
|
Severance*
|
|
|
1,031
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
1,113
|
|
Unconditional purchase obligations
|
|
|
24,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,325
|
|
|
$
|
7,069
|
|
|
$
|
186
|
|
|
$
|
306
|
|
|
$
|
37,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Includes executive terminations subsequent to year-end of
approximately $1.0 million. |
Avanex has unconditional purchase obligations to certain of its
suppliers and contract manufacturers that support its ability to
manufacture its products. As of June 30, 2008, Avanex had
approximately $24.5 million of unconditional purchase
obligations, none of which is included on its balance sheet in
accounts payable.
Under operating leases and capital leases described in the table
above, Avanex has included total future minimum rent expense
under non-cancelable leases for both current and abandoned
facilities and equipment
226
leases. Avanex has included in the balance sheet
$2.9 million and $5.0 million in current and long-term
restructuring accruals, respectively, for the abandoned
facilities as of June 30, 2008.
During the six months ended December 31, 2008, Avanex
incurred a net loss of $26.5 million, and its balance of
unrestricted cash, cash equivalents and short-term investments
declined from $55.4 million at June 30, 2008 to
$33.4 million at December 31, 2008. Avanex expects
these balances of cash, cash equivalents, and investments to
continue to decline in future periods. These factors cast
substantial uncertainty on Avanexs ability to continue as
an ongoing enterprise for a reasonable period of time.
Avanexs ability to continue as an ongoing enterprise is
dependent on its improving operational cash flow and securing
additional funding or consummating the proposed merger with
Bookham, Inc. announced on January 27, 2009. Avanexs
management is pursuing opportunities to streamline development
efforts, reduce inventory levels and simplify its operating
structure, while maintaining customer satisfaction. The
financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts
or the amounts and classification of liabilities that might be
necessary should Avanex be unable to continue as an ongoing
enterprise.
As of December 31, 2008, Avanex does not have any
off-balance sheet arrangements.
Quantitative
and Qualitative Disclosure About Market Risk
Interest
Rate Risk
Our exposure to market risk for changes in interest rates
relates primarily to our investment portfolio. The objectives of
our investment activities are preservation and safety of
principal; maintenance of adequate liquidity to meet cash flow
requirements; attainment of a competitive market rate of return
on investments; minimization of risk on all investments; and
avoidance of inappropriate concentrations of investments.
We place our investments with high quality credit issuers in
short-term securities, and maturities can range from overnight
to 36 months. The average maturity of the portfolio does
not exceed 18 months. The portfolio includes only
marketable securities with active secondary or resale markets to
ensure portfolio liquidity. We do not have any derivative
financial instruments. We believe our interest rate risk is
immaterial.
The following table summarizes average interest rate and fair
market value of the short-term securities and restricted cash
and investments held by Avanex (in thousands), which were
classified as available-for-sale at December 31, 2008 and
June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
June 30,
|
|
|
2008
|
|
2008
|
|
Amortized cost
|
|
$
|
27,706
|
|
|
$
|
48,969
|
|
Fair market value
|
|
$
|
27,957
|
|
|
$
|
49,099
|
|
Average interest rate
|
|
|
2.52
|
%
|
|
|
4.09
|
%
|
Exchange
Rate Risk
Our international business is subject to normal international
business risks including, but not limited to, differing economic
conditions, changes in political climate, differing tax
structures, other regulations and restrictions, and foreign
exchange rate volatility. Accordingly, our future results could
be materially adversely affected by changes in these or other
factors.
We have operations in the United States, China, Thailand,
France, and Italy. Accordingly, we have sales and expenses that
are denominated in currencies other than the U.S. dollar.
As a result, currency fluctuations between the U.S. dollar
and the currencies in which we do business could cause foreign
currency translation gains or losses that we would recognize in
the period incurred. A 10% fluctuation in the dollar at
December 31, 2008 would have led to an additional profit of
approximately $2.8 million (dollar weakening), or an
additional loss of approximately $2.8 million (dollar
strengthening) on our net cash position in outstanding assets
and liabilities. We cannot predict the effect of exchange rate
fluctuations on our future operating results because of the
variability of currency exposure and the potential volatility of
currency exchange rates. It has not been our
227
practice to engage in the hedging of foreign currency
transactions to mitigate for foreign currency risk, and
currently, we do not hedge our exposure to translation gains and
losses related to foreign currency net asset exposures.
Recent
Accounting Pronouncements
In September 2006, the FASB issued Statement No. 157,
Fair Value Measurements (Statement 157).
Statement 157 defines fair value, establishes a framework for
measuring fair value and expands fair value measurement
disclosures. Statement 157 is effective for Avanexs fiscal
year beginning July 1, 2008. The adoption of Statement 157
did not have a material impact on Avanexs consolidated
balance sheet and statement of operations.
In February 2007, the FASB issued Statement No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities, including an amendment of FASB Statement
No. 115 (Statement 159), which allows an
entity the irrevocable option to elect fair value for the
initial and subsequent measurement for certain financial assets
and liabilities under an
instrument-by-instrument
election. Subsequent measurements for the financial assets and
liabilities an entity elects to fair value will be recognized in
earnings. Statement 159 also establishes additional disclosure
requirements. Statement 159 is effective for Avanexs
fiscal year beginning July 1, 2008. The adoption of
Statement 159 did not have a material impact on Avanexs
consolidated balance sheet and statement of operations.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(SFAS 141R). SFAS 141R establishes the
principles and requirements for how an acquirer
(i) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree; (ii) recognizes
and measures the goodwill acquired in the business combination
or a gain from a bargain purchase; and (iii) determines
what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the
business combination. SFAS 141R makes significant changes
to existing accounting practices for acquisitions, including the
requirement to expense transaction costs and to reflect the fair
value of contingent purchase price adjustments at the date of
acquisition. SFAS 141R is to be applied prospectively to
business combinations consummated on or after the beginning of
the first annual reporting period on or after December 15,
2008. Avanex will implement the new standard effective in fiscal
2010.
In April 2008, the FASB issued Staff Position
No. FAS 142-3,
Determination of the Useful Life of Intangible Assets (FSP
FAS 142-3).
FSP
FAS 142-3
amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under
SFAS No. 142, Goodwill and Other Intangible Assets
(SFAS 142). The intent of FSP
FAS 142-3
is to improve the consistency between the useful life of a
recognized intangible asset under SFAS 142 and the period
of expected cash flows used to measure the fair value of the
asset under SFAS 141R and other applicable accounting
literature. FSP
FAS 142-3
is effective for fiscal years beginning after December 15,
2008. As of December 31, 2008, Avanex has written off the
remaining book value of $9.6 million of goodwill and
intangible assets in the three months ended December 31,
2008.
DESCRIPTION
OF BOOKHAM CAPITAL STOCK
The following is only a summary of the material terms of
Bookhams capital stock. Because it is only a summary, it
does not contain all the information that may be important to
you. Accordingly, you should read carefully the more detailed
provisions of Bookhams restated certificate of
incorporation and bylaws, each of which has been filed with the
SEC, as well as applicable Delaware law.
Authorized
Capital Stock
Our authorized capital stock currently consists of
175,000,000 shares of common stock, $0.01 par value
per share, and 5,000,000 shares of preferred stock,
$0.01 par value per share. As of December 27, 2008,
there
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were 100,867,920 shares of Bookham common stock outstanding
held of record by 10,518 stockholders and no shares of preferred
stock outstanding.
Common
Stock
Under our restated certificate of incorporation, holders of our
common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have
cumulative voting rights. Accordingly, holders of a majority of
the shares of common stock entitled to vote in any election of
directors may elect all of the directors standing for election.
Holders of common stock are entitled to receive proportionately
any dividends as may be declared by our board of directors,
subject to any preferential dividend or other rights of
outstanding preferred stock. Upon our dissolution or
liquidation, the holders of common stock are entitled to receive
proportionately our net assets available after the payment of
all debts and other liabilities and subject to the preferential
or other rights of any outstanding preferred stock. Holders of
our common stock have no preemptive, subscription, redemption or
conversion rights. Our outstanding shares of common stock are
fully paid and nonassessable. The rights, preferences and
privileges of holders of common stock are subject to, and may be
adversely affected by, the rights of the holders of shares of
any series of preferred stock which we may designate and issue
in the future.
Our common stock is quoted on the NASDAQ Global Market under the
symbol BKHM. Pursuant to the merger agreement,
Bookham and Avanex will take all actions necessary to ensure
that the name of the combined company following the merger will
be the name mutually agreed to by Bookham and Avanex. The name
change has not yet been determined between the parties; however,
when (and if) a name change is effected, a change in
Bookhams trading symbol may be effected as well.
The transfer agent and registrar of our common stock is The Bank
of New York.
Preferred
Stock
Under our restated certificate of incorporation, our board of
directors is authorized to issue shares of preferred stock in
one or more series without stockholder approval. Our board of
directors has the discretion to determine the designations,
rights, preferences, privileges, qualifications, limitations and
restrictions, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation
preferences, of each series of preferred stock.
Equity
Compensation Awards
As of December 27, 2008, there were 8,659,038 shares
of our common stock issuable upon the exercise of outstanding
stock options, having a weighted-average exercise price of $4.36
per share, and 550,529 shares of our common stock issuable
upon the vesting of outstanding restricted stock awards and
units. As of December 27, 2008, an aggregate of
7,925,115 shares of our common stock were reserved for
future issuance under our equity compensation plans.
Warrants
As of December 27, 2008, warrants to purchase a total of
10,081,819 shares of our common stock at a weighted average
exercise price of $4.24 per share were outstanding.
Effects
of Authorized but Unissued Stock
We have shares of common stock and preferred stock available for
future issuance without stockholder approval, subject to any
limitations imposed by the listing standards of the NASDAQ
Global Market. We may utilize these additional shares for a
variety of corporate purposes, including for future public
offerings to raise additional capital or facilitate corporate
acquisitions or for payment as a dividend on our capital stock.
The existence of unissued and unreserved common stock and
preferred stock may enable our board of directors to issue
shares to persons friendly to current management or to issue
preferred stock with terms that could render more difficult or
discourage a third-party attempt to obtain control of us by
means of a merger, tender offer,
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proxy contest or otherwise, thereby protecting the continuity of
our management. In addition, if we issue preferred stock, the
issuance could adversely affect the voting power of holders of
common stock and the likelihood that such holders will receive
dividend payments and payments upon liquidation.
Registration
Rights
Pursuant to certain registration rights agreements, we have
agreed to and filed registration statements covering an
aggregate of 46,624,102 shares of Bookham common stock and
shares of Bookham common stock underlying warrants to purchase
Bookham common stock held by the holders of registration rights
under these agreements, in each case, at the time of filing
these registration statements. Pursuant to these registration
rights agreements, we may in the future be required to file
additional registration statements covering shares of Bookham
common stock then held by holders of registration rights under
these agreements upon the occurrence of certain events.
Delaware
Law and Charter and Bylaw Provisions
Anti-Takeover
Provisions
We are subject to the provisions of Section 203 of the
General Corporation Law of the State of Delaware. Subject to
certain exceptions, Section 203 prohibits a publicly held
Delaware corporation from engaging in a business
combination with an interested stockholder for
a period of three years after the person became an interested
stockholder, unless the business combination is approved in a
prescribed manner. A business combination includes
mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to
exceptions, an interested stockholder is a person
who, together with affiliates and associates, owns, or within
the prior three years did own, 15% or more of the
corporations voting stock.
Staggered
Board of Directors
Our restated certificate of incorporation divides our board of
directors into three classes serving staggered three-year terms.
In addition, our restated certificate of incorporation provides
that our directors may be removed only for cause by the
affirmative vote of at least 75% of our shares of capital stock
issued and outstanding entitled to vote. Any vacancy on our
board of directors may only be filled by vote of a majority of
our directors then in office, or by a sole remaining director.
The classification of our board of directors and the limitations
on the removal of directors and filling of vacancies could make
it more difficult for a third party to acquire or discourage a
third party from acquiring, control of our company.
Stockholder
Action; Special Meeting of Stockholders and Advance Notice
Requirements for Stockholder Proposals
Our restated certificate of incorporation provides that any
action required or permitted to be taken by our stockholders at
an annual meeting or special meeting of stockholders may only be
taken if it is properly brought before the meeting and may not
be taken by written consent in lieu of a meeting. Our restated
certificate of incorporation further provides that special
meetings of the stockholders may only be called by our board of
directors, chairman of the board or chief executive officer.
Under our bylaws, in order for any matter to be considered
properly brought before a meeting, a stockholder
must comply with advance notice requirements. These provisions
could have the effect of delaying, until the next
stockholders meeting, stockholder actions which are
favored by the holders of a majority of our outstanding voting
securities. These provisions may also discourage a third party
from making a tender offer for our common stock, because even if
it acquired a majority of our outstanding voting securities, the
third party would be able to take action as a stockholder (such
as electing new directors or approving a merger) only at a duly
called stockholders meeting, and not by written consent.
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Super-Majority
Voting
The General Corporation Law of the State of Delaware provides
generally that the affirmative vote of a majority of the shares
entitled to vote on any matter is required to amend a
corporations certificate of incorporation or by-laws,
unless a corporations certificate of incorporation or
bylaws, as the case may be, requires a greater percentage. Our
restated certificate of incorporation and bylaws require the
affirmative vote of the holders of at least 75% of the shares of
our capital stock issued and outstanding and entitled to vote to
amend or repeal any of the provisions described in the prior two
paragraphs.
Limitation
of Liability and Indemnification of Officers and
Directors
Our restated certificate of incorporation contains provisions
permitted under the General Corporation Law of the State of
Delaware relating to the liability of directors and officers.
The provisions eliminate a directors liability for
monetary damages for a breach of fiduciary duty as a director,
except in some circumstances involving wrongful acts, such as
the breach of a directors duty of loyalty or acts or
omissions that involve intentional misconduct or a knowing
violation of law. Further, our restated certificate of
incorporation contains provisions to indemnify our directors and
officers to the fullest extent permitted by the General
Corporation Law of the State of Delaware. We believe that these
provisions will assist us in attracting and retaining qualified
individuals to serve as directors and officers.
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COMPARATIVE
RIGHTS OF BOOKHAM STOCKHOLDERS AND AVANEX STOCKHOLDERS
Both Bookham and Avanex are incorporated under the laws of the
State of Delaware and, accordingly, the rights of the
stockholders of each are currently, and will continue to be,
governed by the Delaware General Corporation Law, or the DGCL.
Before the consummation of the merger, the rights of holders of
Avanex common stock are also governed by the amended and
restated certificate of incorporation of Avanex, the bylaws of
Avanex, as amended, and the Rights Agreement between Avanex and
Computershare Trust Company, N.A., as amended. After the
consummation of the merger, Avanex stockholders will become
stockholders of Bookham, and their rights will be governed by
the DGCL, the restated certificate of incorporation of Bookham,
and the amended and restated bylaws of Bookham, as amended.
The following is a summary of the material differences between
the rights of Avanex stockholders and the rights of Bookham
stockholders. While we believe that this summary covers the
material differences between the two, this summary may not
contain all of the information that is important to you. This
summary is not intended to be a complete discussion of the
respective rights of Avanex and Bookham stockholders and is
qualified in its entirety by reference to the DGCL and the
various documents of Bookham and Avanex that we refer to in this
summary. You should carefully read this entire joint proxy
statement/prospectus and the other documents we refer to in this
joint proxy statement/prospectus for a more complete
understanding of the differences between being a stockholder of
Bookham and being a stockholder of Avanex. Bookham and Avanex
have filed their respective documents referred to herein with
the SEC and will send copies of these documents to you upon your
request. See Where You Can Find More Information.
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Avanex
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Bookham
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Authorized Capital Stock
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Avanexs certificate of incorporation, as amended,
authorizes the issuance of 32,000,000 shares, consisting of
two classes: 30,000,00 shares of common stock,
$0.001 par value per share, and 2,000,000 shares of
preferred stock, $0.001 par value per share.
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Bookhams restated certificate of incorporation authorizes
the issuance of 180,000,000 shares, consisting of two
classes: 175,000,000 shares of common stock, $0.01 par
value per share, and 5,000,000 shares of preferred stock,
$0.01 par value per share.
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Number of Directors
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Avanexs bylaws, as amended, provide that the number of
directors shall be seven.
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Bookhams restated certificate of incorporation provides
that the number of directors shall be established by the board
of directors.
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Cumulative Voting
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Avanexs certificate of incorporation, as amended, does not
provide for cumulative voting in connection with the election of
directors.
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Bookhams restated certificate of incorporation does not
provide for cumulative voting, and as a result, holders of
Bookham common stock have no cumulative voting rights in
connection with the election of directors.
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Classification of Board of Directors
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Avanex has a classified board. Avanexs certificate of
incorporation, as amended, provides that the board is divided
into three classes, with board members serving three-year terms,
and that directors shall be assigned to each class in accordance
with a resolution adopted by Avanexs board of directors.
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Bookham has a classified board. Bookhams restated
certificate of incorporation provides that the board is divided
into three classes, with board members serving three-year terms.
Bookhams bylaws provide that the allocation of directors
among classes shall be determined by resolution of the board.
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Removal of Directors
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Avanexs certificate of incorporation, as amended,
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Bookhams restated certificate of incorporation provides
that
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Avanex
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Bookham
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provides that any director, or the entire board of directors,
may be removed from office at any time (i) with cause by the
affirmative vote of the holders of at least a majority of the
voting power of all of the then-outstanding shares of the voting
stock of Avanex entitled to vote in the election of directors,
voting together as a single class; or (ii) without cause by the
affirmative vote of the holders of at least
662/3%
of the voting power of all of the then- outstanding shares of
the voting stock of Avanex entitled to vote in the election of
directors.
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directors may be removed from office only for cause and only by
the affirmative vote of the holders of at least 75% of the votes
which all the stockholders would be entitled to cast at an
election of directors.
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Vacancies on the Board of Directors
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Avanexs bylaws, as amended, provide that any vacancy
occurring in the board of directors as a result of any removal
or resignation of a director, and any newly created directorship
resulting from any increase in the authorized number of
directors, may be filled by a majority of the directors then in
office, although less than a quorum, by a sole remaining
director, or by a plurality of votes cast at a meeting of the
stockholders.
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Bookhams restated certificate of incorporation provides
that any vacancy or newly created directorship shall be filled
only by the affirmative vote of a majority of the directors then
in office, even though less than a quorum of the board, or a
sole remaining director. A director elected to fill a vacancy
shall hold office until the next election of the class for which
for which such director shall have been elected.
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Stockholder Action by Written Consent
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Avanexs certificate of incorporation, as amended,
specifies that no action shall be taken by the stockholders
except at an annual or special meeting of the stockholders and
Avanexs bylaws specify that no action shall be taken by
the stockholders by written consent.
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Bookhams restated certificate of incorporation specifies
that no action shall be taken by the stockholders by written
consent.
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Amendment to Certificate of Incorporation
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Avanexs certificate of incorporation, as amended, may be
amended in any manner otherwise permitted by law, with the
exception that in order to in order to alter, amend or repeal
Article VII (relating to the composition of the board,
alterations and amendments to Avanexs bylaws, stockholder
meetings and removal of directors) or Article IX (relating to
amendments and alterations to Avanexs certificate of
incorporation) the affirmative vote of the holders of at least
662/3%
of
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Bookhams restated certificate of incorporation may be
amended in any manner otherwise permitted by law, with the
exception that amendment to Article NINTH (relating to the
composition of the board, stockholder nominations for the
election of directors and proposals for other business),
Article TENTH (relating to stockholder action by written
consent), and Article ELEVENTH (relating to special
meetings of the stockholders) require the affirmative vote of
the holders of
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Avanex
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Bookham
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the voting power of all of the then- outstanding shares of the
voting stock, voting together as a single class, is required.
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75% of the votes which all the stockholders would be entitled
to cast in any annual election of directors. In addition, any
amendment or repeal of Article SEVENTH (relating to
personal liability of directors for monetary damages) shall not
apply to or have any effect on the liability of any director for
or with respect to acts or omissions of such director occurring
prior to such amendment or repeal.
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Amendment to Bylaws
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The Avanex certificate of incorporation, as amended, provides
that the board of directors may make, alter, amend or repeal the
bylaws and has exclusive right to amend the authorized number of
directors. The Avanex bylaws, as amended, provide that the
Avanex bylaws, may be adopted, amended or repealed by the
stockholders entitled to vote.
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Bookhams bylaws may be amended by the affirmative vote of
the holders of at least 75% of the votes which all the
stockholders would be entitled to cast in any annual election of
directors. Bookhams restated certificate of incorporation
and bylaws also permit the board to adopt, amend or repeal the
bylaws.
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Special meetings of Stockholders
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Avanexs bylaws, as amended, provide that special meetings
of the stockholders may be called, at any time by the (i) board
of directors (ii) the chairman of the board, (iii) the president
or (iv) the chief executive officer.
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Bookhams bylaws provide that special meetings of the
stockholders may be called, for any purpose, by(i) the
board of directors, (ii) the chairman of the board, or
(iii) the chief executive officer or president.
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Notice of Stockholder Meetings
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Avanexs bylaws, as amended, require that notice of a
meeting shall be given to stockholders not less than
10 days or more than 60 days before the date of the
meeting.
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Bookhams bylaws require that notice of a meeting shall be
given to stockholders not less than 10 days or more than
60 days before the date of the meeting.
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Bookhams bylaws provide that in order for a stockholder to
make a nomination or propose business at an annual meeting of
the stockholders, the stockholder must give timely written
notice to Bookhams secretary not less than 90 days
nor more than 120 days prior to the first anniversary of
the preceding years annual meeting; provided however, that
if the date of the annual meeting has been advanced by more than
20 days or delayed by more than 60 days from the first
anniversary of the previous years annual meeting, notice
by the stockholder to be
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Avanex
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Bookham
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timely must be received not earlier than the
120th
day prior to such annual meeting and not later than
the close of business on the later of(a) the
90th
day prior to such annual meeting and(b) the
10th
day following the day on which notice of the date of
the meeting was mailed or public disclosure thereof was made,
whichever occurs first.
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In the case of an election of directors at a special meeting of
the stockholders, a stockholders notice must be received
not earlier than the
120th
day prior to such special meeting and not later than
the close of business on the later of(a) the
90th
day prior to such special meeting and(b) the
10th
day following the day on which notice of the date of
such special meeting was mailed or public disclosure of thereof
was made, whichever occurs first.
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Delivery and Notice Requirements of Stockholder Nominations
and Proposals
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Avanexs bylaws, as amended, provide that in order for a
stockholder to make a nomination or propose business at an
annual meeting of the stockholders, the stockholder must give
timely written notice to Avanexs secretary not less than
120 calendar days before the one year anniversary of the date on
which the corporation first mailed its proxy statement to
stockholders in connection with the previous years annual
meeting of the stockholders. The Avanex stockholders
written notice must set forth: (i) (A) a brief description of
the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting,
(B) the name and address, as they appear on the
corporations books, of the stockholder proposing such
business, (C) the class and number of shares of the corporation
that are beneficially owned by the stockholder, (D) any material
interest of the stockholder in such
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The stockholders notice to the secretary shall set forth
as to the stockholder giving notice and as to the beneficial
owner, if any, on whose behalf the nomination or proposal is
being made:(i) such stockholders name and address, as
they appear on the corporations books; (ii) the class
and number of shares of stock of the corporation which are
owned, beneficially and of record, by such stockholder;
(iii) a description of all arrangements or understandings
between(a) such stockholder and each proposed nominee and
any other person(s) (including their names) pursuant to which
the nomination(s) are to be made by such stockholder,
and(b) such stockholder and any other person(s) (including
their names) in connection with the proposal of such business by
such stockholder and any material interest of the stockholder in
such business; (iv) a representation that such stockholder
intends to appear in person or by proxy at the meeting to either
nominate the person(s)
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Avanex
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Bookham
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business, and (E) any other information that is required to be
provided by the stockholder pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, in his capacity as
a proponent to a stockholder proposal and (ii) as to each
person, if any, whom the stockholder proposes to nominate for
election or re-election as a director: (A) the name, age,
business address and residence address of such person, (B) the
principal occupation or employment of such person, (C) the class
and number of shares of the corporation that are beneficially
owned by such person, (D) a description of all arrangements or
understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant
to which the nominations are to be made by the stockholder, and
(E) any other information relating to such person that is
required to be disclosed in solicitations of proxies for
elections of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended.
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named in its notice or bring such business before the meeting;
and(v) a representation whether the stockholder intends or
is part of a group which intends(a) to deliver a proxy
statement and/or form of proxy to holders of at least the
percentage of the corporations outstanding capital stock
required to elect the nominee or adopt the proposal,
and/or(b) otherwise solicit proxies from stockholders in
support of such nomination or proposal. In the case of director
nominations, the Bookham stockholders written notice must
also set forth as to each proposed nominee:(i) such
persons name, age, business address and, if known,
residence address, (ii) such persons principal
occupation or employment, (iii) the class and number of
shares of stock of the corporation which are beneficially owned
by such person, and (iv) any other information concerning
such person that must be disclosed as to nominees in proxy
solicitations pursuant to Regulation 14A under the
Securities Exchange Act of 1934. In addition, the
stockholders notice must be accompanied by the written
consent of the proposed nominee to serve as a director if
elected. In the case of a stockholder proposal, the Bookham
stockholders written notice must also set forth:(i) a
brief description of the business desired to be brought before
the annual meeting, (ii) the text relating to the business
(including the text of any resolutions proposed for
consideration and in the event that such business includes a
proposal to amend the bylaws, the language of the proposed
amendment) and (iii) reasons for conducting such business
at the annual meeting. In addition, the proposed business must
constitute a proper matter under Delaware law for stockholder
action.
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Avanex
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Bookham
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Proxy
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Avanexs bylaws, as amended, provide that each person
entitled to vote at a meeting of the stockholders may authorize
another person or persons to act for such stockholder by written
proxy signed by the stockholder and filed with the secretary of
Avanex. No proxy shall be voted after three years from its date
of creation unless the proxy expressly provides for a longer
period.
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Bookhams bylaws provide that every stockholder entitled to
vote at a meeting of stockholders may do so in person or may
authorize another person(s) to act for such stockholder by
delivering a proxy to the corporations secretary, executed
in a manner permitted by Delaware law. No proxy shall be voted
after three years from its date of its execution unless the
proxy expressly provides for a longer period.
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Preemptive Rights
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Avanexs certificate of incorporation, as amended, does not
grant any preemptive rights. Avanexs bylaws are silent as
to preemptive rights.
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Bookhams restated certificate of incorporation does not
grant any preemptive rights. Bookhams bylaws are silent as
to preemptive rights.
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Dividends
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Avanexs bylaws, as amended, provide that the board of
directors, subject to any restrictions contained in the
certificate of incorporation, may declare and pay dividends upon
the shares of its capital stock pursuant to the General
Corporation Law of Delaware. Dividends may be paid in cash, in
property, or in shares capital stock. The directors may set
apart out of any of the funds of the Corporation available for
dividends a reserve or reserves for any proper purpose and may
abolish any such reserve. Such purpose shall include but not be
limited to equalizing dividends, repairing or maintaining any
property of Avanex, and meeting contingencies.
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Bookhams restated certificate of incorporation provides
that the board may declare and pay dividends on the
corporations common stock from funds lawfully available
therefor, subject to any preferential dividend or other rights
of any then outstanding preferred stock.
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Limitation of Personal Liability of Directors
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Avanexs certificate of incorporation, as amended, provides
that: to the fullest extent permitted by the Delaware General
Corporation Law, a director of the corporation shall not be
personally liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director.
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Bookhams restated certificate of incorporation provides
that no director shall be personally liable to the corporation
or its stockholders for monetary damages for any breach of
fiduciary duty as a director, notwithstanding any provision of
law imposing such liability, except to the extent that Delaware
law prohibits the elimination or limitation of liability of
directors for breach of fiduciary duty.
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Indemnification of Officers and Directors
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Avanexs bylaws, as amended, provide that the corporation
shall indemnify any person who was or
|
|
Bookhams restated certificate of incorporation provides
that the corporation shall indemnify each
|
237
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Avanex
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Bookham
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|
is a party or is threatened to be made a party to any
threatened, pending, or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason
of the fact that the person is or was a director, officer,
employee or agent of Avanex, or is or was serving at the request
of Avanex as a director, officer, employee or agent of another
corporation, partnership, joint venture trust or other
enterprise, against expenses (including attorneys fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in or not
opposed to the best interest of the corporation, and, with
respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was unlawful. Expenses
incurred in defending a civil or criminal action, suit or
proceeding shall be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount if it shall
ultimately be determined that he or she is not entitled to be
indemnified by the corporation
|
|
person who was or is a party or threatened to be made a party
to any threatened, pending, or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was,
or has agreed to become, a director or officer of the
corporation, or is or was serving, or has agreed to serve, at
the request of the corporation, as a director, officer, partner,
employee or trustee of, or in a similar capacity with, another
business entity, or by reason of any action alleged to have been
taken or omitted in such capacity, against all expenses
(including attorneys fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by or on
behalf of such person in connection with that proceeding,
provided such person acted in good faith and in a manner which
such person reasonably believed to be in, or not opposed to, the
best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to
believe the persons conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that such
person did not act in such manner or in good faith.
In any action or suit by or in the right of the corporation,
the corporation shall indemnify such person against all expenses
(including attorneys fees) and, to the extent permitted by
law, amounts paid in settlement actually and reasonably incurred
by or on behalf of such person in connection with such
proceeding, if such person acted in the manner described above,
except that no indemnification shall be made in respect of any
claim, issue or
|
238
|
|
|
|
|
|
|
Avanex
|
|
Bookham
|
|
|
|
|
|
matter as to which such person shall have been adjudged to be
liable to the corporation, unless, and only to the extent that,
the Court of Chancery of Delaware shall determine upon
application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery of Delaware shall deem proper.
Bookham will be entitled to participate in and/or assume the
defense of a person who has notified the corporation of an
action, suit, proceeding or investigation for which indemnity
will or could be sought. If Bookham does not assume the defense,
it shall pay any expenses (including attorneys fees)
incurred by on behalf of such person in defending an action,
suit, proceeding or investigation or any appeal therefrom in
advance of the final disposition of such matter; provided
however that such advance payment of expenses shall be made only
upon receipt of an undertaking by or on behalf of such person to
repay all amounts so advanced in the event that it shall
ultimately be determined that such person is not entitled to be
indemnified.
|
Stockholder Rights Plan
|
|
In January 2001, Avanex adopted a Rights Agreement with
EquiServe Trust Company, N.A. (now known as Computershare Trust
Company, N.A.) as rights agent, and has subsequently entered
into five amendments to the rights agreement (on March 18, 2002,
May 12, 2003, May 16, 2005, March 6, 2006 and January 27,
2009).
|
|
Bookham does not have any stockholder rights plan or
poison pill in effect, including without limitation
any agreement with a third party trust or fiduciary entity with
respect thereto.
|
|
|
The following description of the rights agreement, as amended,
is qualified in its entirety by reference to the full text of
the rights agreement, as amended. You
|
|
|
239
|
|
|
|
|
|
|
Avanex
|
|
Bookham
|
|
|
|
should read the rights agreement, as amended, carefully. For
information on how to get a copy of the rights agreement, as
amended, see Where You Can Find More Information
below.
|
|
|
|
|
The Avanex rights agreement was amended in connection with the
execution of the merger agreement to exclude Bookham, Inc.,
Ultraviolet Acquisition Sub, Inc. or any their affiliates from
the definition of Acquiring Person. Accordingly,
none of the provisions of the rights agreement will be triggered
by the proposed merger with Bookham described in this joint
proxy statement/prospectus. Exercisability of Rights. The rights
will become exercisable on the earlier of: (i) the close of
business on the tenth day following a public announcement by
Avanex or any person or group that any person or group has
acquired, subject to certain exceptions, without the approval of
the board, beneficial ownership of 15% or more of Avanexs
outstanding common stock (or such earlier date that the board
becomes aware that any such person or group has acquired,
without the approval of the board, beneficial ownership of 15%
or more of Avanexs outstanding common stock or (ii) the
close of business on the tenth day after the date that a tender
or exchange offer is first published or sent or given, the
consummation of which will result in any person or group
acquiring, subject to certain exceptions, beneficial ownership
of 15% or more of Avanexs outstanding common stock.
|
|
|
|
|
Flip- In Feature. In the event any person or group,
subject to certain exceptions, becomes the beneficial owner of
more than 15% of the outstanding common stock of Avanex, then
each holder of a right (other than such person or group
acquiring such beneficial ownership) will have the right to
|
|
|
240
|
|
|
|
|
|
|
Avanex
|
|
Bookham
|
|
|
|
receive upon exercise and payment of the exercise price that
number of shares of Avanex common stock having a market value of
two times the exercise price of the right. If Avanex does not
have enough authorized but unissued shares of common stock to
satisfy this obligation, then Avanex will deliver an amount in
cash equivalent in value to the common stock issuable upon
exercise of a right.
Flip- Over Feature. In the event that at any time
after the distribution date Avanex is acquired in a merger or
another business combination, then each holder of a right shall
have the right to purchase the number of shares of validly
issued, fully paid and nonassessable and freely tradable common
stock of the acquiring company equal to the result obtained by
dividing the exercise price of the right by 50% of the current
market price of such common stock of the acquiring company.
|
|
|
|
|
Exchange Feature. At any time after a person or
group, subject to certain exceptions, has become the beneficial
owner of more than 15% of the outstanding common stock of Avanex
but before that person has acquired a majority of the
outstanding common stock, the board may exchange all or some of
the rights at an exchange ratio of one common share per right.
|
|
|
|
|
Redemption of Rights. The corporation may, with the approval of
the board of directors, at any time prior to the close of
business on the earlier of (i) the fifth day following the first
public announcement that a person or group, subject to certain
exceptions, has acquired beneficial ownership of more than 15%
of Avanexs outstanding common stock or September 1, 2011,
redeem all, but not less than all, of the then outstanding
rights at a
|
|
|
241
|
|
|
|
|
|
|
Avanex
|
|
Bookham
|
|
|
|
redemption price of $0.001 per right. Amendment to Rights.
|
|
|
|
|
At any time prior to the close of business on the tenth day
following a public announcement that any person or group has
acquired, subject to certain exceptions, without the approval of
the board, beneficial ownership of 15% or more of Avanexs
outstanding common stock or the close of business on the tenth
day after the date of a tender or exchange offer is first
published, the terms of the rights may be amended by a
resolution of the board without the consent of the holders of
the rights to: (i) cure any ambiguity; (ii) correct or
supplement any provision which may be defective or inconsistent;
(iii) shorten or lengthen any time period, subject to certain
exceptions contained in the rights agreement; or (iv) change or
supplement the provisions of the rights agreement in any manner
that the corporation deems desirable and that does not adversely
affect the interests of the holders of rights.
|
|
|
|
|
Final Expiration Date. The rights will expire at the close of
business on September 1, 2011 unless the expiration date is
extended or the rights are earlier redeemed or exchanged by
Avanex. Anti-takeover Effects. The Avanex rights agreement is
designed to cause significant dilution to a person or group that
attempts to acquire or merge with Avanex in a manner or on terms
that are not approved by Avanexs board.
|
|
|
Dissenters Rights
|
|
Appraisal rights are not available to Avanex stockholders with
respect to the merger.
|
|
Appraisal rights are not available to Bookham stockholders with
respect to the merger.
|
Certain Business Combination Restrictions
|
|
Section 203 of the Delaware General Corporation Law generally
protects publicly traded Delaware corporations from hostile
takeovers and from certain actions following such takeovers. The
restrictions set forth in Section 203 of the Delaware
|
|
Under Delaware law a corporation can elect not to be governed by
Section 203 of the Delaware General Corporation Law, which
generally protects publicly traded Delaware corporations from
hostile takeovers and from certain actions following such
takeovers.
|
242
|
|
|
|
|
|
|
Avanex
|
|
Bookham
|
|
|
|
General Corporation Law, with respect to the merger with merger
sub, do not apply because Avanexs board has expressly
approved the merger agreement, the Avanex voting agreements, and
the Bookham, Inc. voting agreements.
|
|
Bookham has made this election and therefore is not governed by
Section 203 of the Delaware General Corporation Law.
|
Vote on Business Combinations
|
|
Neither the Avanex certificate of incorporation nor its bylaws
contain any provisions relating to business combinations.
|
|
Neither the Bookham restated certificate of incorporation nor
its bylaws contain any provisions relating to business
combinations.
|
243
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Beneficial
Ownership of Bookham Shares
The following table and the notes thereto present information
with respect to the beneficial ownership of shares of Bookham
common stock, as of March 18, 2009 (except as noted in the
footnotes), by: (1) each of Bookhams current and
former executive officers named in the Bookham Summary
Compensation Table included in this joint proxy
statement/prospectus, (2) each of Bookhams current
directors, (3) the current directors and executive officers
of Bookham as a group and (4) by each person or group who
is known to the management of Bookham to be the beneficial owner
of more than five percent of the Bookham common stock
outstanding as of March 18, 2009. This table is based upon
information supplied by officers, directors and principal
stockholders and Schedules 13D and 13G filed with the SEC. Where
information regarding stockholders is based on Schedules 13D and
13G, the number of shares owned is as of the date for which
information was provided in such Schedules. Unless otherwise
indicated in the footnotes to this table and subject to
community property laws where applicable and the voting
agreements entered into by a director and certain executive
officers of Bookham with Avanex, Bookham believes that each of
the persons named in this table has sole voting and investment
power with respect to the shares indicated as beneficially
owned. Applicable percentages are based on
100,959,545 shares outstanding on March 18, 2009,
adjusted as required by rules promulgated by the SEC. Shares of
Bookham common stock subject to options that are currently
exercisable or are exercisable and restricted stock units that
will vest within 60 days after March 18, 2009 are
treated as outstanding and beneficially owned by the person
holding them for the purpose of computing the percentage
ownership of that person but are not treated as outstanding for
the purpose of computing the percentage ownership of any other
person. Unless otherwise indicated below, the address for each
person and entity named in the table is:
c/o Bookham,
Inc., 2584 Junction Avenue, San Jose, California 95134.
|
|
|
|
|
|
|
|
|
Beneficial Owner
|
|
Number of Shares
|
|
Percent of Totals
|
|
5% Stockholders
|
|
|
|
|
|
|
|
|
Gruber and McBaine Capital Management, LLC and affiliated
persons(1)
|
|
|
8,551,334
|
|
|
|
8.47
|
%
|
50 Osgood Place, Penthouse,
|
|
|
|
|
|
|
|
|
San Francisco, California 94133
|
|
|
|
|
|
|
|
|
JDS Capital Management, Inc.(2)
|
|
|
7,500,000
|
|
|
|
7.43
|
%
|
100 Park Avenue, 17th Floor
|
|
|
|
|
|
|
|
|
New York, New York 10017
|
|
|
|
|
|
|
|
|
Sun Life Financial Inc.(3)
|
|
|
6,686,219
|
|
|
|
6.62
|
%
|
150 King Street West
|
|
|
|
|
|
|
|
|
Toronto, Ontario, Canada M5H 1J9
|
|
|
|
|
|
|
|
|
Named Executive Officers and Directors
|
|
|
|
|
|
|
|
|
Stephen Abely(4)
|
|
|
178,616
|
|
|
|
*
|
|
Alain Couder(5)
|
|
|
482,276
|
|
|
|
*
|
|
Jim Haynes
|
|
|
292,324
|
|
|
|
*
|
|
Adrian Meldrum
|
|
|
187,560
|
|
|
|
*
|
|
Stephen Turley(6)
|
|
|
32,121
|
|
|
|
*
|
|
Kate Rundle
|
|
|
42,984
|
|
|
|
*
|
|
Peter Bordui
|
|
|
92,650
|
|
|
|
*
|
|
Joseph Cook
|
|
|
67,783
|
|
|
|
*
|
|
Lori Holland
|
|
|
83,031
|
|
|
|
*
|
|
W. Arthur Porter
|
|
|
75,420
|
|
|
|
*
|
|
David Simpson(7)
|
|
|
88,231
|
|
|
|
*
|
|
Edward Collins
|
|
|
10,000
|
|
|
|
*
|
|
Bernard Couillaud
|
|
|
10,000
|
|
|
|
*
|
|
All executive officers and directors as a group (13 persons)
|
|
|
1,642,996
|
|
|
|
1.63
|
%
|
244
|
|
|
(1) |
|
The information is based on a Schedule 13G filed with the
SEC on January 29, 2009, which may not be current as of
March 18, 2009, by Gruber and McBaine Capital Management,
LLC, Jon D. Gruber, J. Patterson McBaine, Eric Swergold and
Lagunitas Partners. Gruber and McBaine Capital Management, LLC,
Jon D. Gruber, J. Patterson McBaine, and Eric Swergold reported
that they had shared voting power and shared dispositive power
over 6,588,031 of such shares of common stock.
Messrs. Gruber and McBaine reported that they had sole
voting and dispositive power with respect to 1,963,303 of
such shares and 174,993 of such shares, respectively.
Messrs. Gruber and McBaine are the managers, controlling
persons and portfolio managers of Gruber and McBaine Capital
Management, LLC. Lagunitas Partners reported that it had shared
voting power and shared dispositive power over 3,788,601 of such
shares. Lagunitas Partners is an investment limited partnership
of which Gruber and McBaine Capital Management, LLC is the
general partner. |
|
|
|
(2) |
|
The information is based on a Schedule 13G filed with the
SEC on October 2, 2008, which may not be current as of
March 18, 2009, by JDS Capital Management, Inc. |
|
|
|
(3) |
|
The information is based on a Schedule 13G filed with the
SEC on July 18, 2008, which may not be current as of
March 18, 2009, by Sun Life Financial, Inc. |
|
|
|
(4) |
|
Mr. Abely served as our Chief Financial Officer until his
resignation which was effective as of July 31, 2008. |
|
(5) |
|
Mr. Couder became our President and Chief Executive Officer
and a director in August 2007. |
|
(6) |
|
Mr. Turley served as our Chief Commercial Officer until his
resignation which was effective as of April 30, 2008. |
|
|
|
(7) |
|
Of these shares, 10,000 are jointly owned by
Dr. Simpsons spouse. |
Beneficial
Ownership of Avanex Shares
The following table sets forth certain information concerning
the beneficial ownership of Avanex common stock, as of
March 18, 2009 (except as noted in the footnotes), by:
(1) each person or entity who is known by Avanex to own
beneficially more than 5% of the outstanding shares of Avanex
common stock; (2) each of Avanexs non-employee
directors; (3) each of Avanexs executive officers
named in the Summary Compensation Table that was part of
Avanexs Proxy Statement for its 2008 Annual Meeting of
Stockholders, filed with the SEC on October 14, 2008; and
(4) all current directors and executive officers of Avanex
as a group. Unless
245
otherwise indicated below, the address for each person and
entity named in the table is:
c/o Avanex
Corporation, 40919 Encyclopedia Circle, Fremont, California,
94538.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Percentage
|
|
|
|
|
Beneficially
|
|
Beneficially
|
|
|
Name
|
|
Owned (1)
|
|
Owned (2)
|
|
|
|
Pirelli & C. SpA(3)
|
|
|
1,886,391
|
|
|
|
12.07
|
%
|
|
|
|
|
Via Gaetano Negri, 10
|
|
|
|
|
|
|
|
|
|
|
|
|
Milan
|
|
|
|
|
|
|
|
|
|
|
|
|
Italy
|
|
|
|
|
|
|
|
|
|
|
|
|
Lawrence W. Lytton(4)
|
|
|
1,020,878
|
|
|
|
6.53
|
%
|
|
|
|
|
467 CPW
|
|
|
|
|
|
|
|
|
|
|
|
|
New York, NY 10025
|
|
|
|
|
|
|
|
|
|
|
|
|
Barclays Global Investors, NA(5)
|
|
|
796,530
|
|
|
|
5.10
|
%
|
|
|
|
|
400 Howard Street
|
|
|
|
|
|
|
|
|
|
|
|
|
San Francisco, CA 94105
|
|
|
|
|
|
|
|
|
|
|
|
|
Jo S. Major, Jr.(6)
|
|
|
5,483
|
|
|
|
*
|
|
|
|
|
|
Vinton Cerf(7)
|
|
|
15,029
|
|
|
|
*
|
|
|
|
|
|
Greg Dougherty(8)
|
|
|
12,413
|
|
|
|
*
|
|
|
|
|
|
Joel A. Smith, III(9)
|
|
|
16,708
|
|
|
|
*
|
|
|
|
|
|
Paul Smith(10)
|
|
|
35,344
|
|
|
|
*
|
|
|
|
|
|
Susan Wang(11)
|
|
|
14,578
|
|
|
|
*
|
|
|
|
|
|
Dennis Wolf(12)
|
|
|
1,640
|
|
|
|
*
|
|
|
|
|
|
Giovanni Barbarossa(13)
|
|
|
118,495
|
|
|
|
*
|
|
|
|
|
|
Patrick Edsell(14)
|
|
|
922
|
|
|
|
*
|
|
|
|
|
|
Brad Kolb(15)
|
|
|
35,560
|
|
|
|
*
|
|
|
|
|
|
Yves LeMaitre
|
|
|
|
|
|
|
|
|
|
|
|
|
Marla Sanchez(16)
|
|
|
9,882
|
|
|
|
*
|
|
|
|
|
|
All directors and Executive Officers (10 Persons)(17)
|
|
|
276,632
|
|
|
|
1.75
|
%
|
|
|
|
|
|
|
|
* |
|
Less then one percent of the outstanding common stock. |
|
|
|
(1) |
|
The number and percentage of shares beneficially owned are
determined in accordance with
Rule 13d-3
of the Exchange Act, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under
such rule, beneficial ownership includes any shares over which
the individual or entity has voting power or investment power
and any shares of common stock that the individual has the right
to acquire within 60 days of March 18, 2009, through
the exercise of any stock option or other right, without taking
into account the effect of the merger on such stock option or
right. Unless otherwise indicated in the footnotes, each person
or entity has sole voting and investment power (or shares such
powers with his or her spouse) with respect to the shares shown
as beneficially owned. |
|
|
|
(2) |
|
The total number of shares of common stock outstanding as of
March 18, 2009 was 15,623,421. |
|
|
|
(3) |
|
As indicated in the Schedule 13G jointly filed by
Pirelli & C. SpA (Pirelli) and by Pirelli
Finance (Luxembourg) SA (Pirelli Finance) pursuant
to the Exchange Act on November 8, 2007, which may not be
current as of March 18, 2009. Each of Pirelli and Pirelli
Finance may be deemed to beneficially own an aggregate of
1,886,391 shares. Pirelli Finance is a wholly-owned
subsidiary of Pirelli with principal business offices at 35
boulevard du Prince, L-1724 Luxembourg, Luxembourg. |
|
|
|
(4) |
|
As indicated in the Schedule 13G filed by Lawrence W.
Lytton pursuant to the Exchange Act on March 13, 2009,
which may not be current as of March 18, 2009. |
|
|
|
(5) |
|
As indicated in the Schedule 13G filed by Barclays Global
Investors, NA pursuant to the Exchange Act on February 5,
2009, which may not be current as of March 18, 2009.
Barclays Global Investors, NA |
246
|
|
|
|
|
reported sole voting power over 364,271 shares listed and
sole dispositive power over 478,979 shares listed. Barclays
Global Fund Advisors reported sole voting power and sole
dispositive power over 317,551 shares listed. Barclays
Global Investors, Ltd, Barclays Global Investors Japan Limited,
Barclays Global Investors Canada Limited, Barclays Global
Investors Australia Limited and Barclays Global Investors
(Deutschland) AG reported no sole voting or dispositive power
over listed shares. The shares listed are held in trust accounts
for the economic benefit of the beneficiaries of those accounts. |
|
|
|
(6) |
|
Represents 5,483 shares held by Dr. Major, based on
the last information provided to Avanex, which may not be
current as of March 18, 2009. |
|
|
|
(7) |
|
Represents 3,534 shares held by Mr. Cerf and 11,495
shares issuable pursuant to options exercisable within
60 days of March 18, 2009. |
|
|
|
(8) |
|
Represents 5,748 shares held by Mr. Dougherty and
6,665 shares issuable pursuant to options exercisable within
60 days of March 18, 2009. |
|
|
|
(9) |
|
Represents 7,799 shares held by Mr. Joel Smith
individually, 80 shares held by his spouse and 8,829 shares
issuable pursuant to options exercisable within 60 days of
March 18, 2009. |
|
|
|
(10) |
|
Represents 34,010 shares held by Mr. Paul Smith and
1,334 shares issuable pursuant to options exercisable within
60 days of March 18, 2009. |
|
|
|
(11) |
|
Represents 5,914 shares held by Ms. Wang and
8,664 shares issuable pursuant to options exercisable
within 60 days of March 18, 2009. |
|
|
|
(12) |
|
Represents 306 shares held by Mr. Wolf and 1,334
shares issuable pursuant to options exercisable within
60 days of March 18, 2009. |
|
|
|
(13) |
|
Represents 14,322 shares held by Dr. Barbarossa and
104,173 shares issuable pursuant to options exercisable and
restricted stock units scheduled to vest within 60 days of
March 18, 2009. |
|
|
|
(14) |
|
Represents 922 shares held by Mr. Edsell, based on the
last information provided to Avanex, which may not be current as
of March 18, 2009. |
|
|
|
(15) |
|
Represents 6,106 shares held by Mr. Kolb and
29,454 shares issuable pursuant to options exercisable and
restricted stock units scheduled to vest within 60 days of
March 18, 2009. |
|
|
|
(16) |
|
Represents 9,882 shares held by Ms. Sanchez, based on
the last information provided to Avanex, which may not be
current as of March 18, 2009. |
|
|
|
(17) |
|
Includes 177,968 shares issuable upon the exercise of
options exercisable and restricted stock units scheduled to vest
within 60 days of March 18, 2009. |
Beneficial
Ownership of Bookham Shares Following the Merger
The following table shows certain information regarding the
beneficial ownership of Bookham common stock immediately
following consummation of the merger held by:
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|
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|
each person or group who is known to Bookham and Avanex to
become the beneficial owner of more than 5% of Bookhams
common stock upon consummation of the merger;
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|
each expected director of Bookham following the consummation of
the merger;
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|
|
each expected executive officer immediately following the
consummation of the merger (which is currently expected to be
the current executive officers of Bookham); and
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|
all directors and executive officers as a group of Bookham upon
consummation of the merger.
|
The percentage of shares beneficially owned is
computed on the basis of shares of Bookham common stock
outstanding upon consummation of the merger and assumes that the
exchange ratio to be used in the merger is 5.426 shares of
common stock for each share Bookham common stock.
The number of shares beneficially owned by each 5% stockholder,
director or executive officer is determined in accordance with
the rules of the SEC, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under
such rules, beneficial ownership includes any shares over which
the individual has
247
the sole or shared voting power or investment power, and
includes any shares that the individual has the right to acquire
within 60 days of March 18, 2009 through the exercise
of any stock option or other right.
Shares of common stock that a person has the right to acquire
within 60 days of March 18, 2009, including shares
that may be acquired upon exercise of stock options or warrants
or vesting of restricted stock units, are deemed outstanding for
purposes of computing the percentage ownership of the person
holding such rights, but are not deemed outstanding for purposes
of computing the percentage ownership of any other person,
except with respect to the percentage ownership of all directors
and executive officers as a group. To Bookhams and
Avanexs knowledge, except as set forth in the footnotes to
this table, the Voting Agreements and subject to applicable
community property laws, each person or entity named in the
table has sole voting and dispositive power with respect to the
shares set forth opposite such persons or entitys
name.
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Number of
|
|
Percent of
|
Beneficial Owner
|
|
Shares
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|
Totals(1)
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5% Stockholders
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|
Pirelli & C. SpA(2)
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|
10,235,557
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|
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5.48
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%
|
Via Gaetano Negri, 10
|
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|
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Milan, Italy
|
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Executive Officers and Directors
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Alain Couder(3)
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482,276
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|
|
|
*
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|
Jim Haynes(4)
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|
292,324
|
|
|
|
*
|
|
Adrian Meldrum(5)
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|
187,560
|
|
|
|
*
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|
Jerry Turin(6)
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|
141,675
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|
|
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*
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|
Kate Rundle(7)
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|
42,984
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|
|
|
*
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|
Lori Holland(8)
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|
83,031
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|
|
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*
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|
Edward Collins(9)
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|
|
10,000
|
|
|
|
*
|
|
Bernard Couillaud(10)
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|
|
10,000
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|
|
|
*
|
|
Giovanni Barbarossa(11)
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|
|
642,953
|
|
|
|
*
|
|
Greg Dougherty(12)
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|
|
67,352
|
|
|
|
*
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|
Joel A. Smith, III(13)
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|
|
90,657
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|
|
|
*
|
|
All executive officers and directors as a group (11 persons)
|
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|
2,050,812
|
|
|
|
1.10
|
%
|
|
|
|
(1) |
|
Assumes that 85,783,567 shares of Bookham common stock are
issued to holders of Avanex capital stock in connection with the
merger and shares of Avanex common stock are held by holders of
Avanex common stock prior to the merger. |
|
|
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(2) |
|
As indicated in the Schedule 13G jointly filed by Pirelli &
C. SpA (Pirelli) and by Pirelli Finance (Luxembourg)
SA (Pirelli Finance) pursuant to the Exchange Act on
November 8, 2007, which may not be current as of
March 18, 2009. Each of Pirelli and Pirelli Finance may be
deemed to beneficially own an aggregate of
10,235,557 shares, as converted according to the assumed
Exchange Ratio. Pirelli Finance is a wholly-owned subsidiary of
Pirelli with principal business offices at 35 boulevard du
Prince, L-1724 Luxembourg, Luxembourg. |
|
|
|
(3) |
|
Represents 274,463 shares held by Mr. Couder and
207,813 shares issuable pursuant to options exercisable
within 60 days of March 18, 2009. |
|
|
|
(4) |
|
Represents 98,749 shares held by Mr. Haynes and
193,575 shares issuable pursuant to options exercisable
within 60 days of March 18, 2009. |
|
|
|
(5) |
|
Represents 61,944 shares held by Mr. Meldrum and
125,616 shares issuable pursuant to options exercisable
within 60 days of March 18, 2009. |
|
|
|
(6) |
|
Represents 12,820 shares held by Mr. Turin and
128,855 shares issuable pursuant to options exercisable
within 60 days of March 18, 2009. |
248
|
|
|
(7) |
|
Represents 28,817 shares held by Ms. Rundle and
14,167 shares issuable pursuant to options exercisable
within 60 days of March 18, 2009. |
|
|
|
(8) |
|
Represents 30,000 shares held by Ms. Holland and
53,031 shares issuable pursuant to options exercisable
within 60 days of March 18, 2009. |
|
|
|
(9) |
|
Represents 5,000 shares held by Mr. Collins and
5,000 shares issuable pursuant to options exercisable
within 60 days of March 18, 2009. |
|
|
|
(10) |
|
Represents 5,000 shares held by Mr. Couillaud and
5,000 shares issuable pursuant to options exercisable
within 60 days of March 18, 2009. |
|
|
|
(11) |
|
Represents 77,711 shares held by Dr. Barbarossa and
565,242 shares issuable pursuant to options exercisable and
restricted stock units scheduled to vest within 60 days of
March 18, 2009, as converted according to the assumed
exchange ratio. |
|
|
|
(12) |
|
Represents 31,188 shares held by Mr. Dougherty and
36,164 shares issuable pursuant to options exercisable
within 60 days of March 18, 2009, as converted
according to the assumed exchange ratio. |
|
|
|
(13) |
|
Represents 42,317 shares held by Mr. Smith
individually, 434 shares held by his spouse and
47,906 shares issuable pursuant to options exercisable
within 60 days of March 18, 2009, as converted
according to the assumed exchange ratio. |
EXECUTIVE
COMPENSATION AND RELATED MATTERS
The following compensation discussion and analysis sections
provide information regarding the compensation, compensation
philosophy, and objectives for Bookham as a standalone entity in
relation to the individuals who served as Bookhams
principal executive officer (Alain Couder and Peter Bordui) and
principal financial officer (Steve Abely) during fiscal 2008,
Bookhams three other most highly compensated executive
officers (Jim Haynes, Adrian Meldrum and Kate Rundle) who
received annual compensation in excess of $100,000 during fiscal
2008, and one additional individual (Steve Turley), who would
have been among the three other most highly compensated
executive officers, but for the fact that he was not serving as
an executive officer at the end of Bookhams last completed
fiscal year. These individuals are referred to as the
named executive officers in the compensation
discussion and analysis sections below and in the tables that
follow.
It is currently expected that the executive officers of Bookham
following the effective time of the merger will be substantially
similar to the current executive officers of Bookham (composed
of Alain Couder, Jerry Turin, James Haynes, Adrian Meldrum and
Kate Rundle). Following the effective time of the merger,
however, Bookham contemplates that certain employees of Avanex
may join Bookham as officers or executive officers of Bookham,
in which case, the persons who are Bookhams executive
officers following the merger may differ from the persons
currently serving as executive officers of Bookham. In this
regard, in the event that current Avanex personnel join Bookham
in executive officer capacities following the merger, certain
persons who currently serve as executive officers of Bookham may
no longer serve in such capacity following the appointment of
such new executive officers. As of the date of this joint proxy
statement/prospectus it is not known which Avanex employees, if
any, will join Bookham in an executive officer capacity and no
determinations by the Bookham board of directors have been made
in this regard. Accordingly, the executive compensation
discussion and analysis and related disclosures that follow
cover only the current executive officers of Bookham, with the
exception of Mr. Turin. Mr. Turin was appointed as
Chief Financial Officer of Bookham after the end of
Bookhams last completed fiscal year so his compensation is
not discussed below. The executive compensation discussion and
analysis and related disclosures that follow also cover certain
former executive officers of Bookham who were named
executive officers under applicable SEC rules during
Bookhams last completed fiscal year.
249
Bookham
Compensation Discussion and Analysis
The compensation committee of our board of directors oversees
our executive compensation program. In this role, the
compensation committee reviews and approves all compensation
decisions relating to our named executive officers. Our board of
directors also reviews compensation arrangements with respect to
our Chief Executive Officer.
In accordance with the rules of the SEC, the following
discussion provides certain compensation-related information
with respect to our named executive officers for
fiscal 2008.
Mr. Bordui, who had served as our interim Chief Executive
Officer, resigned from such position on August 12, 2007
and, on such date, Mr. Couder was appointed Chief Executive
Officer. Mr. Turley resigned as our Chief Commercial
Officer effective as of April 30, 2008 and, as of such
date, was no longer an employee of Bookham.
In addition, subsequent to June 28, 2008, Mr. Abely
resigned as Chief Financial Officer effective as of
July 30, 2008 and as of such date, was no longer an
employee of Bookham. As noted above, Mr. Turin was
appointed as Chief Financial Officer of Bookham after the end of
Bookhams last completed fiscal year.
Overview
Our executive compensation program is designed to recognize our
executives contributions to our business and provide
incentives for them to deliver performance that meets our
objectives and increases stockholder value.
The following provides a brief overview of the more detailed
disclosures set forth below in this Compensation Discussion and
Analysis:
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The objectives of our compensation programs are to:
(i) attract and retain the best executive talent;
(ii) align the financial interests of executives with those
of our stockholders; and (iii) pay for performance.
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|
Our executive compensation consists primarily of: (i) base
salary; (ii) incentive based compensation, and
(iii) long-term equity awards.
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|
In making fiscal year 2008 compensation decisions, the
compensation committee and the board of directors consulted with
third party compensation consultants and benchmarked the
compensation of our executives with a peer group of 15 other
optical component companies with characteristics similar to
Bookham.
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|
We encourage a pay-for-performance environment by
linking short-term incentive-based compensation to the
achievement of overall company performance goals.
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|
We use equity-based compensation as a means to align the
interests of our executives with those of our stockholders and
to retain key talent.
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|
We have entered into severance and change of control agreements
with our executives during fiscal year 2008 which are designed
to encourage executive retention.
|
Objectives
and Philosophy of Our Executive Compensation
Program
The compensation committee establishes our executive
compensation philosophy and oversees our executive compensation
programs. Under the compensation committees supervision
and with its approval, for fiscal year 2008, we implemented
compensation policies, plans and programs intended to achieve
the following objectives:
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attract, retain and motivate the best executive talent;
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|
align executives incentives with the creation of
stockholder value; ensure executive compensation is aligned with
our corporate strategies and business objectives; and
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250
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|
promote the achievement of key corporate strategic and financial
performance goals by linking short- and long-term compensation
incentives to the achievement of measurable corporate and
individual performance goals.
|
We believe that the performance of our executives and our
executive team should be the basis for determining the overall
compensation of each of our executives and the compensation
committee establishes compensation packages that it believes are
competitive with those of other companies in our industry that
compete with us for executive talent. Compensation decisions are
based on, among other things:
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|
our operating performance;
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|
|
the effectiveness of our executive team in managing our company;
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|
geographic location of the executive; and
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|
|
incentivizing executives to maximize stockholder value.
|
Base salary is used to recognize experience, skill, knowledge
and responsibility and is an important element in retaining our
named executive officers.
Certain performance objectives, which play an important role in
our cash bonus and equity compensation programs, are established
by the compensation committee and relate to, among other things,
our overall performance and the achievement of key company-wide
operating objectives, such as sales growth, operating earnings,
cash flow, and earnings per share factors that, if met, we
believe will ultimately and positively affect stockholder value.
As a result, these objectives formed the basis for rewarding
executives through our cash incentive bonus plan and equity
incentive program.
A portion of our executive compensation consists of stock
options and restricted stock grants that vest either over time
or upon the achievement of defined performance criteria. We
award equity compensation in an effort to retain our executives
and align their interests with those of our stockholders by
allowing the executives the opportunity to participate in the
long-term success of our company since the value of the award or
the return generated, increases only if our share price
increases and they remain employed with us at the time the
equity award vests.
We compete with many other companies for executive personnel.
Accordingly, the compensation committee generally targets
overall compensation for executives near the median of
compensation paid to executives at similarly situated companies
in our peer group, as described below. Variations to this
general target may occur as dictated by the experience level of
the individual, geographic location and market factors,
including risk of retention and ability of the executives to
find equivalent positions outside of our industry.
Role
of Executives and Compensation Consultants in Compensation
Decisions:
The compensation committee solicits recommendations from our
Chief Executive Officer and our Vice President of Human
Resources for all of our executives and then reviews and
approves the total compensation for all of our executives. In
the case of the Chief Executive Officer, the board of directors
also reviews his compensation arrangements.
In making compensation decisions, the compensation committee
also surveys available information regarding the executive
compensation paid by similarly sized publicly traded companies
in the optical component and semiconductor industries, which we
refer to as our peer group. The committee reviews publicly
available compensation data of companies in our peer group as
well as surveys from consultants in the executive compensation
field. In fiscal 2008, the compensation committee reviewed two
sources of this information. First, it reviewed the
Compensation & Benefit Survey provided by Radford
Surveys and Consulting, a division of AON Consulting, Inc.,
which provides compensation data for similarly-sized companies
in the optical component industry. Second, the compensation
committee, in August, 2007, engaged an independent third-party
compensation consultant, F.W. Cook & Company, to
provide a report with specific benchmarking, peer group analysis
and recommendations regarding our executive compensation
practices.
251
In generating this report, F.W. Cook & Company
selected a peer group of companies in the optical component
market with comparable revenues and organization size, based on
the number of employees and location of operations which compete
with us for executives and other employees. For fiscal 2008,
this peer group consisted of Avanex Corporation, Exfo Electro
Optical Inc., Finisar Corporation, Harmonic, IPG Photonics, MRV
Communications, Coherent, Inc., Newport Corporation, JDS
Uniphase Corporation, Optium Corporation, Oplink Communications,
Optical Communications Products, Stratos International, Opnext,
Inc., and Zygo for United States executive compensation and ARM
Holdings plc, Spirent Communications plc, Filtronic plc,
Renishaw plc, Telent plc, and Dialight plc for United Kingdom
executive compensation.
F.W. Cook & Company provided our compensation
committee with analysis of the competitiveness of our total
compensation and rewards program for our executives, including
base pay, bonus and long-term incentives against those in our
peer group. Their report included information on equity
practices, such as the rate at which options are awarded, the
percentage of shares utilized in equity programs in relation to
the total shares outstanding, and forms of equity and allocation
of awards. The report also included information on industry
trends, including allocation between short-term and long-term
incentives in total executive compensation.
As an initial step in setting executive compensation, the
compensation committee determines the median for short-term cash
compensation (salary plus bonus) of the executives in the peer
group of companies. The compensation committee, when making a
final determination on short-term compensation, then either
increases or decreases that amount for each executive position
based on some or all of the following factors: geography,
market, experience level, individual performance, prior
employment compensation, current compensation, tenure,
seniority, scope of responsibilities, availability of similar
talent, strength of succession plans and the individuals
short-term to long-term compensation ratio.
Components
of Our Executive Compensation Program
During fiscal 2008, the primary elements of our executive
compensation program were:
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|
base salary;
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|
incentive-based cash compensation;
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|
equity awards; and
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|
|
severance and change in control benefits.
|
This mix of compensation components allows us to provide an
overall executive compensation package which directly addresses
our goals of retention, alignment of executive and stockholder
interests and linking pay with performance.
Other components of executive compensation consisted of
severance and change of control benefits as well as benefits and
other compensation made available to all of our employees,
including various geographically specific benefit plans made
available to our employees in such locations, such as pension or
retirement plans, private medical coverage, and group life
insurance.
We do not have any formal or informal policy or target for
allocating compensation between long-term and short-term
compensation, between cash and non-cash compensation or among
the different forms of non-cash compensation. Instead, the
compensation committee, after reviewing information provided by
F.W. Cook & Company and the Compensation &
Benefit Survey provided by Radford Surveys and Consulting,
determines independently what it believes to be the appropriate
level and mix of the various compensation components in line
with this market data.
Base
Salary
Bookham pays each of its executives a base salary in cash on
either a bi-weekly or monthly basis. Base salary is used to
recognize the experience, skills, knowledge and responsibilities
of our executives and is an important element in retaining these
individuals.
252
In establishing base salary, the compensation committee reviews
and considers information regarding the base salary paid by
comparable companies in our peer group, as determined by F.W.
Cook & Company and as described above, and based on
data provided by Radford Surveys and Consulting. In addition to
considering this market data, the compensation committee also
takes into account other factors when determining base salary,
such as the seniority and tenure of the individual, the level of
the individuals responsibility, the ability to replace the
individual, the base salary of the individual at his or her
prior employment, if applicable, and the number of well
qualified candidates to assume the individuals role. In
keeping with our compensation philosophy of attracting and
retaining individuals of high quality on our management team,
executive base salaries have been targeted at the median of the
range of salaries for executives in similar positions at
comparable companies in our peer group. For some or all of the
reasons enumerated above, Messrs. Turley and Abely and
Ms. Rundle were paid base salaries above the median.
Base salaries are reviewed annually by our compensation
committee, and, in certain cases, the compensation committee
adjusts an executive officers base salary to realign
salaries with the peer group after taking into account
individual responsibilities, performance, experience, and
current compensation.
For example, in October 2007, the compensation committee
reviewed all executive officers base salaries at the
request of Mr. Couder at the time he was appointed as Chief
Executive Officer. The committee recommended adjustments to the
base salary of Mr. Haynes and Mr. Meldrum after
reviewing peer group data from F.W. Cook & Company
which showed that the base salary component for such named
executive officers were below the median of the peer group in
terms of competitive pay packages for the executive positions
held by these individuals. Mr. Haynes base salary
increased from $331,000 to $350,000 and Mr. Meldrums
base salary increased from $257,000 to $280,000, both effective
October 1, 2007.
Incentive-Based
Compensation
Performance-Based
Cash Bonuses
In October 2007 and January 2008, we established
performance-based cash bonus programs for our executives. These
incentive-bonus plans are an important component of the
executive compensation program as they (1) reward
performance and therefore instill a pay-for-performance
philosophy and (2) support and reinforce the achievement of
specific company strategic, operational and financial goals and
objectives, and creation of stockholder value.
In establishing these cash bonus plans, the compensation
committee reviewed market data for 2007 presented in the report
from F.W. Cook & Company which showed that we were
below our peer group in terms of total target cash compensation.
The target bonus amounts (expressed as a percentage of base
salary) set for each named executive officer for fiscal 2008 are
targeted at the median of the peer group for the executive
positions held by these individuals. The compensation committee
during fiscal 2008 established two performance-based bonus
plans. The first bonus plan was adopted in October 2007, and
established and measured awards based on performance metrics for
the first half of fiscal 2008 and the second bonus plan was
adopted in January 2008, and established and measured awards
based on performance metrics for the second half of fiscal 2008.
Amounts payable under the performance-based bonus plans were
calculated based on established eligible target bonus, or the
eligible bonus levels, of between 35% and 45% of annual
compensation for all participants in the bonus plan, other than
Mr. Couder. With respect to Mr. Couder, the board of
directors established an eligible target bonus level of 67% of
his annual compensation for fiscal 2008.
The compensation committee worked with the Chief Executive
Officer to develop a set of measurable corporate goals for the
performance-based bonus plans in order to tie the executive
officers performance to achievement of the internal
operating plans approved by the board of directors. The target
levels set forth in the performance-based bonus plans, as
further described below, could be characterized as challenging,
while the stretch goals, as also described below, which lead to
increased compensation, required increasingly demanding levels
of performance. At the time they were set, all of the targets
and objectives were substantially uncertain to be achieved.
253
For the first half of fiscal 2008, the compensation committee
established trigger, target and
stretch goals weighted (i) two-thirds on the
achievement of a specified level of non-GAAP EBITDA for the
second quarter of fiscal 2008, ending December 28, 2007 and
(ii) one-third on the achievement of a specified level of
net cash for the first two quarters of fiscal 2008. The
compensation committee selected these goals as they are
important measures of progress toward the companys
operating goals, including achieving profitability.
For the second half of fiscal 2008, the compensation committee
established trigger, target and
stretch goals weighted (i) two-thirds on the
achievement of a specified level of non-GAAP EBITDA for the
fourth quarter of fiscal 2008, ending June 28, 2008, and
(ii) one-third on the achievement specified operating cash
flow goals for the last two quarters of fiscal 2008. The
compensation committee selected these goals as they are
important measures of progress toward the companys
operating goals, including achieving profitability.
If the designated trigger goals in the applicable
periods were achieved, the executives were entitled to receive
an amount equal to 25% of their eligible bonus level, and if
designated target goals identified for the period
were met, participants would receive an amount equal to 50% of
their eligible annual bonus level. No bonus would be payable
under the performance-based bonus plans if trigger
goals for both financial metrics in the applicable
performance-based bonus plan were not met; any bonus between the
trigger and target goals was calculated
linearly. If the stretch goals identified in the
bonus plans were achieved, participants were entitled to receive
an amount equal to 75% of their eligible annual bonus level. Any
bonus between the target goals and stretch goals were calculated
linearly. Payments under the performance-based bonus plans, if
any, were made only after the compensation committee certified
that the financial metrics set forth in the performance-based
bonus plans were satisfied. The goals were set such that target
performance should be attained approximately 70% of the time,
with some payout (i.e. trigger or above) occurring about 90% of
the time. In determining whether a performance metric was
satisfied, the metric was calculated after accounting for the
cost of the bonus.
The cash bonus payable upon achievement of the
target goal under the performance-based bonus plan
for the first half of fiscal 2008 was at or very near the median
bonus level for our executives counterparts at companies
in our peer group identified in F.W. Cooks report. The
cash bonus payable upon achievement of the target
goal under the performance-based bonus plan for the second half
of fiscal 2008 was at or very near the median bonus level for
our executives counterparts at companies in our peer group
identified in F.W. Cooks report.
For the first half of fiscal 2008, the non-GAAP EBITDA
target goal of negative $2.5 million and the
available cash target goal of $22 million were
surpassed and, therefore, the named executive officers received
pro rata cash bonuses based on achievement of that goal. For the
second half of fiscal 2008, neither the non-GAAP EBITDA
trigger goal of $0.5 million nor the cash flow
trigger goal of negative $7.0 million were
achieved, and therefore no cash bonus was paid to the named
executive officers for this period.
Equity
Incentive Awards
Performance
Based Awards
During fiscal 2008, we awarded each of our executives
performance-based restricted stock awards. These restricted
stock awards were granted pursuant to our Amended and Restated
2004 Stock Incentive Plan, which allows the compensation
committee to issue performance-based equity awards. The equity
incentive awards granted by the compensation committee during
fiscal 2008 under the Amended and Restated 2004 Stock Incentive
Plan were intended to reinforce the compensation goals and
philosophy established by the compensation committee. In order
to reward performance, the vesting criteria of the
performance-based restricted stock awards are linked to overall
company performance. Furthermore, by offering equity, to
complement our cash incentives, we believe that we can better
align our executives interests with those of our
stockholders. When equity incentives are combined with base
salaries and performance-based cash incentives, the total direct
compensation for each named executive officer is at or near the
median of our peer group.
254
The terms of the performance based restricted stock awards
granted in fiscal year 2008 provided that the shares subject to
the award would vest to the extent that certain fiscal year 2008
corporate-level financial targets were achieved. Upon attainment
of the stated non-GAAP adjusted EBITDA base goal of
$0, 50% of the restricted stock would vest and upon attainment
of the stated non-GAAP adjusted EBITDA stretch goal
of $2.5 million, 100% of the shares would vest. Any result
between the base goal and the stretch goal would result in a
prorated vesting of the restricted shares. In recognition of our
financial improvements during the fiscal year, the board of
directors provided for the acceleration of the shares of common
stock granted to the named executive officers.
Long-term
Equity Awards
Our equity award program is the primary vehicle for offering
long-term incentives to our executives. We believe that time
based equity grants provide our executives with a strong link to
our long-term performance as increases in stock price increase
the value of the underlying option grants. As a result, the
long-term, time based, equity awards help to create an ownership
culture, and help to align the interests of our executives and
our stockholders around a common goal of increasing stock price.
In addition, the vesting feature of our equity grants provides
an incentive to our executives to remain in our employ during
the vesting period.
We routinely grant eligible employees equity awards at the time
of hire and also provide equity grants to key contributing
employees annually. All equity based grants are made by the
compensation committee, or a sub-committee of the compensation
committee. The time-based options and restricted stock vest as
to 25% of the shares subject to the option on the first
anniversary of the date of grant and
1/48
of the shares subject to the option monthly thereafter over the
remaining 36 months. The exercise price of all stock
options is set at the closing price of our common stock on the
NASDAQ Global Market on the date of grant.
Beginning in January 2008, in accordance with our Stock Option
Grant Policy, all new-hire option awards are granted on the
10th day of the month following the first date of
employment. Annual equity awards to on-going employees, if any,
are granted on the 15th of August each year, subject to
exceptions in certain limited instances.
In determining the size of equity grants to our executives in
fiscal 2008, our compensation committee considered comparative
share ownership of executives in our peer group identified
above, Radford and F.W. Cook surveys, our company-level
performance, the applicable executives performance, the
amount of equity previously awarded to the executive, the
vesting of such awards and the recommendations of management.
The compensation committee reviews all components of the
executives compensation when determining equity awards to
ensure that an executives total compensation conforms to
our overall philosophy and objectives. For fiscal 2008, the
compensation committee awarded equity to our executives that
were at or near the median for equity awards granted to
comparable executives in the peer group and those identified in
the Radford survey.
All grants of options and restricted stock to our executives are
made by the compensation committee in accordance with our Stock
Option Grant Policy. In fiscal 2008, the compensation committee
granted our executives a combination of time-based options and
restricted stock. The committee chose to grant a combination of
options and restricted stock to each named executive officer
based on the recommendations of F.W. Cook & Company.
The restricted shares provide both annual payouts and retention
value under all stock price scenarios while minimizing the
impact on stockholder dilution. The stock option component is
designed to create upside potential if our stock price increases
and retention value. The quantity, mix, and potential value of
options and restricted stock granted to each named executive
officer were consistent with our peer group median for those
positions.
Benefits
and Other Compensation
We maintain broad-based benefits that are provided to all
employees, including health and medical insurance, life and
disability insurance and a 401(k) plan or, for executives and
employees residing outside the U.S., a similar retirement plan.
All executives are eligible to participate in all of our
employee benefit plans, in each case on the same basis as other
employees depending on their geographic location. We provide car
255
and/or
commuting allowances to a number of our executives, including
Messrs. Meldrum and Haynes and prior to their resignations,
Messrs. Abely and Turley.
Severance
and Change-of-Control Benefits
In May 2008, each of the named executive officer entered into an
Executive Severance and Retention Agreement. These agreements
superseded any prior severance or change of control provisions
contained in each individuals employment contract, if any.
The Executive Severance and Retention Agreement provides, under
certain circumstances, for payments upon termination of
employment following a change of control of the company or
termination without cause or for good
reason, each as defined in the Executive Severance and
Retention Agreement. Change of control payments of salary and
accrued bonuses made under the agreement are subject to a
double trigger, meaning that both a change of
control and a termination are required. In other words, the
change of control does not itself trigger benefits; rather,
benefits are paid only if the employment of the executive is
terminated during a specified period after the change of
control. We believe a double trigger benefit
maximizes stockholder value because it prevents an unintended
windfall to executives in the event of a friendly change of
control, while still providing them appropriate incentives to
cooperate in negotiating any change of control in which they
believe they may lose their jobs. We have provided more detailed
information about these benefits, along with estimates of their
value under various circumstances, under the caption
Employment, Change of Control and Severance
Arrangements below. Acceleration of stock is subject to a
single trigger, meaning only the change of control is required
to trigger the acceleration of vesting of equity awards.
We believe providing these benefits helps us compete for
executive talent. After reviewing the practices of companies
represented in the peer group, we believe that our severance and
change of control benefits are generally comparable with
severance packages offered to executives by the companies in the
peer group.
Tax
and Accounting Considerations
Section 162(m) of the Internal Revenue Code of 1986, as
amended, generally disallows a tax deduction for compensation in
excess of $1.0 million paid to our chief executive officer
and our other officers whose compensation is required to be
disclosed to our stockholders under the Exchange Act by reason
of being among our four most highly compensated officers.
Qualifying performance-based compensation is not subject to the
deduction limitation if specified requirements are met. We
periodically review the potential consequences of
Section 162(m) and we generally intend to structure the
performance-based portion of our executive compensation, where
feasible, to comply with exemptions in Section 162(m) so
that the compensation remains tax deductible to us. However, the
compensation committee may, in its judgment, authorize
compensation payments that do not comply with the exemptions in
Section 162(m) when it believes that such payments are
appropriate to attract and retain executive talent.
SFAS 123R requires us to recognize in our statement of
operations all share-based payments to employees, including
grants of stock options and restricted stock to executives,
based on their fair values. The application of SFAS 123R
involves significant amounts of judgment in the determination of
inputs into the Black-Scholes-Merton valuation model which we
use to determine the fair value of share-based awards. These
inputs are based upon highly subjective assumptions as to the
volatility of the underlying stock, risk free interest rates and
the expected life of the options. Judgment is also required in
estimating the number of share-based awards that are expected to
be forfeited. As required under accounting principles generally
accepted in the U.S., we review our valuation assumptions at
each grant date, and, as a result, our valuation assumptions
used to value stock-based awards granted in future periods may
vary from the valuation assumptions we have used previously. For
performance based grants we also must apply judgment in
determining the periods when, and if, the related performance
targets become probable of being met.
Overall
Analysis
We operate in a highly competitive industry. One of our
principal goals is to achieve profitability by reducing expenses
and increasing revenues. While we did not achieve all of our
financial goals in fiscal year
256
2008, significant progress was made. We believe that our
executives directly contributed to this progress. We believe it
is vital to retain and motivate our executive officers if we are
to achieve our business and financial goals. The total
compensation packages paid to our named executive officers are
intended to compensate them for services rendered and to retain
them over the long-term. We use equity-based and
performance-based compensation to align the interests of our
executives with those of the stockholders and to provide a
further retention incentive. Finally, our short-term incentives
support our pay for performance philosophy by linking the
vesting of restricted stock grants and payment of cash bonuses
to the achievement of overall company performance goals. Thus we
believe that our compensation program is designed to
successfully achieve our objectives.
During fiscal 2009, we intend to continue monitoring the
appropriate level of compensation of our executives through the
use of third-party compensation consultants, review of the data
provided by Radford Surveys and Consulting and comparison to the
compensation practices of our peer group.
Bookham
Summary Compensation
The following table sets forth certain information concerning
the compensation for fiscal 2008 for each individual who served
as our principal executive officer (Mr. Couder and
Mr. Bordui) and our principal financial officer
(Mr. Abely) during fiscal 2008, our three other most highly
compensated executive officers (Messrs. Haynes and Meldrum
and Ms. Rundle) who received annual compensation in excess
of $100,000 during fiscal 2008 and one additional individual
(Mr. Turley), who would have been among the three other
most highly compensated executive officers, but for the fact
that he was not serving as an executive officer at the end of
the last completed fiscal year, collectively, the named
executive officers.
Bookham
Summary Compensation Table
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Non-Equity
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Equity
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Stock
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Option
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Incentive Plan
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Incentive Plan
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All Other
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Year
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Salary
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Awards
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Awards
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Compensation
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Compensation
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Compensation
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Total
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Name and Principal Position
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(1)
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($)
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($)(2)
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($)(2)
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($)
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($)
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($)
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($)
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Alain Couder
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2008
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$
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432,692
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$
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660,688
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$
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199,234
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$
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127,004
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(3)
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$
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$
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1,050
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(13)
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$
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1,420,668
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President and Chief Executive Officer(4)
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2007
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$
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$
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$
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$
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$
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$
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$
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Peter F. Bordui
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2008
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$
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143,347
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(8)
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$
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$
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47,447
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(9)
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$
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$
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14,350
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(14)
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$
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$
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205,144
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Interim President and
Chief Executive Officer(7)
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2007
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$
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284,523
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(15)
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$
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34,948
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(16)
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$
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20,871
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(17)
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$
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$
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$
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$
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340,342
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Steve Abely
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2008
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$
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330,846
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$
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572,813
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$
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210,617
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$
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59,500
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(3)
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$
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43,750
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(14)
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$
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21,840
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(10)
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$
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1,239,366
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Chief Financial Officer
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2007
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$
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326,661
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$
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153,760
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$
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194,394
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$
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$
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$
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21,840
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(10)
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$
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696,655
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Jim Haynes
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2008
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$
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327,632
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(5)
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$
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363,406
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$
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116,740
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$
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78,587
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(5)(3)
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$
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43,750
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(14)
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$
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49,828
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(5)(11)
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$
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979,943
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Chief Operating Officer
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2007
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$
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317,226
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(18)
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$
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77,006
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$
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188,002
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$
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$
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$
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48,428
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(18)(19)
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$
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630,662
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Adrian Meldrum
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2008
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$
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259,625
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(5)
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$
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231,012
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$
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69,719
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$
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96,776
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(5)(3)
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$
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43,750
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(14)
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$
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43,287
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(5)(12)
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$
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744,169
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Executive VP & GM of
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2007
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$
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245,889
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(18)
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$
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43,230
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$
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108,937
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$
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91,239
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(18)(22)
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$
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$
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42,009
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(18)(20)
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$
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531,304
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Telecom Division
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Steve Turley
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2008
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$
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262,722
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(5)
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$
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50,250
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$
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$
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58,113
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(5)(3)
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$
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43,750
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(14)
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$
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460,438
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(5)(6)
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$
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875,273
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Chief Commercial Officer
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2007
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$
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318,782
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(18)
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$
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102,517
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$
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39,201
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$
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$
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$
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62,432
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(18)(21)
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$
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522,932
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Kate Rundle
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2008
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$
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173,077
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$
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55,082
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$
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8,764
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$
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9,781
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(3)
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$
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$
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400
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(13)
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$
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247,104
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Executive VP and General
Counsel(23)
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2007
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$
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$
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$
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$
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$
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$
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$
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(1) |
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The fiscal years in this column refer to the fiscal years ended
June 30, 2007 and June 28, 2008. |
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(2) |
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The amounts in this column reflect the dollar amount computed
for financial statement reporting purposes for fiscal 2007 and
2008, as applicable, in accordance with SFAS 123R, of
equity awards granted under our equity plans, including equity
awards granted in and prior to fiscal 2008. There can be no
assurance that the SFAS 123R amounts will ever be realized.
The assumptions we used to calculate these amounts are included
in Note 1 to our audited financial statements for fiscal
2008, included in our annual report on
Form 10-K
for fiscal 2008. The options, vest as to 25% of the shares
subject to the option on the first anniversary of the date of
grant and
1/48
of the shares subject to the option monthly thereafter over the
remaining 36 months. Each option has a term of ten years,
and generally expires shortly following the termination of the
executives employment. The restricted stock and restricted
stock units vest either (i) in full upon our achievement of
targeted adjusted EBITDA at fiscal year end 2008 or
(ii) one-half as |
257
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to 25% on the one-year anniversary of the grant date and an
additional 2.083% at the end of each month following the first
anniversary of the grant date until the fourth anniversary of
the grant date and one-half as to 50% if we generate non-GAAP
earnings before interest, taxes, depreciation and amortization
(excluding restructuring charges, one-time items and the
non-cash compensation expense from stock compensation) that are
cumulatively greater than zero for two successive quarters and
50% if we generate non-GAAP earnings before interest, taxes,
depreciation and amortization (excluding restructuring charges,
one-time items and the non-cash compensation expense from stock
compensation) that are cumulatively greater than 8% of revenues
for two successive quarters. The options granted to
Dr. Bordui, in his capacity as a member of the board of
directors, are immediately vested, have a term of ten years and
expire after Dr. Bordui ceases to be a director. |
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(3) |
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Consists of payments in connection with our Performance-Based
Bonus Plan on February 8, 2008. |
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(4) |
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Mr. Couder was appointed as our President and Chief
Executive Officer effective as of August 13, 2007. |
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(5) |
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Converted from British Pounds Sterling to U.S. Dollars using the
noon buying rate of exchange on August 1, 2008 of $1.981807
U.S. Dollars per British Pound Sterling. |
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(6) |
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Consists of $19,818 car allowance, $1,632 fuel allowance,
$33,395 pension contribution, $2,085 private medical allowance,
$2,903 of travel allowance, and $400,605 separation payment
pursuant to an agreement entered into by Bookham Technology plc
and Mr. Turley (as described below under the caption
Employment, Change of Control and Severance
Arrangements). Mr. Turley left Bookham effective as
of April 30, 2008. |
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(7) |
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Dr. Bordui served as our interim President and Chief
Executive Officer from February 13, 2007 through
August 12, 2007. |
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(8) |
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This amount consists of Dr. Borduis employee
compensation received for service as our interim President and
Chief Executive Officer from July 1, 2007 to
August 12, 2007. |
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(9) |
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Consists of the grant date fair value of $15,807, computed in
accordance with SFAS 123R, of the restricted stock award
granted on November 1, 2006 and the grant date fair value
of $31,640, computed in accordance with SFAS 123R, of the
restricted stock award granted on October 23, 2007. These
grants were made to Dr. Bordui as part of his director
compensation. |
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(10) |
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This amount represents Mr. Abelys car allowance. |
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(11) |
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Consists of $17,836 car allowance, $29,487 pension contribution,
$420 long service award and $2,085 private medical allowance. |
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(12) |
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Consists of $17,836 car allowance, $23,366 pension contribution
and $2,085 private medical allowance. |
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(13) |
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This amount represents flexible benefit plan credits under
Section 125 of the Internal Revenue Code. |
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(14) |
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These shares vested upon our achievement of EBITDA positive in
fiscal 2008. |
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(15) |
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This amount consists of Dr. Borduis director
compensation of $93,917 for service as a director and employee
compensation of $190,606 received for service as our interim
President and Chief Executive Officer from February 13,
2007 to June 30, 2007. Dr. Bordui did not receive any
compensation in his capacity as a director during the time he
served as our interim President and Chief Executive Officer. |
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(16) |
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Consists of the grant date fair value of $10,465, computed in
accordance with SFAS 123R, of the restricted stock award
granted on November 1, 2006 and the grant date fair value
of $24,483, computed in accordance with SFAS 123R, of the
restricted stock award granted on November 11, 2005. These
shares vest as to 50% of the shares on the one-year anniversary
of the grant date and as to 50% of the shares on the second-year
anniversary. These grants were made to Dr. Bordui as part
of his director compensation. |
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(17) |
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Consists of the grant date fair value of $20,871, computed in
accordance with SFAS 123R, of the stock option award
granted on November 1, 2006. These shares are vested 100%
on the grant date. This grant was made to Dr. Bordui as
part of his director compensation on November 1, 2006. |
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(18) |
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Converted from British Pounds Sterling to U.S. Dollars using the
noon buying rate of exchange on September 7, 2007 of
$2.0283 U.S. Dollars per British Pound Sterling. |
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(19) |
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Consists of $18,255 car allowance, $28,550 pension contribution
and $1,623 private medical allowance. |
258
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(20) |
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Consists of $18,255 car allowance, $22,131 pension contribution
and $1,623 private medical allowance. |
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(21) |
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Consists of $24,340 car allowance, $7,779 fuel allowance,
$28,690 pension contribution and $1,623 private medical
allowance. |
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(22) |
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Consists of payments in connection with a quarterly sales
incentive plan. |
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(23) |
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Ms. Rundle was appointed our Executive Vice President,
General Counsel and Corporate Secretary effective
November 21, 2007. |
Bookham
Grants of Plan-Based Awards
The following table sets forth information regarding each grant
of an award made to a named executive officer during fiscal 2008
under any plan, contract, authorization or arrangement pursuant
to which cash, securities, similar instruments or other property
may be received.
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All Other
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All Other
|
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Grant
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Stock
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Option
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Exercise or
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Date Fair
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Awards:
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Awards:
|
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Base Price of
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Value of
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Estimated Future Payouts Under
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Estimated Future Payouts Under
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Number
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Number
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Option
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Stock and
|
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Grant
|
|
Non-equity Incentive Plan Awards
|
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Equity Incentive Plan Awards
|
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of Shares
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of Shares
|
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Awards
|
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Options
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Name
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Date
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Threshold
|
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Target
|
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Maximum
|
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Threshold (#)
|
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Target(#)
|
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Maximum (#)
|
|
or Units
|
|
or Units
|
|
($/Sh)
|
|
Awards(1)
|
|
Alain Couder
|
|
|
8/13/2007
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
187,500
|
(4)
|
|
|
|
|
|
|
|
|
|
|
475,000
|
(5)
|
|
$
|
2.89
|
|
|
$
|
859,922
|
|
|
|
|
8/13/2007
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
187,500
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
10/23/2007
|
|
|
$
|
144,231
|
|
|
$
|
288,461
|
|
|
$
|
432,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter F. Bordui
|
|
|
10/23/2007
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
(3)
|
|
|
10,000
|
(2)
|
|
$
|
3.28
|
|
|
$
|
47,447
|
|
Steve Abely
|
|
|
10/23/2007
|
|
|
$
|
59,500
|
|
|
$
|
119,000
|
|
|
$
|
178,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/14/2007
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
25,000
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.49
|
|
|
$
|
62,250
|
|
|
|
|
1/28/2008
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
29,730
|
(6)
|
|
|
|
|
|
|
|
|
|
|
82,070
|
(5)
|
|
$
|
1.75
|
|
|
$
|
721,180
|
|
Jim Haynes
|
|
|
10/23/2007
|
|
|
$
|
76,919
|
|
|
$
|
153,838
|
|
|
$
|
230,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/14/2007
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
33,333
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.49
|
|
|
$
|
82,999
|
|
|
|
|
1/28/2008
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
39,660
|
(6)
|
|
|
|
|
|
|
|
|
|
|
109,507
|
(5)
|
|
$
|
1.75
|
|
|
$
|
397,146
|
|
Adrian Meldrum
|
|
|
10/23/2007
|
|
|
$
|
47,861
|
|
|
$
|
95,721
|
|
|
$
|
143,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/14/2007
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
20,833
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.49
|
|
|
$
|
51,874
|
|
|
|
|
1/28/2008
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
24,780
|
(2)
|
|
|
|
|
|
|
|
|
|
|
68,437
|
(5)
|
|
$
|
1.75
|
|
|
$
|
248,857
|
|
Steve Turley
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Kate Rundle
|
|
|
11/26/2007
|
|
|
$
|
30,288
|
|
|
$
|
60,577
|
|
|
$
|
90,865
|
|
|
|
|
|
|
|
20,000
|
(4)
|
|
|
|
|
|
|
|
|
|
|
40,000
|
(5)
|
|
$
|
2.40
|
|
|
$
|
63,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
(1) |
|
The amounts reported in this column are computed in accordance
with SFAS 123R. |
|
(2) |
|
These shares vest as to 50% of the shares on the one-year
anniversary of the grant date and as to 50% of the shares on the
second-year anniversary. This grant was made to Dr. Bordui
as part of his director compensation on November 1, 2007. |
|
(3) |
|
These shares are vested 100% on the grant date. This grant was
made to Dr. Bordui as part of his director compensation on
November 1, 2007. |
|
(4) |
|
These shares vest upon our achievement of adjusted EBITDA target
at June 28, 2008. |
|
(5) |
|
These options vest as to 25% of the shares on the first
anniversary of the date of grant and 1/48 of the shares monthly
thereafter over the remaining 36 months. |
|
(6) |
|
These shares vest as to 25% of the shares on the first
anniversary of the date of grant and 1/48 of the shares monthly
thereafter over the remaining 36 months. |
259
Bookham
Outstanding Equity Awards at Fiscal Year End
The following table sets forth information concerning share
options that have not been exercised, unvested restricted stock
and equity incentive plan awards for each of the named executive
officers as of June 28, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
Shares or
|
|
|
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
Units of
|
|
|
Market Value of
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Option
|
|
|
Option
|
|
|
Stock that
|
|
|
Shares or Units
|
|
|
|
Options (#)
|
|
|
Options (#)
|
|
|
Exercise
|
|
|
Expiration
|
|
|
have not
|
|
|
that have not
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Price ($)
|
|
|
Date
|
|
|
Vested
|
|
|
Vested(1)
|
|
|
Alain Couder
|
|
|
|
|
|
|
475,000
|
(3)
|
|
$
|
2.89
|
|
|
|
8/13/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.89
|
|
|
|
8/13/2017
|
|
|
|
187,500
|
(7)
|
|
$
|
322,500
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.89
|
|
|
|
8/13/2017
|
|
|
|
187,500
|
(6)
|
|
$
|
322,500
|
|
Peter F. Bordui
|
|
|
10,000
|
(2)
|
|
|
|
|
|
$
|
3.28
|
|
|
|
10/23/2017
|
|
|
|
10,000
|
(8)
|
|
$
|
17,200
|
|
|
|
|
10,000
|
(2)
|
|
|
|
|
|
$
|
3.17
|
|
|
|
11/1/2016
|
|
|
|
5,000
|
(8)
|
|
$
|
8,600
|
|
|
|
|
10,000
|
(2)
|
|
|
|
|
|
$
|
4.91
|
|
|
|
11/11/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
6,150
|
(2)
|
|
|
|
|
|
$
|
10.44
|
|
|
|
6/2/2014
|
|
|
|
|
|
|
|
|
|
Steve Abely
|
|
|
|
|
|
|
82,070
|
(3)
|
|
$
|
1.75
|
|
|
|
1/28/2018
|
|
|
|
29,730
|
(6)
|
|
$
|
51,136
|
|
|
|
|
6,250
|
(3)
|
|
|
18,750
|
|
|
$
|
2.01
|
|
|
|
6/12/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.49
|
|
|
|
11/14/2017
|
|
|
|
25,000
|
(7)
|
|
$
|
43,000
|
|
|
|
|
161,458
|
(3)
|
|
|
88,542
|
|
|
$
|
4.91
|
|
|
|
11/11/2015
|
|
|
|
171,875
|
(4)
|
|
$
|
295,625
|
|
Jim Haynes
|
|
|
|
|
|
|
109,507
|
(3)
|
|
$
|
1.75
|
|
|
|
1/28/2018
|
|
|
|
39,660
|
(6)
|
|
$
|
68,215
|
|
|
|
|
6,250
|
(3)
|
|
|
18,750
|
|
|
$
|
2.01
|
|
|
|
6/12/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.49
|
|
|
|
11/14/2017
|
|
|
|
33,333
|
(7)
|
|
$
|
57,333
|
|
|
|
|
80,729
|
(3)
|
|
|
44,271
|
|
|
$
|
4.91
|
|
|
|
11/11/2015
|
|
|
|
85,938
|
(4)
|
|
$
|
147,813
|
|
|
|
|
3,500
|
(3)
|
|
|
3,500
|
|
|
$
|
6.73
|
|
|
|
9/22/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
6,563
|
(3)
|
|
|
437
|
|
|
$
|
6.73
|
|
|
|
9/22/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
(3)
|
|
|
|
|
|
$
|
15.84
|
(5)
|
|
|
8/7/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
7,500
|
(3)
|
|
|
|
|
|
$
|
26.77
|
(5)
|
|
|
9/25/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
(3)
|
|
|
|
|
|
$
|
11.58
|
(5)
|
|
|
6/2/2014
|
|
|
|
|
|
|
|
|
|
Adrian Meldrum
|
|
|
|
|
|
|
68,437
|
(3)
|
|
$
|
1.75
|
|
|
|
1/28/2018
|
|
|
|
24,780
|
(6)
|
|
$
|
42,622
|
|
|
|
|
6,250
|
(3)
|
|
|
18,750
|
|
|
$
|
2.01
|
|
|
|
6/12/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.49
|
|
|
|
11/14/2017
|
|
|
|
20,833
|
(7)
|
|
$
|
35,833
|
|
|
|
|
45,208
|
(3)
|
|
|
24,792
|
|
|
$
|
4.91
|
|
|
|
11/11/2015
|
|
|
|
48,125
|
(4)
|
|
$
|
82,775
|
|
|
|
|
4,000
|
(3)
|
|
|
4,000
|
|
|
$
|
6.73
|
|
|
|
9/22/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
7,500
|
(3)
|
|
|
500
|
|
|
$
|
6.73
|
|
|
|
9/22/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
(3)
|
|
|
|
|
|
$
|
22.37
|
(5)
|
|
|
11/2/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
500
|
(3)
|
|
|
|
|
|
$
|
15.44
|
(5)
|
|
|
11/14/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500
|
(3)
|
|
|
|
|
|
$
|
15.44
|
(5)
|
|
|
11/14/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
(3)
|
|
|
|
|
|
$
|
26.77
|
(5)
|
|
|
9/25/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
(3)
|
|
|
|
|
|
$
|
11.58
|
(5)
|
|
|
6/2/2014
|
|
|
|
|
|
|
|
|
|
Kate Rundle
|
|
|
|
|
|
|
40,000
|
(3)
|
|
$
|
2.40
|
|
|
|
11/26/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.40
|
|
|
|
11/26/2017
|
|
|
|
20,000
|
(6)
|
|
$
|
34,400
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.40
|
|
|
|
11/26/2017
|
|
|
|
20,000
|
(7)
|
|
$
|
34,400
|
|
|
|
|
(1) |
|
Calculated by multiplying the number of unvested shares by
$1.72, the closing price per share of our common stock on the
NASDAQ Global Market on June 27, 2008. |
|
(2) |
|
The total option award was fully vested on the date of grant.
Consists of awards made to Dr. Bordui as part of his
director compensation. |
|
(3) |
|
The total option award (which is the sum of exercisable,
unexercisable and exercised) vests 25% on the first anniversary
of the grant date, then 1/48th per month thereafter over the
remaining 36 months. |
|
(4) |
|
The total shares subject to the restricted stock option award
vests 50% upon Bookham achieving profitability and the remaining
50% vests upon our achieving cash break-even. On
September 22, 2008, all of the unvested restricted stock
expires. |
260
|
|
|
(5) |
|
Converted from British Pounds Sterling to U.S. Dollars using the
noon buying rate of exchange on August 1, 2008 of $1.981807
U.S. Dollars per British Pound Sterling. |
|
(6) |
|
These shares of restricted stock vest as to 25% on the one-year
anniversary of the grant date and an additional 2.083% at the
end of each month following the first anniversary of the grant
date until the fourth anniversary of the grant date. |
|
(7) |
|
These shares vest upon our achievement of adjusted EBITDA target
at fiscal 2008 year-end. |
|
(8) |
|
The restricted stock vests as to 50% after one year and 100%
after two years, provided that the director is serving as a
director on the applicable vesting date. |
Bookham
Option Exercises and Stock Vested
The following table sets forth information regarding options
exercised by the named executive officers and vesting of
restricted stock held by the named executive officers during the
fiscal year ended June 28, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
|
|
|
|
Number of
|
|
|
|
|
Number of
|
|
Value
|
|
Shares
|
|
|
|
|
Shares
|
|
Realized on
|
|
Acquired on
|
|
|
|
|
Acquired on
|
|
Exercise
|
|
Vesting
|
|
Value Realized
|
Name
|
|
Exercise (#)
|
|
($)(2)
|
|
(#)(1)
|
|
on Vesting ($)
|
|
Alain Couder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
Peter F. Bordui
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
$
|
27,450
|
|
Steve Abely
|
|
|
|
|
|
|
|
|
|
|
56,250
|
|
|
$
|
113,307
|
|
Jim Haynes
|
|
|
|
|
|
|
|
|
|
|
40,625
|
|
|
$
|
78,528
|
|
Adrian Meldrum
|
|
|
|
|
|
|
|
|
|
|
33,750
|
|
|
$
|
63,226
|
|
Steve Turley
|
|
|
|
|
|
|
|
|
|
|
30,208
|
|
|
$
|
55,672
|
|
Kate Rundle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
(1) |
|
Reflects restricted stock that vested in fiscal year 2008. |
|
(2) |
|
Amounts shown represent the difference between the number of
shares of restricted stock multiplied by the market value of the
shares on the vesting date. |
Bookham
Employment, Change of Control and Severance
Arrangements
Each of Messrs. Haynes and Meldrum has an employment
agreement with Bookham Technology plc. These agreements describe
the individuals salary, bonus and other benefits including
medical and life insurance coverage, car allowance, vacation and
sick days, and pension plan participation. The agreements also
contain a prohibition on the use or disclosure of our
confidential information, such as trade secrets, patents and
customer information, for non-business purposes. These
agreements contain a prohibition on being employed by or
otherwise involved with any of our competitors for a period of
six months after either has stopped working for us. Their
agreements also contain a non-competition clause prohibiting
each from dealing with our customers or prospective customers,
and a non-solicitation clause prohibiting each from dealing with
certain of our suppliers, prospective suppliers, senior
executives, salespersons and other key employees, for a period
of twelve months after each has stopped working for us.
In July 2007, we entered into an employment agreement with Alain
Couder with respect to his employment as our President and Chief
Executive Officer. The employment agreement provides that
Mr. Couder will be entitled to receive an initial base
salary at an annualized rate of $500,000 and will be eligible
for a yearly bonus of up to 100% of his base salary, subject to
achievement of individual and company performance targets.
Pursuant to the employment agreement Mr. Couder was to
receive a grant of options and restricted stock.
Mr. Couders employment may be terminated by us with
or without cause at any time and by Mr. Couder with
60 days notice. If we terminate
Mr. Couders employment without cause or if
Mr. Couder terminates his employment for good reason,
Mr. Couder will be entitled to 12 months salary
and benefits.
261
Effective April 30, 2008, in connection with
Dr. Turley ceasing to be our Vice President and Chief
Commercial Officer, Bookham Technology plc, our wholly-owned
subsidiary, entered into an agreement with Dr. Turley,
approved by the compensation committee, pursuant to which
Dr. Turley received, in lieu of any advance notice,
termination or severance payments to which he may otherwise have
been entitled, an aggregate payment of £214,061 ($423,769
based on exchange rate on the agreement date) consisting of
(i) severance pay equal to 14 months of
Dr. Turleys base salary, (ii) accrued vacation
through the effective date of his resignation,
(iii) certain reimbursement costs and (iv) payments
covering his benefits, pension and car allowance for an
equivalent of four months.
Our executive officers are elected by our board of directors and
serve at its discretion, subject to a three-month notice period
in the case of Messrs. Meldrum and Haynes. The agreements
provide that the notice period does not apply if the officer is
being terminated for cause, which is defined to include gross
misconduct; conduct which our board of directors determines
brings the individuals or us into disrepute or a serious breach
of the employment agreement.
On May 7, 2007, we entered into a letter agreement with
Dr. Bordui with respect to his employment as our interim
President and Chief Executive Officer. The agreement was
terminated on August 12, 2007 upon the hiring of
Mr. Couder as our President and Chief Executive Officer and
30 days written notice by Bookham. This agreement
provided for an annualized salary of $500,000 for the one-year
period commencing on February 13, 2007. This agreement also
contains a prohibition on the use or disclosure of our
confidential information, such as trade secrets, patents and
customer information, for non-business purposes.
Each of our named executive officers entered into a formal
Executive Severance and Retention Agreement in May, 2008. These
agreements provide for the payment of base salary and accrued
bonus in the event of a termination of employment without cause.
In addition these agreements provide for the payment of base
salary, accrued bonus, and stock acceleration as outlined in the
table below, in the event of a change in control or termination
of employment without cause or for good reason (as defined in
the Executive Severance and Retention Agreement), provided that
the individual is employed by us on the date of the closing of
the change in control. Payments of salary and accrued bonuses
made under the agreement following a change of control are
subject to a double trigger, meaning that both a
change of control and a termination are required. Acceleration
of stock is subject to a single trigger, meaning the shares of
restricted stock or restricted stock units and stock options
will vest in full upon the consummation of a change of control.
A change in control means, in summary: (i) the acquisition
by a party or group of 50% or more of the outstanding stock of
the company; (ii) a change, without Board of Directors
approval, of a majority of the Board of Directors;
(iii) the acquisition of the company by means of a
reorganization, merger, consolidation or asset sale; or
(iv) the approval of a liquidation of the company.
We believe providing these benefits helps us compete for and
retain the best possible executive talent. After reviewing the
practices of companies represented in our peer group, we believe
that our severance and change of control benefits are generally
comparable with, if not below, the median of severance packages
offered to executives by companies in our peer group. We also
believe that a change of control agreement is necessary to
diminish the inevitable distraction of executives by virtue of
the personal uncertainties and risks created by a pending or
threatened change of control. This along with the severance
agreement are designed to encourage the executives full
attention and dedication and to provide a compensation and
benefits arrangement satisfactory to the executive officer.
Bookham
Indemnification Agreements
In January 2008, Bookhams board of directors approved a
form of indemnification agreement, which we refer to as the
Indemnification Agreement, which has been or will be entered
into with each of our directors and executive officers. Pursuant
to the terms of the Indemnification Agreement, and subject to
certain conditions, we will indemnify our officers and directors
who have entered into such Indemnification Agreement from
liability under specified circumstances identified in the
Indemnification Agreement, including, but not limited to, in
connection with such director or officer being named as a party
(or the threat of being made a party) to a suit or proceeding as
a result of any action alleged to have been taken or omitted as
a
262
result of performing functions for Bookham as a director,
officer, employee, agent or fiduciary of Bookham or in certain
other designated positions. Bookham expects to enter into an
Indemnification Agreement with each of the Bookham directors and
executive officers who is not already party to an
Indemnification Agreement with Bookham following completion of
the merger.
Bookham
Potential Payments Upon Termination or Change of
Control
The table below shows the benefits potentially payable to each
of our named executive officers if he or she was terminated or a
change of control occurred. These amounts are calculated on the
assumption that the employment termination or change of control
took place on June 28, 2008. The closing price per share of
our common stock on the NASDAQ Global Market on June 27,
2008 was $1.72.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base
|
|
Target
|
|
Accelerated
|
|
Accelerated
|
|
|
|
|
|
|
Salary
|
|
Bonus
|
|
Vesting of
|
|
Vesting of
|
|
Benefits
|
|
Total
|
Name
|
|
($)
|
|
($)
|
|
Options(3)
|
|
Restricted Stock
|
|
($)(2)
|
|
($)
|
|
Alain Couder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
termination without cause
|
|
$
|
536,530
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
25,543
|
|
|
$
|
562,073
|
|
change of control
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
645,000
|
|
|
$
|
|
|
|
$
|
645,000
|
|
Steve Abely
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
termination without cause
|
|
$
|
417,160
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
39,231
|
|
|
$
|
456,390
|
|
change of control
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
389,761
|
|
|
$
|
|
|
|
$
|
389,761
|
|
Jim Haynes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
termination without cause
|
|
$
|
370,272
|
(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
11,131
|
(1)
|
|
$
|
381,403
|
(1)
|
change of control
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
273,360
|
|
|
$
|
|
|
|
$
|
273,360
|
|
Adrian Meldrum
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
termination without cause
|
|
$
|
338,677
|
(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,594
|
(1)
|
|
$
|
341,271
|
(1)
|
change of control
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
161,229
|
|
|
$
|
|
|
|
$
|
161,229
|
|
Kate Rundle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
termination without cause
|
|
$
|
214,726
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,844
|
|
|
$
|
224,570
|
|
change of control
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
38,800
|
|
|
$
|
|
|
|
$
|
38,800
|
|
|
|
|
(1) |
|
All figures converted from British Pounds Sterling to U.S.
Dollars using the noon buying rate of exchange on August 1,
2008 of $1.981807 U.S. Dollars per British Pound Sterling. |
|
(2) |
|
Consists of payment for accrued vacation. |
|
(3) |
|
Exercise prices of options granted are higher than the closing
market price of $1.72 on the NASDAQ at June 27, 2008, hence
calculated value of acceleration is zero. |
Compensation
Committee Interlocks and Insider Participation in Compensation
Decisions
None of the persons who as of the date hereof are expected to
serve on the compensation committee of Bookham following the
completion of the merger (i) has ever been an officer or
employee of either Bookham or Avanex nor any subsidiary of
Bookham or Avanex, or (ii) except to the extent described
under The Merger Interests of Bookhams
Directors in the Merger and The Merger
Interests of Avanexs Executive Officers and Directors in
the Merger, engaged in any related person transactions
within the meaning of Item 404(a) of
Regulation S-K.
However, Dr. Bordui, who currently serves on Bookhams
compensation committee, served as Bookhams interim Chief
Executive Officer from February 2007 to August 2007. None of the
individuals that as of the date hereof are expected to serve as
an executive officer of Bookham following the completion of the
merger served during the year ended June 28, 2008 as a member of
the board of directors or compensation committee of any entity
that has one or more executive officers serving on
Bookhams or Avanexs board of directors or
compensation committee.
263
Bookham
Equity Compensation Plan Information
The following table provides information about the securities
authorized for issuance under Bookhams equity compensation
plans as of June 28, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Number of
|
|
|
|
|
|
|
|
|
|
Securities Remaining
|
|
|
|
(a) Number of
|
|
|
(b) Weighted
|
|
|
Available for Future
|
|
|
|
Securities to be
|
|
|
Average Exercise
|
|
|
Issuance Under Equity
|
|
|
|
Issued Upon Exercise
|
|
|
Price of
|
|
|
Compensation Plans
|
|
|
|
of Outstanding
|
|
|
Outstanding
|
|
|
(Excluding Securities
|
|
|
|
Options, Warrants
|
|
|
Options, Warrants
|
|
|
Reflected in Column
|
|
Plan Category
|
|
and Rights(1)
|
|
|
and Rights
|
|
|
(a)(2))
|
|
|
Equity compensation plans approved by security holders(3)
|
|
|
6,516,414
|
(4)
|
|
$
|
4.67
|
|
|
|
13,105,257
|
(5)
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6,516,414
|
(4)
|
|
$
|
4.67
|
|
|
|
13,105,257
|
(5)
|
|
|
|
(1) |
|
This table excludes an aggregate of 305,770 shares of
common stock issuable upon exercise of outstanding options we
assumed in connection with the scheme of arrangement pursuant to
which Bookham Technology plc became our wholly owned subsidiary.
The weighted average exercise price of these options as of
June 28, 2008 was $31.35. At the time of the scheme of
arrangement, we provided that no further equity awards would be
made under the Bookham Technology plc equity plans. |
|
(2) |
|
In addition to being available for future issuance upon exercise
of options that may be granted after June 28, 2008,
12,105,257 shares under the Amended and Restated 2004 Stock
Incentive Plan, may instead be issued in the form of restricted
stock, restricted stock units, unrestricted stock, stock
appreciation rights, performance shares, stock options or other
equity based awards. |
|
(3) |
|
Consists of the following equity compensation plans: the Amended
and Restated 2004 Stock Incentive Plan, the 2004 Employee Stock
Purchase Plan and the 2004 Sharesave Scheme. |
|
(4) |
|
Consists of options granted under the Amended and Restated 2004
Stock Incentive Plan. The number of shares of common stock does
not include 1,595,308 shares of restricted stock and
restricted stock units granted under the Amended and Restated
2004 Stock Incentive Plan, 12,105,257 shares of common
stock currently reserved for issuance under the Amended and
Restated Stock Incentive Plan or 500,000 shares of common
stock reserved for issuance under the 2004 Employee Stock
Purchase Plan or 500,000 shares reserved for issuance under
the 2004 Sharesave Scheme. |
|
(5) |
|
Includes 500,000 shares of common stock issuable under the
2004 employee stock purchase plan (inactive) and
500,000 shares of common stock issuable under the
2004 Sharesave Scheme (inactive). |
Director
Compensation
Bookham
Compensation of Directors
Bookham currently reimburses directors for reasonable
out-of-pocket expenses incurred in attending meetings of the
board of directors and any meetings of its committees. Each
non-employee director receives an annual retainer of $20,000, an
additional $3,000 for each in-person meeting of the board of
directors that the director attends and $500 for each
teleconference of the board of directors or committee of the
board of directors that the director attends. The chairman of
the board of directors receives an annual retainer of $80,000.
In addition, the chairman of the audit committee receives an
annual fee of $36,000, the chairman of the compensation
committee receives an annual fee of $16,000 and the chairman of
the nominating and corporate governance committee receives an
annual fee of $16,000. Each member of the compensation committee
and each member of the nominating and corporate governance
committee receives an annual fee of $4,000 for serving on such
committee and each member of the audit committee receives an
annual fee of $8,000 for serving on such committee.
Pursuant to a resolution adopted by Bookhams board of
directors, each year at its annual meeting of stockholders, each
non-employee director is automatically granted a nonstatutory
stock option to acquire
264
10,000 shares of Bookham common stock and an award of
restricted stock or restricted stock units for
10,000 shares of our common stock under the Amended and
Restated 2004 Stock Incentive Plan, provided that the director
is serving as a director both immediately before and immediately
after the annual meeting. Options granted to non-employee
directors provide that the shares subject to such option vest
immediately and, with respect to restricted stock granted prior
to January 2008 to Bookhams non-employee directors, such
restricted stock vests as to 50% after one year and 100% after
two years from the date of grant, provided that the director is
serving as a director on the applicable vesting date. In
connection with the adoption of the Amended and Restated 2004
Stock Incentive Plan in January 2008, restricted stock awards
granted to non-employee directors under the Amended and Restated
2004 Stock Incentive Plan will provide that the shares subject
to such award vest in accordance with the following schedule:
(i) no more than one-third vests prior to the earlier of
the first anniversary of the date of grant or the date of the
first annual meeting held after the date of grant, (ii) no
more than two-thirds vest prior to the earlier of the second
anniversary of the date of grant or the date of the second
annual meeting held after the date of grant, and (iii) the
balance vests at a rate no more than ratably over the period
from the second anniversary of the date of grant to the third
anniversary of the date of grant (or, if the date of the third
annual meeting held after the date of grant is earlier than the
third anniversary of the date of grant, the period from the
second anniversary of the date of grant to the third annual
meeting held after the date of grant). The shares of restricted
stock or restricted stock units vest in full upon a consummation
of a change in control of Bookham, provided that the director
serves as a director until such date. In its discretion, Bookham
may grant additional equity awards to its non-employee directors
under the Amended and Restated 2004 Stock Incentive Plan.
In connection with the merger and subject to its closing, all
stock options and restricted stock awards held by directors of
Bookham who will not be a director of Bookham following the
completion of the merger will accelerate in full and be vested
and free of restrictions. In addition, all stock options held by
such directors may be exercised for a period of one year.
Avanex
Compensation of Directors
Overview. Avanex uses a combination of cash
and equity compensation to attract and retain qualified
candidates to serve on its board of directors. The corporate
governance and nominating committee of the board of directors is
responsible to evaluate director compensation and, if
appropriate, recommend any changes in the type or amount of
compensation to the board of directors. Any change in director
compensation is approved by the board of directors.
Cash Compensation. Each non-employee director
is entitled to receive a quarterly retainer of $5,000 in cash
compensation for service on the Avanex board of directors. In
addition, non-employee directors are entitled to receive the
following cash compensation for service on committees of the
board of directors: chair of the audit committee, $3,000 per
quarter; chairs of the compensation committee and the corporate
governance and nominating committee, $2,000 per quarter; member
of the audit committee, $1,500 per quarter; member of the
compensation committee and the corporate governance and
nominating committee, $1,000 per quarter.
Per Meeting Fees. In fiscal year 2008, each
non-employee director was eligible to receive shares of
restricted stock for attendance at meetings of the board of
directors. For each in-person meeting of the board of directors
that a non-employee director attended, such director was
eligible to receive a number of shares of restricted stock with
an aggregate fair market value of $1,500. For each telephonic
meeting of the board of directors that a non-employee director
attended, such director was eligible to receive a number of
shares of restricted stock with an aggregate fair market value
of $500. For each in-person meeting of a committee of the board
of directors that a non-employee director attended, such
director was eligible to receive a number of shares of
restricted stock with an aggregate fair market value of $1,000.
For each telephonic meeting of a committee of the board of
directors that a non-employee director attended, such director
was eligible to receive a number of shares of restricted stock
with an aggregate fair market value of $500. The shares of
restricted stock were granted once per fiscal quarter at the
same time each quarter, and the fair market value and aggregate
number of the restricted shares was determined on the day of
such grant in accordance with Avanexs 1998 Stock Plan.
Non-employee directors who attended meetings of the board of
directors during the
265
previous fiscal quarter but who were no longer directors on the
date that such restricted stock was granted were not be eligible
to receive such grants.
Beginning in fiscal year 2009, each non-employee director is
eligible to receive cash compensation for attendance at meetings
of the board of directors. For each in-person meeting of the
board of directors that a non-employee director attends, such
director is eligible to receive cash compensation of $1,500. For
each telephonic meeting of the board of directors that a
non-employee director attends, such director is eligible to
receive cash compensation of $500. For each in-person meeting of
a committee of the board of directors that a non-employee
director attends, such director is eligible to receive cash
compensation of $1,000. For each telephonic meeting of a
committee of the board of directors that a non-employee director
attends, such director is eligible to receive cash compensation
of $500.
Equity Compensation. Directors are also
eligible to receive options to purchase Avanex common stock
pursuant to Avanexs 1998 Stock Plan and 1999 Director
Option Plan. The 1999 Director Option Plan provides for
annual automatic grants of nonstatutory stock options to
continuing non-employee directors who beneficially own less than
one percent of the voting power represented by the outstanding
securities of Avanex. Under the 1999 Director Option Plan,
each such director is eligible to receive a nonstatutory stock
option grant of 5,333 shares of Avanex common stock upon
his or her initial election to the board of directors (an
Initial Grant). On the date of each annual
stockholders meeting, each individual who is at the time
continuing to serve as a non-employee director meeting the
criteria described above and has served on the board of
directors for at least the prior six months is automatically
granted an option to purchase 1,333 shares of Avanex common
stock (a Subsequent Grant). All options
automatically granted to directors under the 1999 Director
Option Plan have an exercise price equal to 100% of the fair
market value of Avanex common stock on the date of grant. Each
Initial Grant vests and becomes exercisable in four equal annual
installments, and each Subsequent Grant vests and becomes
exercisable on the first anniversary of the grant date. In
addition, the 1999 Director Option Plan provides that each
non-employee director who meets the criteria described above and
has served on the board of directors for at least the prior six
months will receive an automatic annual grant of 667 restricted
stock units, to be granted on the date of each annual
stockholders meeting and to vest 100% upon the one-year
anniversary of such grant.
Change of Control and Option
Exercisability. Pursuant to Avanexs
1999 Director Option Plan, immediately upon a change of
control, as defined in the plan, options to purchase Avanex
common stock will become fully vested and exercisable. In
addition, options to purchase shares of Avanex common stock
granted to Dr. Cerf on December 10, 1999,
October 18, 2001 and December 18, 2002 under
Avanexs 1998 Stock Plan contain similar provisions. Each
of the stock option agreements of Messrs. Dougherty, J.
Smith, P. Smith and Wolf, Dr. Cerf and Ms. Wang
provide for an exercise period extending until two years after
the termination of such persons service with Avanex, but
in no event beyond the options normal expiration dates.
Director
Compensation Table: Combined Company Directors from
Bookham
The following table shows for the fiscal year ended
June 28, 2008 certain information with respect to the
director compensation of all non-employee directors of Bookham
that are currently expected to serve as non-employee directors
of Bookham immediately following the merger:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
Stock Awards
|
|
Option
|
|
Total
|
Name
|
|
Paid in Cash ($)
|
|
($)(1)
|
|
Awards ($)(1)
|
|
($)
|
|
Lori Holland
|
|
$
|
72,517
|
|
|
$
|
26,995
|
(2)
|
|
$
|
20,452
|
(3)
|
|
$
|
119,963
|
|
Edward B. Collins
|
|
$
|
6,083
|
|
|
$
|
8,683
|
|
|
$
|
5,205
|
(4)
|
|
$
|
11,288
|
|
Bernard J. Couillaud
|
|
$
|
6,083
|
|
|
$
|
8,683
|
|
|
$
|
5,205
|
(4)
|
|
$
|
11,288
|
|
|
|
|
(1) |
|
The amounts in this column reflect the dollar amount recognized
for financial statement reporting purposes for fiscal 2008, in
accordance with Statement of Financial Accounting Standards
No. 123R, Share-Based Payment, or
SFAS 123R, of equity awards issued under our equity plan,
including equity awards granted in and prior to fiscal 2008.
There can be no assurance that the SFAS 123R amounts will
ever be realized. The assumptions we used to calculate these
amounts are included in Note 1 to our audited financial |
266
|
|
|
|
|
statements for fiscal 2008, included in our annual report on
Form 10-K
for fiscal 2008 filed on September 5, 2008. The options
vest as to 100% of the shares subject to the option on the date
of grant. Each option has a term of 10 years, and generally
expires after the recipient ceases to be a director. Except with
respect to Messrs. Collins and Couillaud whose restricted
stock vests over three years, the restricted stock vests as to
50% after one year and 100% after two years, provided that the
director is serving as a director on the applicable vesting date. |
|
(2) |
|
Consists of the grant date fair value, computed in accordance
with SFAS 123R, of $11,188 of the restricted stock award granted
on October 23, 2007 and the grant date fair value, computed
in accordance with SFAS 123R, of $15,807 of the restricted
stock award granted on November 1, 2006. |
|
(3) |
|
Consists of the grant date fair value, computed in accordance
with SFAS 123R, of $20,452 of the stock option award granted on
October 23, 2007. |
|
(4) |
|
Consists of the grant date fair value, computed in accordance
with SFAS 123R, of $5,205 of the stock option award granted on
May 13, 2008. |
The following table summarizes the number of outstanding options
and stock awards held by all non-employee directors of Bookham
that are expected to serve as non-employee directors of Bookham
immediately following the merger, as of the end of fiscal 2008.
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Option
|
|
Name
|
|
Awards(1)
|
|
|
Awards(2)
|
|
|
Lori Holland
|
|
|
30,000
|
|
|
|
78,664
|
|
Edward B. Collins
|
|
|
5,000
|
|
|
|
5,000
|
|
Bernard J. Couillaud
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
|
(1) |
|
Stock awards include both vested and unvested shares of common
stock subject to such awards. |
|
(2) |
|
Option awards include both vested and unvested shares of common
stock subject to such awards. |
Director
Compensation Table: Combined Company Directors from
Avanex
The following table shows for the fiscal year ended
June 30, 2008 certain information with respect to the
director compensation of all non-employee directors of Avanex
that are currently expected to serve as non-employee directors
of Bookham immediately following the merger:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
|
|
|
|
Fees Earned
|
|
|
Stock
|
|
|
Awards
|
|
|
|
|
|
|
or Paid in
|
|
|
Awards
|
|
|
($)
|
|
|
|
|
Name
|
|
Cash ($)
|
|
|
($)(1)(2)
|
|
|
(1)(3)
|
|
|
Total ($)
|
|
|
Giovanni Barbarossa(4)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Greg Dougherty
|
|
$
|
46,500
|
(5)
|
|
$
|
44,496
|
|
|
$
|
26,843
|
|
|
$
|
117,839
|
|
Joel A. Smith, III
|
|
$
|
21,500
|
(6)
|
|
$
|
5,994
|
|
|
$
|
13,617
|
|
|
$
|
41,111
|
|
|
|
|
(1) |
|
Reflects the dollar amount recognized for financial statement
reporting purposes (disregarding an estimate of forfeitures
related to service-based vesting conditions) for fiscal 2008, in
accordance with SFAS 123(R), and thus may include amounts
from awards granted in and prior to 2008. The assumptions used
in the valuation of these awards are set forth in the notes to
our consolidated financial statements, which are included in the
Avanex Annual Report on
Form 10-K
for the year ended June 30, 2008, filed with the SEC on
September 5, 2008. These amounts do not correspond to the
actual value that will be recognized by the directors. |
|
(2) |
|
In fiscal year 2008, Avanexs non-employee directors that
are expected to serve as non-employee directors of the combined
company following the merger received the following options to
purchase shares of Avanex common stock pursuant to Avanexs
1999 Director Option Plan, which vests and becomes
exercisable on the first anniversary of the grant date: |
267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Shares
|
|
Exercise
|
|
Grant Date
|
|
|
Underlying
|
|
Price per
|
|
Fair Value
|
Grant Date
|
|
Option (#)
|
|
Share ($)
|
|
($)
|
|
11/15/2007
|
|
|
1,333
|
|
|
$
|
23.55
|
|
|
$
|
31,392
|
|
|
|
|
|
|
In fiscal year 2008, Avanexs non-employee directors that
are expected to serve as non-employee directors of the combined
company following the merger received the following restricted
stock units pursuant to the Companys 1999 Director
Option Plan, which vest and become exercisable on the first
anniversary of the grant date: |
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
Shares
|
|
Grant Date
|
|
|
Underlying
|
|
Fair Value
|
Grant Date
|
|
RSU (#)
|
|
($)
|
|
11/15/2007
|
|
|
666
|
|
|
$
|
15,684
|
|
|
|
|
|
|
In fiscal year 2008, Avanexs non-employee directors that
are expected to serve as non-employee directors of the combined
company following the merger received the following shares of
restricted common stock pursuant to Avanexs 1998 Stock
Plan for attendance at meetings of the Board of Directors and
committees of the Board of Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Shares Underlying
|
|
|
|
|
|
|
Restricted
|
|
Grant Date Fair
|
|
|
|
|
Stock Grants
|
|
Value
|
Name
|
|
Grant Date
|
|
(#)
|
|
($)
|
|
Greg Dougherty
|
|
|
10/22/2007
|
|
|
|
386
|
|
|
$
|
9,496
|
|
|
|
|
01/21/2008
|
|
|
|
486
|
|
|
$
|
6,998
|
|
|
|
|
04/21/2008
|
|
|
|
384
|
|
|
$
|
4,493
|
|
|
|
|
07/21/2008
|
|
|
|
804
|
*
|
|
$
|
10,492
|
|
Joel A. Smith, III
|
|
|
10/22/2007
|
|
|
|
182
|
|
|
$
|
4,477
|
|
|
|
|
01/21/2008
|
|
|
|
243
|
|
|
$
|
3,499
|
|
|
|
|
04/21/2008
|
|
|
|
341
|
|
|
$
|
3,990
|
|
|
|
|
07/21/2008
|
|
|
|
574
|
*
|
|
$
|
7,491
|
|
* Granted in fiscal 2009 for fees earned in the fourth quarter
of fiscal 2008.
|
|
(3) |
As of June 30, 2008, the aggregate number of shares
underlying options and restricted stock units outstanding for
each of Avanexs non-employee directors that is expected to
serve as non-employee directors of the combined company
following the merger was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
Aggregate
|
|
Number of
|
|
|
Number of Shares
|
|
Shares
|
|
|
Underlying
|
|
Underlying
|
Name
|
|
Options
|
|
RSUs
|
|
Greg Dougherty
|
|
|
6,665
|
|
|
|
666
|
|
Joel A. Smith, III
|
|
|
8,829
|
|
|
|
666
|
|
|
|
|
(4) |
|
Dr. Barbarossa is expected to be a director of the combined
company, is currently the chief executive officer of Avanex and
since November 13, 2008, has served as a director of
Avanex. Dr. Barbarossa did not serve as a director of
Avanex in the fiscal year ended June 30, 2008, and, thus,
did not receive any compensation as a director of Avanex. |
|
(5) |
|
Includes $10,500 of attendance fees earned in the fourth quarter
of fiscal 2008, but paid in 804 restricted stock units on
July 21, 2008, with immediate vesting. |
|
(6) |
|
Includes $7,500 of attendance fees earned in the fourth quarter
of fiscal 2008, but paid in 574 restricted stock units on
July 21, 2008, with immediate vesting. |
268
Compensation
of Directors of the Combined Company
Bookham has not yet determined whether the compensation for the
directors of the combined company will remain the same as that
for Bookham directors currently.
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS OF COMBINED
COMPANY
Following the merger, Bookham is currently expected to initially
have a seven member board of directors, comprised of two
individuals who are currently members of the Avanex board of
directors, Greg Dougherty and Joel A. Smith, III, one individual
who is currently an executive officer and director of Avanex,
Giovanni Barbarossa, and four individuals who are currently
members of the Bookham board of directors, Alain Couder, Bernard
Couillaud, Lori Holland and Edward Collins. However, a final
determination as to who will be appointed to the Bookham board
of directors immediately following the merger has not been made
and the persons who will serve as Bookham directors immediately
following the merger may change. See Management and other
Information of the Combined Company Executive
Officers and Directors of Bookham Following the Merger.
Policies
and Procedures for Related Person Transactions of the Combined
Company
Bookhams board or directors has adopted a written policy
that contains procedures for the reporting and review of any
transaction, arrangement or relationship in which Bookham is a
participant, the amount involved exceeds $120,000, and one of
its executive officers, directors, director nominees or 5%
stockholders (or their immediate family members), each of whom
Bookham refers to as a related person, has a direct
or indirect material interest.
If a related person proposes to enter into such a transaction,
arrangement or relationship, which Bookham refers to as a
related person transaction, the related person must
report the proposed related person transaction to our general
counsel. Bookhams policy requires that the proposed
related person transaction be reviewed and, if deemed consistent
with the standards contained in our policy, approved by the
audit committee of our board of directors. Whenever practicable,
the reporting, review and approval must occur prior to the
effectiveness or consummation of the transaction. If advance
review and approval is not practicable, the audit committee must
review, and, in its discretion, may ratify the related person
transaction. The policy permits the chairman of the audit
committee to review and, if deemed consistent with the standards
contained in our policy, approve the proposed related person
transaction if it arises between audit committee meetings,
subject to ratification of the related person transaction by our
audit committee at its next meeting. Any related person
transaction that is ongoing in nature must be reviewed annually
by our audit committee.
A related person transaction reviewed under the policy will be
considered approved or ratified if it is authorized by the audit
committee after full disclosure of the related persons
interest in the transaction. As appropriate for the
circumstances, the audit committee must review and consider:
|
|
|
|
|
the related persons interest in the related person
transaction;
|
|
|
|
the approximate dollar value of the amount involved in the
related person transaction;
|
|
|
|
the approximate dollar value of the amount of the related
persons interest in the transaction without regard to the
amount of any profit or loss;
|
|
|
|
whether the transaction was undertaken in the ordinary course of
our business;
|
|
|
|
whether the transaction with the related person is proposed to
be, or was, entered into on terms no less favorable to us than
terms that could have been reached with an unrelated third party;
|
|
|
|
the purpose of, and the potential benefits to us of, the related
person transaction; and
|
|
|
|
any other information regarding the related person transaction
or the related person in the context of the proposed transaction
that would be material to investors in light of the
circumstances of the particular transaction.
|
269
The audit committee may approve or ratify the transaction only
if our audit committee determines that, under all of the
circumstances, the transaction is in, or is not inconsistent
with, Bookhams best interests. The audit committee may
impose any conditions on the related person transaction that it
deems appropriate.
The policy excludes from the definition of related person
transaction the transactions identified by the SEC as not
requiring disclosure under the SECs related person
transaction disclosure rule. Accordingly, such transactions are
not subject to reporting, review, approval or ratification under
our policy. In addition, our board of directors has determined
that, under certain circumstances, a transaction does not create
a material direct or indirect interest on behalf of a related
person (and therefore is not a related person transaction under
our policy) including if:
|
|
|
|
|
the transaction is specifically contemplated by the provisions
of our restated certificate of incorporation or bylaws; or
|
|
|
|
the related persons interests in the transaction arise
solely from his or her position as an executive officer of
another entity (whether or not he or she is also a director of
such entity) that is a participant in the transaction, where
(i) the related person and all other related persons own in
the aggregate less than a 10% equity interest in such entity,
(ii) the related person and his or her immediate family
members are not involved in the negotiation of the terms of the
transaction and do not receive any special benefits as a result
of the transaction, and (iii) the amount involved in the
transaction equals less than the greater of $200,000 or 5% of
the annual consolidated gross revenues of the entity receiving
payment under the transaction.
|
Transactions
with Bookham Related Persons
Since the beginning of fiscal year 2008, there have not been any
transactions, nor are there any currently proposed transactions,
in which Bookham was or is to be a participant, the amount
involved exceeded $120,000 or one percent of the average of
Bookhams total assets at year end for the last two
completed fiscal years, and any related person had or will have
a material direct or indirect interest.
Reference is made to the section entitled The
Merger Interests of Bookhams Directors in the
Merger.
Transactions
with Avanex Related Persons
In July 2003, in connection with Avanexs acquisition of
the optical components business of Alcatel, Avanex issued
35,369,834 shares of the Avanex common stock to Alcatel,
and Avanex entered into an intellectual property licensing
agreement, supply agreement, frame purchase agreement and
transition services agreement with Alcatel. The supply agreement
and transition services agreements were each amended in October
2005. Products sold to Alcatel accounted for $13.3 million,
or 24% of Avanexs net revenue during the first quarter of
fiscal 2008.
On October 29, 2007, the Pirelli Group acquired all the
shares of Avanexs common stock then held by
Alcatel-Lucent. As of January 30, 2009, the Pirelli Group
beneficially owned approximately 12.09% of Avanexs
outstanding common stock. Products sold to the Pirelli Group
accounted for $0.1 million, or 0% of Avanexs net
revenue during the last 3 quarters of fiscal 2008. For the six
months ended December 31, 2008, products sold to the
Pirelli Group accounted for $0.1 million or 0% of
Avanexs net revenue for that period. In addition, Avanex
purchased $1.0 million of raw materials and components from
the Pirelli Group during the last 3 quarters of fiscal 2008.
Avanex purchased $0.8 million of raw materials and
components from the Pirelli Group for the six months ended
December 31, 2008.
Reference is made to the section entitled The
Merger Interests of Avanexs Executive Officers
and Directors in the Merger.
270
CHANGE IN
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM OF
BOOKHAM
On February 11, 2008, Bookham dismissed Ernst &
Young LLP, or EY, as its independent registered public
accounting firm. The decision to dismiss EY was approved by our
audit committee.
The reports of EY on Bookhams financial statements as of
June 30, 2007 and July 1, 2006 and for each of the two
fiscal years in the period ended June 30, 2007, contained
no adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or
accounting principles, other than to include explanatory
paragraphs related to substantial doubt about the our ability to
continue as a going concern and for the change of method of
accounting for stock based compensation to Statement of
Financial Accounting Standards No. 123(R),
Share-Based Payment in the auditors report
related to fiscal 2006.
During the fiscal years ended June 30, 2007, and
July 1, 2006, and in the subsequent interim period through
February 11, 2008, there have been no disagreements with EY
on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of EY, would
have caused EY to make reference thereto in its reports on our
financial statements for such years.
During the years ended June 30, 2007 and July 1, 2006
and in the subsequent interim period through February 11,
2008, other than as set forth in the following sentence there
have been no reportable events (as defined in
Item 304(a)(1)(v) of
Regulation S-K).
As previously reported in Bookhams Annual Report on
Form 10-K
for the period ended June 30, 2006, Bookhams
management identified a material weakness in its internal
control related to the translation of intercompany loan balances
in periods prior to July 1, 2006. Management believes that
changes made to its internal controls in the quarter ended
September 29, 2006 remediated this past material weakness
by the end of the quarter ended December 30, 2006.
In connection with the filing of the Current Report on
Form 8-K,
which was filed on February 14, 2008, Bookham furnished a
copy of the above disclosures to EY and requested that EY
furnish Bookham with a letter addressed to the Securities and
Exchange Commission stating whether or not EY agrees with the
above statements. A copy of such letter dated February 13,
2008 was attached as Exhibit 16.1 to such Current Report on
Form 8-K.
On February 11, 2008, Bookham engaged Grant Thornton LLP,
or Grant Thornton, as its new independent registered public
accounting firm to audit its financial statements for the year
ended June 28, 2008 and to review the financial statements
to be included in the its quarterly report on
Form 10-Q
for the quarter ending March 29, 2008.
Prior to Bookhams engagement of Grant Thornton, neither
Bookham nor anyone on behalf of Bookham consulted with Grant
Thornton during the two most recent fiscal years and through the
subsequent interim periods in any manner regarding any matters
described in Item 304(a)(2)(i) or Item 304(a)(2)(ii)
of
Regulation S-K.
LEGAL
MATTERS
Cooley Godward Kronish LLP, Palo Alto, California, will pass
upon the validity of the Bookham common stock offered by this
joint proxy statement/prospectus. The material U.S. federal
income tax consequences of the merger will be passed upon for
Bookham by Cooley Godward Kronish LLP and for Avanex by Wilson
Sonsini Goodrich & Rosati, Professional Corporation.
EXPERTS
The consolidated financial statements of Bookham as of and for
the year ended June 28, 2008 included in this joint proxy
statement/prospectus and registration statement have been
audited by Grant Thornton LLP, independent registered public
accounting firm, as set forth in their report appearing
elsewhere herein (which report includes an explanatory paragraph
referring to Bookhams adoption of Financial Accounting
Standards Board Interpretation No. 48 Accounting for
Uncertainty in Income Taxes an interpretation of
FASB
271
Statement No. 109). Such consolidated financial
statements are included herein in reliance upon such report
given on the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of Bookham as of
June 30, 2007 and for each of the two years in the period
ended June 30, 2007 included in this Joint Proxy Statement
and made part of this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent
registered public accounting firm, as set forth in their report
thereon appearing elsewhere herein, and are included herein in
reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of Avanex as of
June 30, 2008 and 2007 and for each of the three years in
the period ended June 30, 2008 included in this joint proxy
statement/prospectus and registration statement, have been
audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as stated in their report
appearing elsewhere herein (which report expresses an
unqualified opinion on the consolidated financial statements and
includes explanatory paragraphs referring to
(i) Avanexs change in method of accounting for
uncertainties in income taxes upon adoption of Financial
Accounting Standards Board (FASB) Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement
No. 109, effective July 1, 2007, and in its method
of accounting for defined benefit pension and other
postretirement plans upon the adoption of FASB Statement
No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans an amendment
of FASB Statements No. 87, 88, 106, and 132(R) as of
June 30, 2007 and (ii) Avanexs ability to
continue as a going concern). Such consolidated financial
statements have been so included in reliance upon the report of
such firm given upon their authority as experts in accounting
and auditing.
HOUSEHOLDING
OF JOINT PROXY STATEMENT/PROSPECTUS
As permitted by the Securities Exchange Act, only one copy of
this joint proxy statement/prospectus is being delivered to
stockholders residing at the same address, unless stockholders
have notified the company whose shares they hold of their desire
to receive multiple copies of the joint proxy
statement/prospectus. This is known as householding.
Each of Bookham and Avanex will promptly deliver, upon oral or
written request, a separate copy of this joint proxy
statement/prospectus to any stockholder residing at an address
to which only one copy was mailed. Requests for additional
copies should be directed to: Bookham, Inc., 2584 Junction
Avenue, San Jose, California 95134, Attention: Investor
Relations,
(408) 383-1400
or to Avanex Corporation
c/o Investor
Relations, 40919 Encyclopedia Circle, Fremont California 94538,
(510) 897-4188.
WHERE YOU
CAN FIND MORE INFORMATION
Bookham and Avanex each file annual, quarterly and current
reports, proxy statements and other information with the SEC.
You may read and copy any materials that the companies file at
the SECs Public Reference Rooms at 100 F Street,
NE Washington, DC 20549, on official business days during the
hours of 10:00 am to 3:00 pm. Please call the SEC at
1-800-SEC-0330
for further information on the Public Reference Room.
Bookhams and Avanexs public filings are also
available to the public from commercial document retrieval
services and at the Internet web site maintained by the SEC at
http://www.sec.gov.
You may obtain a free copy of Bookham annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to those reports on the day of filing with the
SEC on the Internet at
http://www.bookham.com
or by contacting the Investor Relations Department at
Bookhams corporate office by calling 1-888-528-0788 or
making a request in writing to Bookham, Inc.,
c/o Investor
Relations, 2584 Junction Avenue, San Jose, California 95134.
You may obtain a free copy of Avanex annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to those reports on the day of filing with the
SEC on the Internet at
http://www.avanex.com
or by contacting the Investor Relations Department at
Avanexs corporate
272
office by calling
(510) 897-4188
or making a request in writing to Avanex Corporation,
c/o Investor
Relations, 40919 Encyclopedia Circle, Fremont California 94538.
Bookham has filed a
Form S-4
registration statement to register with the SEC the offering and
sale of the shares of Bookham common stock to be issued in the
merger contemplated by the merger agreement. This joint proxy
statement/prospectus is a part of that registration statement
and constitutes a prospectus and proxy statement of Bookham and
a proxy statement of Avanex for the special meeting.
Bookham and Avanex also incorporate by reference the following
additional documents:
|
|
|
|
|
the Agreement and Plan of Merger and Reorganization attached to
this joint proxy statement/prospectus as Annex A;
|
|
|
|
the Form of Voting Agreement between Bookham and certain Avanex
stockholders attached to this joint proxy statement/prospectus
as Annex B;
|
|
|
|
the Form of Voting Agreement between Avanex and certain Bookham
stockholders attached to this joint proxy statement/prospectus
as Annex C;
|
|
|
|
the Opinion of Citigroup Global Markets Inc. attached to this
joint proxy statement/prospectus as Annex D; and
|
|
|
|
the Opinion of Banc of America Securities LLC attached to this
joint proxy statement/prospectus as Annex E.
|
Bookham has supplied all information contained in this joint
proxy statement/prospectus relating to Bookham or merger sub,
and Avanex has supplied all information relating to Avanex.
You should rely only on the information contained in this
joint proxy statement/prospectus to vote your shares at the
special meeting. We have not authorized anyone to provide you
with information that differs from that contained in this joint
proxy statement/prospectus. This joint proxy
statement/prospectus is
dated ,
2009. You should not assume that the information contained in
this joint proxy statement/prospectus is accurate as of any date
other than that date, and neither the mailing of this joint
proxy statement/prospectus to stockholders nor the issuance of
shares of Bookham common stock in the merger shall create any
implication to the contrary.
Bookham, the Bookham logos and all other Bookham product and
service names are registered trademarks or trademarks of
Bookham, Inc. in the United States and in other select
countries. Avanex, the Avanex logos and all other Avanex product
and service names are registered trademarks or trademarks of
Avanex Corporation in the United States and in other select
countries. (R) and
tm
indicate U.S. registration and U.S. trademark,
respectively. Other third party logos and product/trade names
are registered trademarks or trade names of their respective
companies.
273
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Bookham, Inc.
We have audited the accompanying consolidated balance sheet of
Bookham, Inc. (a Delaware Corporation), and subsidiaries as of
June 28, 2008, and the related consolidated statements of
operations, stockholders equity and comprehensive income,
and cash flows for the year then ended. These financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Bookham, Inc. and subsidiaries as of
June 28, 2008, and the consolidated results of their
operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the
United States of America.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Bookham, Inc.s internal control over
financial reporting as of June 28, 2008, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report
dated August 29, 2008, expressed an unqualified opinion on
the effectiveness of the Companys internal control over
financial reporting.
As discussed in Note 9 to the consolidated financial
statements, effective July 1, 2007, the Company adopted
Financial Accounting Standards Board Interpretation No. 48
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109.
San Francisco, California
August 29, 2008
F-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Bookham, Inc.
We have audited the accompanying consolidated balance sheet of
Bookham, Inc. as of June 30, 2007, and the related
consolidated statements of operations, stockholders
equity, and cash flows for each of the two years in the period
ended June 30, 2007. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Bookham, Inc. at June 30, 2007, and
the consolidated results of its operations and its cash flows
for each of the two years in the period ended June 30,
2007, in conformity with U.S. generally accepted accounting
principles.
San Jose, California
August 27, 2007 except for Note 12 as to which the
date is August 29, 2008
F-3
BOOKHAM,
INC.
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
June 28,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except share and par value amounts)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
32,863
|
|
|
$
|
36,631
|
|
Short term investments
|
|
|
17,845
|
|
|
|
|
|
Restricted cash
|
|
|
1,154
|
|
|
|
6,079
|
|
Accounts receivable, net of allowances for doubtful accounts and
product returns of $283 and $314 in 2008 and $831 and $370 in
2007
|
|
|
45,665
|
|
|
|
33,685
|
|
Inventories
|
|
|
59,612
|
|
|
|
52,114
|
|
Prepaid expenses and other current assets
|
|
|
6,007
|
|
|
|
9,121
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
163,146
|
|
|
|
137,630
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
7,881
|
|
|
|
7,881
|
|
Other intangible assets, net
|
|
|
7,829
|
|
|
|
11,766
|
|
Property and equipment, net
|
|
|
32,962
|
|
|
|
33,707
|
|
Non-current deferred tax asset
|
|
|
|
|
|
|
13,248
|
|
Other non-current assets
|
|
|
272
|
|
|
|
294
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
212,090
|
|
|
$
|
204,526
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
21,501
|
|
|
$
|
21,101
|
|
Bank loan payable
|
|
|
|
|
|
|
3,812
|
|
Accrued expenses and other liabilities
|
|
|
20,789
|
|
|
|
22,704
|
|
Current deferred tax liability
|
|
|
|
|
|
|
13,248
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
42,290
|
|
|
|
60,865
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
1,336
|
|
|
|
1,908
|
|
Deferred gain on sale-leaseback
|
|
|
19,402
|
|
|
|
20,786
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
63,028
|
|
|
|
83,559
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
(Note 6) Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock: 5,000,000 authorized; none issued and
outstanding
|
|
|
|
|
|
|
|
|
Common stock:
|
|
|
|
|
|
|
|
|
$.01 par value per share; 175,000,000 shares
authorized; 100,739,778 and 83,275,394 shares issued and
outstanding at June 28, 2008 and June 30, 2007,
respectively
|
|
|
1,007
|
|
|
|
832
|
|
Additional paid-in capital
|
|
|
1,163,598
|
|
|
|
1,114,391
|
|
Accumulated other comprehensive income
|
|
|
44,036
|
|
|
|
42,444
|
|
Accumulated deficit
|
|
|
(1,059,579
|
)
|
|
|
(1,036,700
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
149,062
|
|
|
|
120,967
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
212,090
|
|
|
$
|
204,526
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes form an integral part of these
consolidated financial statements.
F-4
BOOKHAM,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
June 28,
|
|
|
June 30,
|
|
|
July 1,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Revenues
|
|
$
|
235,491
|
|
|
$
|
162,941
|
|
|
|
121,138
|
|
Revenues from related party
|
|
|
|
|
|
|
39,873
|
|
|
|
110,511
|
|
Net revenues
|
|
|
235,491
|
|
|
|
202,814
|
|
|
|
231,649
|
|
Cost of revenues
|
|
|
182,518
|
|
|
|
173,493
|
|
|
|
190,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
52,973
|
|
|
|
29,321
|
|
|
|
41,564
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
32,633
|
|
|
|
43,025
|
|
|
|
42,587
|
|
Selling, general and administrative
|
|
|
47,941
|
|
|
|
47,820
|
|
|
|
52,167
|
|
Amortization of intangible assets
|
|
|
4,639
|
|
|
|
8,884
|
|
|
|
10,004
|
|
Restructuring and severance charges
|
|
|
3,471
|
|
|
|
10,347
|
|
|
|
11,197
|
|
Certain legal actions, settlements and related costs
|
|
|
(2,882
|
)
|
|
|
490
|
|
|
|
4,997
|
|
Acquired in-process research and development
|
|
|
|
|
|
|
|
|
|
|
118
|
|
Impairment of goodwill and other intangible assets
|
|
|
|
|
|
|
|
|
|
|
760
|
|
Impairment/(recovery) of other long-lived assets
|
|
|
|
|
|
|
1,621
|
|
|
|
(832
|
)
|
(Gain)/loss on sale of property and equipment and other
long-lived assets
|
|
|
(2,562
|
)
|
|
|
(3,009
|
)
|
|
|
(2,070
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
83,240
|
|
|
|
109,178
|
|
|
|
118,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(30,267
|
)
|
|
|
(79,857
|
)
|
|
|
(77,364
|
)
|
Other income/(expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on conversion and early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
(18,842
|
)
|
Other income/(expense), net
|
|
|
|
|
|
|
|
|
|
|
298
|
|
Interest income
|
|
|
1,465
|
|
|
|
1,239
|
|
|
|
1,113
|
|
Interest expense
|
|
|
(671
|
)
|
|
|
(573
|
)
|
|
|
(5,128
|
)
|
Gain/(loss) on foreign exchange
|
|
|
6,038
|
|
|
|
(2,879
|
)
|
|
|
677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income/(expense)
|
|
|
6,832
|
|
|
|
(2,213
|
)
|
|
|
(21,882
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(23,435
|
)
|
|
|
(82,070
|
)
|
|
|
(99,246
|
)
|
Income tax (benefit)/provision
|
|
|
5
|
|
|
|
105
|
|
|
|
(11,749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(23,440
|
)
|
|
$
|
(82,175
|
)
|
|
$
|
(87,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share (basic and diluted)
|
|
$
|
(0.25
|
)
|
|
$
|
(1.17
|
)
|
|
$
|
(1.87
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding (basic and
diluted)
|
|
|
93,099
|
|
|
|
70,336
|
|
|
|
46,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes form an integral part of these
consolidated financial statements.
F-5
BOOKHAM,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
June 28,
|
|
|
June 30,
|
|
|
July 1,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cash flows used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(23,440
|
)
|
|
$
|
(82,175
|
)
|
|
$
|
(87,497
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
16,869
|
|
|
|
23,167
|
|
|
|
30,231
|
|
Stock-based compensation
|
|
|
8,812
|
|
|
|
6,666
|
|
|
|
8,863
|
|
Impairment of long-lived assets
|
|
|
|
|
|
|
1,621
|
|
|
|
(72
|
)
|
Gain on sale of property, equipment and other long-lived assets
|
|
|
(2,562
|
)
|
|
|
(3,009
|
)
|
|
|
(2,070
|
)
|
One time tax gain
|
|
|
|
|
|
|
|
|
|
|
(11,785
|
)
|
Legal settlement
|
|
|
|
|
|
|
|
|
|
|
4,997
|
|
Acquired in-process research and development
|
|
|
|
|
|
|
|
|
|
|
118
|
|
Loss on conversion and early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
18,842
|
|
Amortization of deferred gain on sale leaseback
|
|
|
(1,384
|
)
|
|
|
(1,435
|
)
|
|
|
(278
|
)
|
Amortization of interest expense for warrants and beneficial
conversion feature
|
|
|
|
|
|
|
|
|
|
|
1,292
|
|
Changes in current assets and liabilities, net of effects of
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
(11,930
|
)
|
|
|
2,514
|
|
|
|
(5,834
|
)
|
Inventories
|
|
|
(2,426
|
)
|
|
|
4,298
|
|
|
|
383
|
|
Prepaid expenses and other current assets
|
|
|
4,078
|
|
|
|
3,079
|
|
|
|
8,973
|
|
Accounts payable
|
|
|
(1,211
|
)
|
|
|
(6,275
|
)
|
|
|
(6,487
|
)
|
Accrued expenses and other liabilities
|
|
|
(2,811
|
)
|
|
|
(19,224
|
)
|
|
|
(15,863
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(16,005
|
)
|
|
|
(70,773
|
)
|
|
|
(56,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(9,135
|
)
|
|
|
(6,433
|
)
|
|
|
(10,113
|
)
|
Proceeds from sale of property, equipment and other long-lived
assets
|
|
|
2,972
|
|
|
|
5,387
|
|
|
|
2,396
|
|
Acquisitions, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
9,575
|
|
Proceeds from sale-leaseback of Caswell facility
|
|
|
|
|
|
|
|
|
|
|
23,444
|
|
Purchases of available for sale securities and investments
|
|
|
(17,844
|
)
|
|
|
|
|
|
|
|
|
Proceeds from sale of land held for resale
|
|
|
|
|
|
|
9,402
|
|
|
|
14,734
|
|
Transfer (to)/from restricted cash
|
|
|
5,026
|
|
|
|
(427
|
)
|
|
|
2,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided/(used) by investing activities
|
|
|
(18,981
|
)
|
|
|
7,929
|
|
|
|
42,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount paid to repurchase shares from former officer
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
Cash paid in connection with early extinguishment of notes
payable
|
|
|
|
|
|
|
|
|
|
|
(21,000
|
)
|
Cash paid in connection with conversion of convertible debentures
|
|
|
|
|
|
|
|
|
|
|
(3,282
|
)
|
Proceeds from issuance of common stock, net
|
|
|
40,785
|
|
|
|
55,444
|
|
|
|
49,548
|
|
Proceeds from/(repayment) of bank loan payable
|
|
|
(3,812
|
)
|
|
|
3,812
|
|
|
|
|
|
Repayment of other loans
|
|
|
(44
|
)
|
|
|
(108
|
)
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
36,927
|
|
|
|
59,148
|
|
|
|
25,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate on cash and cash equivalents
|
|
|
(5,709
|
)
|
|
|
2,577
|
|
|
|
1,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
(3,768
|
)
|
|
|
(1,119
|
)
|
|
|
12,816
|
|
Cash and cash equivalents at beginning of period
|
|
|
36,631
|
|
|
|
37,750
|
|
|
|
24,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
32,863
|
|
|
$
|
36,631
|
|
|
$
|
37,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
244
|
|
|
$
|
5,012
|
|
|
$
|
7,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
52
|
|
|
$
|
105
|
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued in connection with debt and extinguishment of
debt
|
|
$
|
|
|
|
$
|
12,417
|
|
|
$
|
4,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes form an integral part of these
consolidated financial statements.
F-6
BOOKHAM,
INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Deferred
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Income
|
|
|
Deficit
|
|
|
Income
|
|
|
Equity
|
|
|
|
(In thousands, except share amounts)
|
|
|
|
|
|
Balance at July 2, 2005
|
|
|
33,805,437
|
|
|
$
|
338
|
|
|
$
|
925,677
|
|
|
$
|
(808
|
)
|
|
$
|
32,889
|
|
|
$
|
(867,028
|
)
|
|
$
|
|
|
|
$
|
91,068
|
|
Issuance of shares upon the exercise of common stock options
|
|
|
58,627
|
|
|
|
|
|
|
|
303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
303
|
|
Issuance of restricted stock
|
|
|
1,050,000
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
Issuance of shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to CP Santa Rosa Enterprises Corp.
|
|
|
5,100
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
Common stock issued in connection with the settlement of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yue lawsuit
|
|
|
537,635
|
|
|
|
5
|
|
|
|
4,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
Common stock issued in public offering
|
|
|
11,250,000
|
|
|
|
113
|
|
|
|
49,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,234
|
|
Common stock issued upon conversion of convertible debt
|
|
|
5,386,365
|
|
|
|
54
|
|
|
|
25,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,210
|
|
Common stock issued in connection with debt equity exchange
|
|
|
5,120,793
|
|
|
|
51
|
|
|
|
33,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,853
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
8,056
|
|
|
|
808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,864
|
|
Common stock issued in connection with Avalon acquisition
|
|
|
764,951
|
|
|
|
8
|
|
|
|
6,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,500
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on hedging transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
573
|
|
|
|
|
|
|
|
573
|
|
|
|
573
|
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,998
|
|
|
|
|
|
|
|
1,998
|
|
|
|
1,998
|
|
Net loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(87,497
|
)
|
|
|
(87,497
|
)
|
|
|
(87,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(84,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 1, 2006
|
|
|
57,978,908
|
|
|
$
|
580
|
|
|
$
|
1,053,626
|
|
|
$
|
|
|
|
$
|
35,460
|
|
|
$
|
(954,525
|
)
|
|
$
|
|
|
|
$
|
135,141
|
|
Issuance of shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
upon the exercise of common stock options
|
|
|
3,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares upon vesting of restricted stock units
|
|
|
7,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted stock to non-employee directors
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resolution of contingent consideration in connection with Avalon
acquisition
|
|
|
|
|
|
|
|
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,000
|
)
|
Common stock issued in private placements
|
|
|
25,234,891
|
|
|
|
252
|
|
|
|
55,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,445
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
6,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,277
|
|
Restricted stock vesting acceleration related to restructuring
and severance charges
|
|
|
|
|
|
|
|
|
|
|
295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
295
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on hedging transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(361
|
)
|
|
|
|
|
|
|
(361
|
)
|
|
|
(361
|
)
|
F-7
BOOKHAM,
INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE
INCOME (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Deferred
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Income
|
|
|
Deficit
|
|
|
Income
|
|
|
Equity
|
|
|
|
(In thousands, except share amounts)
|
|
|
|
|
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,345
|
|
|
|
|
|
|
|
7,345
|
|
|
|
7,345
|
|
Net loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(82,175
|
)
|
|
|
(82,175
|
)
|
|
|
(82,175
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(75,191
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007
|
|
|
83,275,394
|
|
|
$
|
832
|
|
|
$
|
1,114,391
|
|
|
$
|
|
|
|
$
|
42,444
|
|
|
$
|
(1,036,700
|
)
|
|
$
|
|
|
|
$
|
120,967
|
|
Issuance of shares related to shares awards and restricted stock
units
|
|
|
1,464,384
|
|
|
|
15
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy-back of accelerated stock options issued to former officer
of the company
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Adjustment to prior years taxes payable to reflect effect of
adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
562
|
|
|
|
|
|
|
|
562
|
|
Common stock issued in public offering
|
|
|
16,000,000
|
|
|
|
160
|
|
|
|
40,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,785
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
8,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,598
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on hedging transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
(34
|
)
|
|
|
(34
|
)
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,615
|
|
|
|
|
|
|
|
1,615
|
|
|
|
1,615
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
11
|
|
|
|
11
|
|
Net loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,440
|
)
|
|
|
(23,440
|
)
|
|
|
(23,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(21,848
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 28, 2008
|
|
|
100,739,778
|
|
|
$
|
1,007
|
|
|
$
|
1,163,598
|
|
|
$
|
|
|
|
$
|
44,036
|
|
|
$
|
(1,059,579
|
)
|
|
|
|
|
|
$
|
149,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes form an integral part of these
consolidated financial statements.
F-8
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
Summary
of Significant Accounting Policies
|
Description
of Business
Bookham, Inc., a Delaware Corporation (the Company)
designs, manufacture and market optical components, modules and
subsystems that generate, detect, amplify, combine and separate
light signals principally for use in high-performance fiber
optics communications networks. Due to its advantages of higher
capacity and transmission speed, optical transmission has become
the predominant technology for large-scale communications
networks. The Companys primary operating segment is its
telecom segment, which addresses this optical communications
market. The Companys remaining product lines, which
address certain other optics and photonics markets, such as
material processing, inspection and instrumentation, and
research and development, and which leverage the resources,
infrastructure and expertise of its telecom segment, comprise
its non-telecom segment.
Basis
of Presentation
The Company operates on a 52/53 week year ending on the
Saturday closest to June 30. Fiscal 2008, 2007 and 2006 all
were comprised of 52 weeks.
Foreign
Currency Transactions and Translation Gains and
Losses
The assets and liabilities of the Companys foreign
operations are translated from their respective functional
currencies into U.S. dollars at the rates in effect at the
consolidated balance sheet dates, and revenue and expense
amounts are translated at the average rate during the applicable
periods reflected on the consolidated statements of operations.
Foreign currency translation adjustments are recorded as
accumulated other comprehensive income, except for the
translation adjustment of short-term intercompany loans which
are recorded as other income or expense. Gains and losses from
foreign currency transactions, realized and unrealized in the
event of foreign currency transactions not designated as hedges,
and those transactions denominated in currencies other than the
Companys functional currency, are recorded as gain/(loss)
on foreign exchange in the consolidated statements of
operations. See Note 1 Derivative Financial
Instruments.
Use of
Estimates
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles
(GAAP) requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Estimates are used for, but
are not limited to, the allowances for doubtful accounts;
accruals for sales returns; inventory write-downs and
write-offs; warranty accruals; the useful lives of fixed assets;
impairment charges on long-lived assets, goodwill and other
intangible assets; losses on facility leases and other charges;
accrued liabilities and other reserves; and stock-based
compensation. Actual results could differ from these estimates
and such differences may be material to the amounts reported in
the Companys financial statements.
Cash
and Cash Equivalents
Cash and cash equivalents are recorded at market value. The
Company considers all liquid investment securities with an
original maturity date of three months or less to be cash
equivalents. Any realized gains and losses on liquid investment
securities are included in other income/(expense), net in the
consolidated statements of operations.
Short-Term
Investments
The Company classifies short-term investments, which consist
primarily of securities purchased with original maturities of
more than three months, as available for sale
securities. These short-term investments
F-9
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
are reported at market value, with the aggregate unrealized
holding gains and losses reported as a component of accumulated
other comprehensive income (loss) in stockholders equity.
Restricted
Cash
Restricted cash of $1.2 million as of June 28, 2008
consists of collateral for the performance of the Companys
obligations under certain facility lease agreements along with
letters of credit and bank accounts otherwise restricted.
Inventories
Inventories are stated at the lower of cost (determined using
the first in, first out method) or market value (determined
using the estimated net realizable value). The Company plans
production based on orders received and forecasted demand and
maintains a stock of certain items. The Company must order
components and build inventories in advance of product
shipments. These production estimates are dependent on the
Companys assessment of current and expected orders from
its customers, including consideration that orders are subject
to cancellation with limited advance notice prior to shipment.
We review our inventory on a quarterly basis to determine if it
is saleable. Products may be unsaleable because they are
technically obsolete due to substitute products, specification
changes or excess inventory relative to customer forecasts. We
currently reserve for inventory using methods that take those
factors into account. In addition, if we find that the cost of
inventory is greater than the current market price, we will
write the inventory down to the selling price, less the cost to
complete and sell the product.
Property
and Equipment
The Company records its property and equipment at cost less
accumulated depreciation. Depreciation is recorded when assets
are placed into service and it is computed using the
straight-line method over the estimated useful lives of the
assets as follows:
|
|
|
Buildings
|
|
Twenty years
|
Plant and machinery
|
|
Three to five years
|
Fixtures, fittings and equipment
|
|
Three to five years
|
Computer equipment
|
|
Three years
|
Long-Lived
Assets Including Goodwill and Other Acquired Intangible
Assets
The Company reviews property and equipment and certain
identifiable intangibles, excluding goodwill, for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable on an annual
basis. Recoverability of these assets is measured by comparing
their carrying amounts to market prices or future undiscounted
cash flows the assets are expected to generate. If property and
equipment or certain identifiable intangibles are considered to
be impaired, the impairment to be recognized would equal the
amount by which the carrying value of the asset exceeds its fair
market value based on market prices or future discounted cash
flows.
The Company has adopted Statement of Financial Accounting
Standard (SFAS) SFAS No. 142,
Goodwill and Other Intangible Assets
(SFAS 142) which requires that goodwill and
intangible assets with indefinite useful lives be tested for
impairment at least annually or sooner whenever events or
changes in circumstances indicate that they may be impaired.
SFAS 142 also requires that intangible assets with definite
lives be amortized over their estimated useful lives and
reviewed for impairment whenever events or changes in
circumstances indicate an assets carrying value may not be
recoverable in accordance with SFAS 144, Accounting
for Impairment or Disposal of Long-
F-10
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Lived Assets. The Company is currently amortizing its
acquired intangible assets with definite lives over periods
ranging from 3 to 6 years and 15 years as to one
specific customer contract.
In the year ended July 1, 2006, the Companys annual
review of goodwill and intangible assets led to the recording of
an impairment charge of $760,000, all of which related to
intangibles in the Companys telecom segment. A concurrent
review of other long-lived assets led to an additional
impairment charge of $433,000.
Derivative
Financial Instruments
SFAS No. 133 (SFAS 133),
Accounting for Derivative Instruments and Hedging
Activities, requires the Company to recognize all
derivatives, such as foreign currency forward exchange
contracts, on the consolidated balance sheet at fair value
regardless of the purpose for holding the instrument. If the
derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of the derivative will either be
offset against the change in fair value of the hedged assets,
liabilities or firm commitments through operating results or
recognized in other comprehensive income/(loss), net until the
hedged item is recognized in operating results on the
consolidated statements of operations.
For derivative instruments that are designated and qualify as a
cash flow hedge, the purpose of which is to hedge the exposure
to variability in expected future cash flows that is
attributable to a particular risk, the effective portion of the
gain or loss on the derivative instrument is reported as a
component of other comprehensive income/(loss), net on the
statement of shareholders equity and reclassified into
operating results in the same period or periods during which the
hedged transaction affects operating results. The remaining gain
or loss on the derivative instrument in excess of the cumulative
change in the present value of future cash flows of the hedged
item, if any, is recognized in current operating results on the
consolidated statements of operations during the period of
change. For derivative instruments not designated as hedging
instruments, the gain or loss is recognized as other
income/(expense) during the period of change.
The Company is exposed to fluctuations in foreign currency
exchange rates. As the business has become multinational in
scope, the Company has become subject to fluctuations based upon
changes in the exchange rates between the currencies in which
the Company collects revenue and pays expenses. The Company
engages in currency hedging transactions in an effort to
minimize the effects of fluctuations in exchange rates and to
convert currencies to meet its obligations. In the majority of
these contracts the Company agrees under certain circumstances
to sell U.S. dollars in exchange for U.K. pounds sterling.
At the end of each accounting period, the Company
marks-to-market all foreign currency forward exchange contracts
that have been designated as cash flow hedges and changes in
fair value are recorded in comprehensive income until the
underlying cash flow is settled and the contract is recognized
in operating results. As of June 28, 2008, there were
eighteen outstanding foreign currency forward exchange contracts
to sell U.S. dollars and buy U.K. pound sterling. These
contracts have an aggregate nominal value of approximately
$15.5 million of put and call options expiring from July
2008 to June 2009. To date, the Company has not entered into any
such contracts for longer than 12 months and accordingly,
all amounts included in accumulated other comprehensive income
as of June 28, 2008 will generally be reclassified into
earnings within the next 12 months. As of June 28,
2008, the Company recorded an unrealized loss of $33,000 to
other comprehensive income relating to recording the fair value
of the eighteen foreign currency forward exchange contracts
designated as hedges for accounting purposes.
Advertising
Expenses
The cost of advertising is expensed as incurred. The
Companys advertising costs for the years ended
June 28, 2008, June 30, 2007, and July 1, 2006
were $212,000, $226,000, and $302,000, respectively.
F-11
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Revenue
Recognition
Revenue represents the amounts (excluding sales taxes) derived
from the providing of goods and services to third-party
customers during the period. The Companys revenue
recognition policy follows Securities and Exchange Commission
(SEC) Staff Accounting Bulletin (SAB)
No. 104 (SAB 104), Revenue
Recognition in Financial Statements. Specifically, the
Company recognizes product revenue when persuasive evidence of
an arrangement exists, the product has been shipped, title has
transferred, collectibility is reasonably assured, fees are
fixed or determinable and there are no uncertainties with
respect to customer acceptance. For shipments to new customers
and evaluation units, including initial shipments of new
products, where the customer has the right of return through the
end of the evaluation period, the Company recognizes revenue on
these shipments at the end of an evaluation period, if not
returned, and when collection is reasonably assured. The Company
records a provision for estimated sales returns in the same
period as the related revenues are recorded, which is netted
against revenue. These estimates are based on historical sales
returns, other known factors and the Companys return
policy. Shipping and handling costs are included in cost of
revenues.
The Company recognizes royalty revenue when it is earned and
collectibility is reasonably assured.
The Company applies the same revenue recognition policy to both
its telecom and non-telecom operating segments.
Research
and Development
Company-sponsored research and development costs are expensed as
incurred.
Income
Taxes
The Company recognizes income taxes under the liability method
under which deferred income taxes are recognized for differences
between the financial reporting and tax bases of assets and
liabilities at enacted statutory tax rates in effect for the
years in which the differences are expected to reverse. The
effect on deferred taxes of a change in tax rates is recognized
in income in the period that includes the enactment date of the
change in rates.
Stock-Based
Compensation
At June 28, 2008, the Company had active stock-based
employee compensation plans, as described in
Note 10 Stockholders Equity. Prior to
July 3, 2005, the Company accounted for its plans under the
recognition and measurement provisions of Accounting Principles
Board Opinion (APB) No. 25 (APB
25), Accounting for Stock Issued to Employees,
and related Interpretations, as permitted by Financial
Accounting Standards Board Statement No. 123
(SFAS 123), Accounting for Stock-Based
Compensation. Effective July 3, 2005, the Company
adopted the fair value recognition provisions of FASB Statement
No. 123R (SFAS 123R), Share-Based
Payment, using the modified prospective transition method
and accordingly, the Company has not restated the consolidated
results of operations for fiscal years prior to its adoption of
SFAS 123R. Under that transition method, stock-based
compensation cost recognized during the years ended
June 28, 2008, June 30, 2007 and July 1, 2006
includes: (a) compensation cost for all share-based
payments granted prior to, but not yet vested as of July 3,
2005, based on the grant date fair value estimated in accordance
with the original provisions of SFAS 123, and
(b) compensation cost for all share-based payments granted
subsequent to July 3, 2005, based on the grant date fair
value estimated in accordance with the provisions of
SFAS 123R. Stock options have a term of 10 years and
generally vest over a four to five year service period, and
restricted stock awards generally vest over a one to four year
period, and in certain cases each may vest earlier based upon
the achievement of specific performance-based objectives as set
by the Companys Board of Directors.
F-12
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The weighted average fair value of stock options granted at fair
market value during the years ended June 28, 2008,
June 30, 2007 and July 1, 2006 were $2.13, $2.28 and
$4.97, respectively. Total compensation cost related to
non-vested awards not yet recognized as of June 28, 2008
was $8.5 million, of which $7.9 million relates to
time based vesting awards expected to be recognized over
1.6 year weighted average basis and $0.6 million
relates to performance based vesting awards for which the
achievement of the related performance targets has not yet been
deemed as probable. The fair value of stock options vested
during the year was $5.8 million.
The weighted-average fair value for stock options granted was
calculated using the Black-Scholes-Merton option-pricing model
based on the following assumptions:
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
June 28,
|
|
July 30,
|
|
July 1,
|
|
|
2008
|
|
2007
|
|
2006
|
|
Volatility
|
|
68% to 79%
|
|
81% to 85%
|
|
81% to 87%
|
Weighted-average estimated life
|
|
4.5 years
|
|
4.5 years
|
|
4.0 years
|
Weighted-average risk free interest rate
|
|
2.3% to 4.9%
|
|
4.4% to 5.1%
|
|
4.2% to 4.5%
|
Dividend yield
|
|
|
|
|
|
|
Consistent with our valuation method for the disclosure-only
provisions of SFAS 123, we are using the
Black-Scholes-Merton option-pricing model to value the
compensation expense associated with our stock-based awards
under SFAS 123(R). In addition, we estimate forfeitures
when recognizing compensation expense, and we will adjust our
estimate of forfeitures over the requisite service period based
on the extent to which actual forfeitures differ, or are
expected to differ, from such estimates. Changes in estimated
forfeitures will be recognized through a cumulative
catch-up
adjustment in the period of change and will also impact the
amount of compensation expense to be recognized in future
periods.
Accumulated
Other Comprehensive Income
The components of accumulated other comprehensive income are as
follows:
|
|
|
|
|
|
|
|
|
|
|
June 28,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Unrealized gain on currency instruments designated as hedges
|
|
$
|
86
|
|
|
$
|
212
|
|
Currency translation adjustments
|
|
|
43,939
|
|
|
|
42,232
|
|
Unrealized gain/loss on short-term investments
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income end
|
|
$
|
44,036
|
|
|
$
|
42,444
|
|
|
|
|
|
|
|
|
|
|
Recent
Accounting Developments
In February 2007, the Financial Accounting Standards Board
(FASB) issued SFAS No. 159, The Fair
Value Option for Financial Assets and Financial
Liabilities Including an Amendment of FASB Statement
No. 115, or SFAS 159. SFAS 159
gives companies the option of applying at specified election
dates fair value accounting to certain financial instruments and
other items that are not currently required to be measured at
fair value. If a company chooses to record eligible items at
fair value, the company must report unrealized gains and losses
on those items in earnings at each subsequent reporting date.
SFAS 159 also prescribes presentation and disclosure
requirements for assets and liabilities that are measured at
fair value pursuant to this standard and pursuant to the
guidance in SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities.
SFAS 159 will be effective for the Company on June 29,
2008. The adoption of SFAS No. 159 will not have a
material impact on the Companys financial position,
results of operations or cash flows.
F-13
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (SFAS 157).
SFAS 157 provides guidance for using fair value to measure
assets and liabilities. It also requires requests for expanded
information about the extent to which a company measures assets
and liabilities at fair value, the information used to measure
fair value, and the effect of fair value measurements on
earnings. SFAS 157 applies whenever other standards require
(or permit) assets or liabilities to be measured at fair value,
and does not expand the use of fair value in any new
circumstances. SFAS 157 will be effective for the Company
on June 29, 2008. The adoption of SFAS No. 157
will not have a material impact on the Companys financial
position, results of operations or cash flows.
In June 2007, the FASB also ratified Emerging Issues Task Force
07-3,
Accounting for Nonrefundable Advance Payments for Goods or
Services Received for Use in Future Research and Development
Activities
(EITF 07-3).
EITF 07-3
requires that nonrefundable advance payments for goods or
services that will be used or rendered for future research and
development activities be deferred and capitalized and
recognized as an expense as the goods are delivered or the
related services are performed.
EITF 07-3
is effective, on a prospective basis, for fiscal years beginning
after December 15, 2007. The Company does not expect the
adoption of
EITF 07-3
to have a material effect on its consolidated results of
operations and financial condition.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(SFAS 141R). SFAS 141R establishes
principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any non controlling interest
in the acquiree and the goodwill acquired. SFAS 141R also
establishes disclosure requirements to enable the evaluation of
the nature and financial effects of the business combination.
SFAS 141R is effective for fiscal years beginning after
December 15, 2008. The Company does not believe the
adoption of SFAS 141R will have a material impact on its
consolidated results of operations and financial condition.
In December 2007, the FASB issued SFAS No. 160,
Non-controlling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51
(SFAS No. 160). SFAS 160 changes the
accounting and reporting for minority interests, which are to be
re-characterized as non-controlling interests and classified as
a component of equity on the balance sheet and statement of
shareholders equity. This consolidation method will
significantly change the accounting for transactions with
minority interest holders. The Company is required to adopt
SFAS No. 160 at the beginning of the first quarter of
fiscal 2010, which begins on June 28, 2009. The Company is
currently evaluating the effect, if any, that the adoption of
SFAS No. 160 will have on its consolidated results of
operations and financial condition.
In February 2008, the FASB issued FASB Staff Position (FSP)
No. 157-2,
Effective Date of FASB Statement No. 157. FSP
No. 157-2
delays the effective date of SFAS No. 157 for all
non-financial assets and non-financial liabilities, except for
items that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually),
until the beginning of the first quarter of fiscal 2009. The
Company is currently evaluating the impact that
SFAS No. 157 will have on its consolidated financial
statements when it is applied to non-financial assets and
non-financial liabilities that are not measured at fair value on
a recurring basis beginning in the first quarter of 2009. The
major categories of non-financial assets and non-financial
liabilities that are measured at fair value, for which the
company has not yet applied the provisions of
SFAS No. 157 are goodwill and intangible assets.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133
(SFAS No. 161). SFAS 161 requires
enhanced disclosures for derivative instruments, including those
used in hedging activities. It is effective for fiscal years and
interim periods beginning after November 15, 2008, and will
be applicable to the Company in the first quarter of fiscal
2010. The Company is currently evaluating the effect, if any,
that the adoption of SFAS No. 161 may have on its
consolidated results of operations and financial condition.
F-14
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In April 2008, the FASB issued FSP
No. 142-3,
Determination of the Useful Life of Intangible Assets.
FSP 142-3
amends the factors that should be considered in developing
assumptions about renewal or extension used in estimating the
useful life of a recognized intangible asset under
SFAS No. 142, Goodwill and Other Intangible
Assets. This standard is intended to improve the consistency
between the useful life of a recognized intangible asset under
SFAS No. 142 and the period of expected cash flows
used to measure the fair value of the asset under
SFAS No. 141R and other Generally Accepted Accounting
Principles (GAAP). FSP
No. 142-3
is effective for financial statements issued for fiscal years
beginning after December 15, 2008. The measurement
provisions of this standard will apply only to intangible assets
of the Company acquired after July 1, 2009.
In May 2008, the FASB issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles.
SFAS No. 162 supersedes the existing hierarchy
contained in the U.S. auditing standards. The existing
hierarchy was carried over to SFAS No. 162 essentially
unchanged. The Statement becomes effective 60 days
following the Securities and Exchange Commissions approval
of the Public Company Accounting Oversight Board amendments to
the auditing literature. The new hierarchy is not expected to
change current accounting practice in any area.
|
|
2.
|
Concentration
of Revenues and Credit and Other Risks
|
The Company places its cash and cash equivalents and short term
investments with and in the custody of financial institutions
with high credit standing and, by policy, limits the amounts
invested with any one institution, type of security and issuer.
Nortel Networks Corporation accounted for 15% of our revenue in
the year ended June 28, 2008, 20% in the year ended
June 30, 2007, and 48% in the year ended July 1, 2006.
Huawei Technologies Co., Ltd. accounted for 11% of our revenue
in the year ended June 28, 2008. Revenues from both
customers were generated in the Companys telecom segment.
For the years ended June 28, 2008, June 30, 2007 and
July 1, 2006, no other customer accounted for more than 10%
of the Companys total revenues, except Cisco Systems, Inc.
which accounted for 12% in the year ended June 30, 2007.
At June 28, 2008 and June 30, 2007, Nortel Networks
Corporation accounted for 15% and 12% of the Companys
gross accounts receivable balance, respectively. At
June 28, 2008 and June 30, 2007, Huawei Technologies
Co., Ltd. accounted for 12% and 11% of the Companys gross
accounts receivable balance, respectively.
Trade receivables are recorded at the invoiced value. Allowances
for uncollectible trade receivables are based upon historical
loss patterns, the number of days that billings are past due and
an evaluation of the potential risk of loss associated with
specific problem accounts. The Company performs ongoing credit
evaluations of its customers and does not typically require
collateral or guarantees.
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 28,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Raw materials
|
|
$
|
21,140
|
|
|
$
|
20,238
|
|
Work in process
|
|
|
24,786
|
|
|
|
18,489
|
|
Finished goods
|
|
|
13,686
|
|
|
|
13,387
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
59,612
|
|
|
$
|
52,114
|
|
|
|
|
|
|
|
|
|
|
F-15
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Inventories are valued at the lower of the cost to acquire or
manufacture the product or market value. The manufacturing cost
includes the cost of the components purchased to produce
products, the related labor and overhead. On a quarterly basis,
inventory is reviewed to determine if it is believed to be
saleable. Products may be unsaleable because they are
technically obsolete or excess, due to substitute products or
specification changes or because the Company holds an excessive
amount of inventory relative to customer forecasts. Inventory is
currently valued using methods that take these factors into
account. In addition, if it is determined that cost is greater
than selling price then inventory is written down to market
value defined as the selling price less costs to complete and
sell the product.
During the year ended July 1, 2006, the Company had
revenues of $9.5 million related to, and recognized profits
on, inventory that had been carried on the Companys books
at zero value. The Company had no revenues from zero value
inventories in the year ended June 28, 2008 or the year
ended June 30, 2007. These inventories were originally
acquired in connection with the purchase of the optical
components business of Nortel Networks Corporation. While this
inventory is carried on the Companys books at zero value,
and its sale generates higher margins than most of the new
products, the Company incurs additional costs to complete the
manufacturing of these products prior to sale. Revenues from
this inventory are expected to be insignificant in the future.
4. Property,
Plant and Equipment
Property, plant and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 28,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Buildings
|
|
$
|
18,411
|
|
|
$
|
18,303
|
|
Plant and machinery
|
|
|
77,606
|
|
|
|
66,575
|
|
Fixtures, fittings and equipment
|
|
|
1,098
|
|
|
|
420
|
|
Computer equipment
|
|
|
14,892
|
|
|
|
13,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112,007
|
|
|
|
98,896
|
|
Less accumulated depreciation
|
|
|
(79,045
|
)
|
|
|
(65,189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
32,962
|
|
|
$
|
33,707
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $12,230,000, $14,012,000, and
$20,227,000 for the years ended June 28, 2008,
June 30, 2007 and July 1, 2006, respectively.
|
|
5.
|
Accrued
Expenses and Other Liabilities
|
Accrued expenses and other current liabilities consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
June 28,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Trade creditor accruals
|
|
$
|
4,090
|
|
|
$
|
4,324
|
|
Compensation and benefits related accruals
|
|
|
6,724
|
|
|
|
5,212
|
|
Warranty accrual
|
|
|
2,598
|
|
|
|
2,569
|
|
Other accruals
|
|
|
5,657
|
|
|
|
7,886
|
|
Current portion of restructuring accrual
|
|
|
1,720
|
|
|
|
2,713
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,789
|
|
|
$
|
22,704
|
|
|
|
|
|
|
|
|
|
|
F-16
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other long-term liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 28,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Long-term portion of restructuring accrual
|
|
$
|
1,108
|
|
|
$
|
1,678
|
|
Other long-term liabilities
|
|
|
228
|
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,336
|
|
|
$
|
1,908
|
|
|
|
|
|
|
|
|
|
|
Warranty
accrual
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 to net loss.
Movements in the warranty accrual are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 28,
|
|
|
June 30,
|
|
|
July 1,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Warranty provision at beginning of year
|
|
$
|
2,569
|
|
|
$
|
3,429
|
|
|
$
|
3,782
|
|
Warranties issued
|
|
|
2,290
|
|
|
|
2,037
|
|
|
|
2,447
|
|
Warranties utilized
|
|
|
(1,307
|
)
|
|
|
(2,497
|
)
|
|
|
(2,243
|
)
|
Warranties expired, and other changes in liability
|
|
|
(992
|
)
|
|
|
(713
|
)
|
|
|
(610
|
)
|
Foreign currency translation
|
|
|
38
|
|
|
|
313
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty provision at end of year
|
|
$
|
2,598
|
|
|
$
|
2,569
|
|
|
$
|
3,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
Agreement
On August 2, 2006, the Company, with Bookham Technology
plc, New Focus, Inc. and Bookham (US) Inc., each a wholly-owned
subsidiary of the Company (collectively, the
Borrowers), entered into a credit agreement (the
Credit Agreement) with Wells Fargo Foothill, Inc.
and other lenders regarding a three-year $25,000,000 senior
secured revolving credit facility. Advances are available under
the Credit Agreement based on a percentage of accounts
receivable at the time the advance is requested. As of
June 28, 2008, the Company had no amount borrowed under
this line of credit. The Company also had $4.8 million of
standby letters of credits with vendors and landlords secured
under this credit agreement, of which $4.5 million expires
in September 22, 2008.
The obligations of the Borrowers under the Credit Agreement are
guaranteed by the Company, Onetta, Inc., Focused Research, Inc.,
Globe Y. Technology, Inc., Ignis Optics, Inc., Bookham (Canada)
Inc., Bookham Nominees Limited and Bookham International Ltd.,
each a wholly-owned subsidiary of the Company (together, the
Guarantors and together with the Borrowers, the
Obligors), and are secured pursuant to a security
agreement (the Security Agreement) by the assets of
the Obligors, including a pledge of the capital stock holdings
of the Obligors in some of their direct subsidiaries. Any new
direct subsidiary of the Obligors is required to execute a
guaranty agreement in substantially the same form and join in
the Security Agreement.
Pursuant to the terms of the Credit Agreement, borrowings made
under the Credit Agreement bear interest at a rate based on
either the London Interbank Offered Rate (LIBOR) plus
2.75 percentage points or the U.S. prime interest rate
as quoted in the Wall Street Journal plus 1.25 percentage
points. In the absence of an
F-17
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
event of default, any amounts outstanding under the Credit
Agreement may be repaid and borrowed again anytime until
maturity, which is August 2, 2009.
The obligations of the Borrowers under the Credit Agreement may
be accelerated upon the occurrence of an event of default under
the Credit Agreement, which includes customary events of
default, including payment defaults, defaults in the performance
of affirmative and negative covenants, the inaccuracy of
representations or warranties, a cross-default related to
indebtedness in an aggregate amount of $1,000,000 or more,
bankruptcy and insolvency related defaults, defaults relating to
such matters as ERISA and judgments, and a change of control
default. The Credit Agreement contains negative covenants
applicable to the Company, the Borrowers and their subsidiaries,
including financial covenants requiring the Borrowers to
maintain a minimum level of EBITDA (if the Borrowers have not
maintained minimum levels of liquidity defined as
$30 million of qualified cash and qualified accounts
receivables, as defined in the Credit Agreement), as well as
restrictions on liens, capital expenditures, investments,
indebtedness, fundamental changes, dispositions of property,
making certain restricted payments (including restrictions on
dividends and stock repurchases), entering into new lines of
business, and transactions with affiliates.
|
|
6.
|
Commitments
and Contingencies
|
Operating
Leases
The Company leases certain of its facilities under
non-cancelable operating lease agreements that expire at various
dates from fiscal 2009 through 2026. Rent expense for these
leases was $6,674,000, $4,434,000 and $2,372,000, during the
years ended June 28, 2008, June 30, 2007 and
July 1, 2006, respectively.
Caswell
Sale-Leaseback
On March 10, 2006, the Companys Bookham Technology
plc subsidiary entered into multiple agreements with a
subsidiary of Scarborough Development (Scarborough)
for the sale and leaseback of the land and buildings located at
its Caswell, United Kingdom, manufacturing site. The sale
transaction, which closed on March 30, 2006, resulted in
immediate proceeds to Bookham Technology plc of
£13.75 million (approximately
U.S. $24 million on the date of the transaction).
Under these agreements, Bookham Technology plc leases back the
Caswell site for an initial term of 20 years, with options
to renew the lease term for 5 years following the initial
term and for rolling
2-year terms
thereafter. Annual rent is £1.1 million (approximately
$2.2 million based on the exchange rate of $1.989 as of
June 28, 2008) during the first 5 years of the
lease, £1.2 million (approximately $2.4 million
based on the exchange rate of $1.989 as of June 28,
2008) during the next 5 years of the lease,
£1.4 million (approximately $2.8 million based on
the exchange rate of $1.989 as of June 28,
2008) during the next 5 years of the lease and
£1.6 million (approximately $3.2 million based on
the exchange rate of $1.989 as of June 28,
2008) during the next 5 years of the lease. Rent
during the renewal terms will be determined according to the
then market rent for the site. The obligations of Bookham
Technology plc under these agreements are guaranteed by the
Company. In addition, Scarborough, Bookham Technology plc and
the Company entered into a pre-emption agreement with the buyer
under which Bookham Technology plc, within the next
20 years, has a right to purchase the Caswell site in whole
or in part on terms acceptable to Scarborough if Scarborough
agrees to terms with or receives an offer from a third party to
purchase the Caswell facility. Under the provisions of
SFAS 13, Accounting for Leases, the Company has
deferred a related gain of $20.4 million, which will be
amortized ratably against rent expense over the initial
20 year term of the lease. As of June 28, 2008, the
unamortized balance of this deferred gain is $19.4 million.
The Company is recognizing the rent expense related to payments
over the term of the lease.
At the inception of the Caswell lease, the Company determined
the total minimum lease payments which were to be paid over the
lease term in accordance with the provisions of
SFAS No. 13 Accounting for Leases, and it
is recognizing the effects of scheduled rent increases, which
are included in the total minimum
F-18
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
lease payments, on a straight-line basis over the lease term, as
required by FASB Technical
Bulletin No. 85-3
Accounting for Operating Leases with Scheduled Rent
Increases.
The Companys future minimum lease payments under
non-cancelable operating leases, including the sale-leaseback of
the Caswell facility and $3.7 million related to unoccupied
facilities as a result of the Companys restructuring
activities, are as follows (in thousands):
|
|
|
|
|
For fiscal year ending on or about June 30, 2009
|
|
$
|
6,489
|
|
2010
|
|
|
6,347
|
|
2011
|
|
|
5,872
|
|
2012
|
|
|
3,742
|
|
2013
|
|
|
2,974
|
|
Thereafter
|
|
|
38,512
|
|
|
|
|
|
|
Total
|
|
$
|
63,936
|
|
|
|
|
|
|
Guarantees
The Company follows the provisions of FASB Interpretation
No. 45 (FIN 45), Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness to Others, an interpretation
of FASB Statements No. 5, 57 and 107 and a rescission of
FASB Interpretation No. 34. The Company has the
following financial guarantees:
|
|
|
|
|
In connection with the sale by New Focus, Inc. of its passive
component line to Finisar, Inc., New Focus agreed to indemnify
Finisar for claims related to the intellectual property sold to
Finisar. This obligation expires in May 2009 and has no
limitation on maximum liability.
|
|
|
|
The Company indemnifies its directors and certain employees as
permitted by law, and has entered into indemnification
agreements with its directors and senior officers. The Company
has not recorded a liability associated with these
indemnification arrangements as the Company historically has not
incurred any costs associated with such indemnifications and
does not expect to in the future. Costs associated with such
indemnifications may be mitigated by insurance coverage that the
Company maintains.
|
|
|
|
The Company also has indemnification clauses in various
contracts that it enters into in the normal course of business,
such as those issued by its banks in favor of several of its
suppliers or indemnification in favor of customers in respect of
liabilities they may incur as a result of purchasing the
Companys products should such products infringe the
intellectual property rights of a third party. The Company has
not historically paid out any amounts related to these
indemnifications and does not expect to in the future, therefore
no accrual has been made for these indemnifications.
|
Settlement
of Yue Litigation
On April 3, 2006, the Company entered into a definitive
settlement agreement, or the Settlement Agreement, with
Mr. Howard Yue, or the Plaintiff, relating to the lawsuit
the Plaintiff filed against New Focus, Inc., a subsidiary of the
Company, and several of its officers and directors in
Santa Clara County Superior Court. The lawsuit, which was
originally filed on February 13, 2002, is captioned Howard
Yue v. New Focus, Inc. et al, Case No. CV808031, or
the Yue Litigation, and relates to events that occurred prior to
the Companys acquisition of New Focus, Inc.
The terms of the Settlement Agreement provided that the Company
would issue to the Plaintiff a $7.5 million promissory
note, or the Note, payable on or before April 10, 2006, of
which $5.0 million could be satisfied by the Company, at
its option, through the issuance of shares of common stock.
Pursuant to the
F-19
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Settlement Agreement, the Company issued the Note on
April 3, 2006 and satisfied the terms of the Note in full
by issuing to the Plaintiff 537,635 shares of common stock
valued at $5.0 million on April 4, 2006 and paying
$2.5 million in cash on April 5, 2006. The Plaintiff
filed dismissal papers in the Yue litigation on April 6,
2006.
The defense fees for this litigation have been paid by the
insurers under the applicable New Focus directors and officers
insurance policy. The Company and New Focus, Inc. have demanded
that the relevant insurers fully fund this settlement within
policy limits. At this time certain of the insurers have not
confirmed to the Company their definitive coverage position on
this matter. As the terms of this settlement had been reached
during the year ended July 1, 2006, the Company recorded
$7.2 million ($7.5 million, net of insurance
recoveries expected as of that time) as an other operating
expense in the Companys results of operations for the year
ended July 1, 2006. The Company recorded an additional
$0.5 million as an other operating expense for the year
ended June 30, 2007, for additional defense fees related to
this settlement. If and when additional insurers confirm their
definitive coverage position, the Company will record the
amounts of this coverage as recoveries against operating
expenses in the corresponding future periods.
Other
Litigation
On June 26, 2001, a putative securities class action
captioned Lanter v. New Focus, Inc. et al., Civil Action
No. 01-CV-5822,
was filed against New Focus, Inc. (New Focus) 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 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
Class Action Complaint, described below. The Amended
Class Action 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 Bookham Technology plcs initial
public offering.
Various plaintiffs have filed similar actions asserting
virtually identical allegations against more than 300 other
public companies, their underwriters, and their officers and
directors arising out of each companys initial public
offering. These actions, including the action against New Focus
and the action against Bookham Technology plc, have been
coordinated for pretrial purposes and captioned In re Initial
Public Offering Securities Litigation, 21 MC 92.
On April 19, 2002, plaintiffs filed a Consolidated Amended
Class Action Complaint in the New Focus action and an
Amended Class Action Complaint in the Bookham Technology
plc action (together, the Amended Class Action
Complaints). The Amended Class Action 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 Class Action
Complaints seek unspecified damages (or, in the alternative,
rescission for those class members who no longer hold our or New
Focus common stock), costs, attorneys fees, experts
fees, interest and other expenses. In October 2002, the
Individual Defendants were dismissed, without prejudice, from
the action subject to their execution of tolling agreements. In
July 2002, all defendants filed Motions to Dismiss
F-20
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the Amended Class Action Complaints. The motions were
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.
The plaintiffs and most of the issuer defendants and their
insurers entered into a stipulation of settlement for the claims
against the issuer defendants, including Bookham Technology plc
and New Focus. This stipulation of settlement was subject to,
among other things, certification of the underlying class of
plaintiffs. Under the stipulation of settlement, the plaintiffs
would 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
District Court issued an Opinion and Order preliminarily
approving the settlement provided that the defendants and
plaintiffs agree to a modification narrowing the scope of the
bar order set forth in the original settlement agreement. The
parties agreed to the modification narrowing the scope of the
bar order, and on August 31, 2005, the District Court
issued an order preliminarily approving the settlement.
On December 5, 2006, following an appeal from the
underwriter defendants the United States Court of Appeals for
the Second Circuit overturned the District Courts
certification of the class of plaintiffs who are pursuing the
claims that would be settled in the settlement against the
underwriter defendants. Plaintiffs filed a Petition for
Rehearing and Rehearing En Banc with the Second Circuit on
January 5, 2007 in response to the Second Circuits
decision and have informed the District Court that they would
like to be heard as to whether the settlement may still be
approved even if the decision of the Court of Appeals is not
reversed. The District Court indicated that it would defer
consideration of final approval of the settlement pending
plaintiffs request for further appellate review.
On April 6, 2007, the Second Circuit denied
plaintiffs petition for rehearing, but clarified that the
plaintiffs may seek to certify a more limited class in the
District Court. In light of the overturned class certification
on June 25, 2007, the District Court signed an Order
terminating the settlement. The actions against Bookham
Technology plc and New Focus remain stayed while litigation
proceeds in six test cases against other companies which involve
claims virtually identical to those that have been asserted
against Bookham Technology plc and New Focus. On
November 13, 2007, the issuer defendants in certain
designated focus cases filed a motion to dismiss the
second consolidated amended class action complaints there were
filed in those cases. On March 26, 2008, the District Court
issued an Opinion and Order denying, in large part, the motions
to dismiss the amended complaints in the focus
cases. It is uncertain if the litigations will settle. If
settlement of the litigations does not occur and litigation
against Bookham Technology plc and New Focus continues, the
Company believes that both Bookham Technology plc and New Focus
have meritorious defenses to the claims made in the amended
class action complaints and therefore the Company believes that
such claims will not have a material effect on its financial
position, results of operations or cash flows.
On November 12, 2007, Xian Raysung Photonics Inc.
filed a civil suit against Bookham, Inc., and its wholly-owned
subsidiary, Bookham Technology (Shenzhen) Co., Ltd., in the
Xian Intermediate Peoples Court in Shanxi Province
of the Peoples Republic of China. The complaint filed by
Xian Raysung Photonics Inc. alleges that Bookham, Inc. and
Bookham Technology (Shenzhen) Co., Ltd. breached an agreement
between the parties pursuant to which Xian Raysung
Photonics Inc. had supplied certain sample components and was to
supply certain components to Bookham, Inc. and Bookham
Technology (Shenzhen) Co., Ltd. Xian Raysung Photonics
Inc. has increased its request that the court award damages of
20,000,000 Chinese Yuan (approximately $2.9 million based
on an exchange rate of $1.00 to 6.85495 Chinese Yuan as in
effect on June 28, 2008) and require that Bookham,
Inc. and Bookham Technology (Shenzhen) Co., Ltd. pay its legal
fees in connection with the suit. Bookham, Inc. and Bookham
Technology (Shenzhen) Co., Ltd. believes they
F-21
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
have meritorious defenses to the claims made by Xian
Raysung Photonics Inc. and therefore believes that such claims
will not have a material effect on its financial position,
results of operations or cash flows.
On March 4, 2008, Bookham filed a declaratory judgment
complaint captioned Bookham, Inc. v. JDS Uniphase Corp.
and Agility Communications, Inc., Civil Action
No. 5:08-CV-01275-RMW,
in the United States District Court for the Northern District of
California, San Jose Division. Bookhams complaint
seeks declaratory judgments that its tunable laser products do
not infringe any valid, enforceable claim of U.S. Patent
Nos. 6,658,035, 6,654,400, 6,687,278, and that all claims of the
aforementioned patents are invalid and unenforceable.
Bookhams complaint also contains affirmative claims for
relief against JDS Uniphase Corp. and Agility Communications,
Inc. for statutory unfair competition, and for intentional
interference with economic advantage.
On July 21, 2008, JDS Uniphase Corp. and Agility
Communications, Inc. answered Bookhams complaint and
asserted counterclaims against Bookham for infringement of
U.S. Patent Nos. 6,658,035, 6,654,400, 6,687,278, which JDS
Uniphase Corp. acquired from Agility Communications, Inc. The
counterclaims are focused on Bookhams tunable laser
product line, but no disclosure of particular alleged infringing
products has yet been made. JDS Uniphase Corp. seeks unspecified
compensatory damages, treble damages and attorney fees from
Bookham, and an order enjoining Bookham from future infringement
of the
patents-in-suit.
No litigation schedule or trial date has yet been set. Any
adverse ruling by the court, including an injunction that could
prohibit us from using the technology covered by the patents in
our products, or prolonged litigation may have an adverse effect
on our business and any resolution may not be in our favor.
On April 18, 2008 the Company settled a lawsuit in the
United Kingdom under which it had been seeking claims against a
land developer in connection with the Companys sale of a
certain parcel of land in 2005. In the year ended June 30,
2008 the Company has recorded a gain of $2.9 million, net
of costs, associated with this settlement.
|
|
7.
|
Restructuring
and Severance Charges
|
In May, September and December 2004, the Company announced
restructuring plans, including the transfer of its assembly and
test operations from Paignton, U.K. to Shenzhen, China, along
with reductions in research and development and selling, general
and administrative expenses. These cost reduction efforts were
expanded in November 2005 to include the transfer of the
Companys
chip-on-carrier
assembly from Paignton to Shenzhen. The transfer of these
operations was completed in the quarter ended March 31,
2007. In May 2006, the Company announced further cost reduction
plans, which included transitioning all remaining manufacturing
support and supply chain management, along with pilot line
production and production planning, from Paignton to Shenzhen,
which was substantially completed in the quarter ended
June 30, 2007. As of June 28, 2008, the Company had
spent $32.8 million on these restructuring programs.
On January 31, 2007, the Company adopted an overhead cost
reduction plan which includes workforce reductions, facility and
site consolidation of its Caswell, U.K. semiconductor operations
within existing U.K. facilities and the transfer of certain
research and development activities to its Shenzhen, China
facility. The Company began implementing the overhead cost
reduction plan in the quarter ended March 31, 2007, and the
related actions also included consolidation of certain head
office functions in our San Jose, California location. Of
the total cost associated with this overhead cost reduction
plan, the substantial portions of the costs were personnel
severance and retention related expenses. As of
December 29, 2007, these plans were substantially complete.
The Company has incurred related expenses of $7.7 million.
The Company continues to leverage the cost reduction actions
first initiated under this plan and has begun transferring
certain non-telecom manufacturing activities from its
San Jose, California facility to its Shenzhen, China
facility. Restructuring and severance charges related to this
move, the substantial portion being personnel related, and are
expected to total $0.8 million to $1.0 million over
the next two fiscal quarters.
F-22
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In connection with earlier plans of restructuring, and the
assumption of restructuring accruals upon the acquisition of New
Focus in March 2004, in the year ended June 28, 2008, the
Company continued to make scheduled payments drawing down the
related lease cancellations and commitments. The Company accrued
$1.1 million, $0.9 million and $1.9 million in
the fiscal years ended June 28, 2008, June 30, 2007
and July 1, 2006, respectively, in expenses for revised
estimates related to these lease cancellations and commitments.
Remaining net payments of lease cancellations and commitments in
connection with the Companys earlier restructuring and
cost reduction efforts are included in the restructuring accrual
as of June 28, 2008. The related operating lease
commitments outstanding as of June 28, 2008 are reflected
in the disclosures in Note 6 Commitments and
Contingencies.
For all periods presented, separation payments under the
restructuring and cost reduction efforts were accrued and
charged to restructuring in the period that both the benefit
amounts were determined and the amounts had been communicated to
the affected employees.
The following table summarizes the activity related to the
restructuring liability for the year ended June 28, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
Amounts
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
Restructuring
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
|
|
Costs at June 30,
|
|
|
Restructuring
|
|
|
Amounts
|
|
|
Amounts Paid
|
|
|
|
|
|
Costs at June 28,
|
|
|
|
2007
|
|
|
Costs and Other
|
|
|
Reversed
|
|
|
or Written-Off
|
|
|
Adjustments
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Lease cancellations and commitments
|
|
$
|
3,845
|
|
|
$
|
1,141
|
|
|
$
|
(20
|
)
|
|
$
|
(2,904
|
)
|
|
$
|
12
|
|
|
$
|
2,074
|
|
Asset impairment
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
Termination payments to employees and related costs
|
|
|
546
|
|
|
|
2,350
|
|
|
|
(36
|
)
|
|
|
(2,141
|
)
|
|
|
35
|
|
|
|
754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accrued restructuring
|
|
|
4,391
|
|
|
$
|
3,526
|
|
|
$
|
(56
|
)
|
|
$
|
(5,080
|
)
|
|
$
|
47
|
|
|
|
2,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less non-current accrued restructuring charges
|
|
|
(1,678
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued restructuring charges included within accrued expenses
and other liabilities
|
|
$
|
2,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts charged to restructuring, net of reversals, in the
statement of operations for the year ended June 28, 2008 is
$3.5 million. Charges for termination payments are
primarily related to the January 2007 overhead cost reduction
discussed above and certain headquarters consolidation actions.
Charges for lease cancellations and commitments are primarily
related to changing assumptions as to sub-lease assumptions
regarding previously exited buildings and are related to our
non-telecom segment. The substantial portions of other charges
are associated with our telecom segment.
F-23
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the activity related to the
restructuring liability for the year ended June 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
Amounts
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
Restructuring
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
|
|
|
restructuring
|
|
|
|
Costs at July 1,
|
|
|
Restructuring
|
|
|
Amounts
|
|
|
Amounts Paid
|
|
|
|
|
|
costs at June 30,
|
|
|
|
2006
|
|
|
Costs and Other
|
|
|
Reversed
|
|
|
or Written-Off
|
|
|
Adjustments
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Lease cancellations and commitments
|
|
$
|
11,438
|
|
|
$
|
867
|
|
|
$
|
|
|
|
$
|
(8,408
|
)
|
|
$
|
(52
|
)
|
|
$
|
3,845
|
|
Termination payments to employees and related costs
|
|
|
4,691
|
|
|
|
9,480
|
|
|
|
(295
|
)
|
|
|
(13,692
|
)
|
|
|
362
|
|
|
|
546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accrued restructuring
|
|
|
16,129
|
|
|
$
|
10,347
|
|
|
$
|
(295
|
)
|
|
$
|
(22,100
|
)
|
|
$
|
310
|
|
|
|
4,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less non-current accrued restructuring charges
|
|
|
(3,196
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,678
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued restructuring charges included within accrued expenses
and other liabilities
|
|
$
|
12,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount charged to restructuring in the statement of
operations for the year ended June 30, 2007 is
$10.3 million. Charges for termination payments are
primarily in connection with the transfer of assembly and test
and related operations from Paignton to Shenzhen, and related to
the January 2007 cost reduction described above. Restructuring
and severance charges for the year ended June 30, 2007
include $0.3 million related to a non-cash charge for
acceleration of restricted stock and $0.8 million related
to payments made in connection with a separation agreement the
Company executed in May 2007 with its former Chief Executive
Officer. Charges for lease cancellations and commitments are
primarily related to changing sub-lease assumptions regarding
previously exited buildings and are related to our non-telecom
segment. The substantial portions of other charges are
associated with our telecom segment.
|
|
8.
|
Employee
Benefit Plans
|
In the United States, the Company sponsors a 401(k) plan that
allows voluntary contributions by eligible employees, who may
elect to contribute up to the maximum allowed under the
U.S. Internal Revenue Service regulations. The Company
generally makes 25% matching contributions (up to a maximum of
$2,000 per eligible employee per year) and it recorded related
expenses of $0.5 million in each of the years ended
June 28, 2008, June 30, 2007, and July 1, 2006,
respectively.
The Company also contributes to a United Kingdom based defined
contribution pension scheme for directors and employees, and to
an additional defined contribution plan for the benefit of one
director. Contributions, and the related expenses, under these
plans were $1.6 million, $2.4 million, and
$2.7 million in the years ended June 28, 2008,
June 30, 2007, and July 1, 2006, respectively.
F-24
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For financial reporting purposes, the Companys pre-tax
loss from continuing operations includes the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
June 28
|
|
|
June 30
|
|
|
July 1
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
(7,265
|
)
|
|
$
|
(9,692
|
)
|
|
$
|
(43,817
|
)
|
Foreign
|
|
|
(16,170
|
)
|
|
|
(72,378
|
)
|
|
|
(55,428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(23,435
|
)
|
|
$
|
(82,070
|
)
|
|
$
|
(99,245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the provision for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
June 28
|
|
|
June 30
|
|
|
July 1
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
(4
|
)
|
|
$
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
5
|
|
|
|
109
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5
|
|
|
$
|
105
|
|
|
$
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
(11,772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5
|
|
|
$
|
105
|
|
|
$
|
(11,749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliations of the income tax provision at the statutory
rate to the Companys provision for income tax are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
June 28
|
|
|
June 30
|
|
|
July 1
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Tax benefit at federal statutory rate
|
|
$
|
(7,968
|
)
|
|
$
|
(28,724
|
)
|
|
$
|
(34,736
|
)
|
Unbenefited domestic losses and credits
|
|
|
2,470
|
|
|
|
3,392
|
|
|
|
12,131
|
|
Unbenefited foreign losses and credits
|
|
|
5,503
|
|
|
|
25,437
|
|
|
|
10,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for (benefit from) income taxes
|
|
$
|
5
|
|
|
$
|
105
|
|
|
$
|
(11,749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-25
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
June 28
|
|
|
June 30
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
199,391
|
|
|
$
|
314,760
|
|
Depreciation and capital losses
|
|
|
76,202
|
|
|
|
79,648
|
|
Inventory valuation
|
|
|
952
|
|
|
|
1,069
|
|
Accruals and reserves
|
|
|
1,777
|
|
|
|
4,161
|
|
Capitalized research and development
|
|
|
2,310
|
|
|
|
2,848
|
|
Tax credit carryforwards
|
|
|
2,846
|
|
|
|
10,147
|
|
Stock Compensation
|
|
|
1,585
|
|
|
|
1,592
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
285,063
|
|
|
|
414,225
|
|
Valuation allowance
|
|
|
(277,221
|
)
|
|
|
(391,806
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
7,842
|
|
|
|
22,419
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Other asset impairments
|
|
|
(7,842
|
)
|
|
|
(8,073
|
)
|
Forthaven deferred tax liability
|
|
|
0
|
|
|
|
(14,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,842
|
)
|
|
|
(22,419
|
)
|
Net Deferred Tax Assets
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The Companys valuation allowance decreased by $114,585,000
in the year ended June 28, 2008 compared to the year ended
June 30, 2007, and decreased by $71,781,000 in the year
ended July 1, 2007 compared to the year ended July 1,
2006.
Recognition of deferred tax assets is appropriate when
realization of such assets is more likely than not. Based upon
the weight of available evidence, which includes the
Companys historical operating performance and the recorded
cumulative net losses in all prior fiscal periods, the Company
has provided a full valuation allowance against its net deferred
tax assets.
As of June 28, 2008, the Company had foreign net operating
loss carry forwards of approximately $602,266,000, $56,805,000,
$19,776,000, and $3,397,000 in the United Kingdom, Switzerland,
China, and Canada, respectively. The United Kingdom and Canada
net operating losses do not expire, the Swiss net operating loss
will expire at various times from 2008 through 2013 if unused,
and the China net operating loss will expire at various times
from 2008 through 2009 if unused. The Company also has
U.S. federal, California and other state net operating
losses of approximately $12,095,000, $29,090,000 and $24,000
respectively, which will expire in various years from 2017
through 2028 if unused.
As of June 28, 2008, the Company has U.S. federal,
California, and foreign research and development credits of
approximately $100,000, $289,000 and 5,846,000 respectively. The
federal credit will expire at various times from 2027 through
2028 if unused. The California credit can be carried forward
indefinitely. The foreign credit will expire at various times
from 2015 through 2027 if unused.
Utilization of net operating loss carry forwards and credit
carry forwards may be subject to annual limitations due to
ownership changes as provided in the Internal Revenue Code of
1986, as amended, as well as similar state and foreign tax laws.
Effective July 1, 2007, the Company adopted Financial
Accounting Standards Interpretation, or FIN, No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109.
FIN No. 48 prescribes a recognition threshold and
measurement attribute for the financial statement
F-26
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
recognition and measurement of uncertain tax positions taken, or
expected to be taken, in a companys income tax return; and
also provides guidance on de-recognition, classification,
interest and penalties, accounting in interim periods,
disclosure, and transition. FIN No. 48 utilizes a
two-step approach for evaluating uncertain tax positions
accounted for in accordance with SFAS No. 109,
Accounting for Income Taxes, or
SFAS No. 109. Step one, Recognition, requires a
company to determine if the weight of available evidence
indicates that a tax position is more likely than not to be
sustained upon audit, including resolution of related appeals or
litigation processes, if any. Step two, Measurement, is based on
the largest amount of benefit, which is more likely than not to
be realized on ultimate settlement. The cumulative effect of
adopting FIN No. 48 on July 1, 2007 is recognized
as a change in accounting principle, recorded as an adjustment
to the opening balance of retained earnings on the adoption
date. As a result of the implementation of FIN No. 48,
Bookham, Inc. recognized a decrease in the liability for
unrecognized tax benefits related to tax positions taken in
prior periods and therefore made a corresponding adjustment to
its opening retained earnings as of July 2, 2007 of
approximately $562,000.
The Companys total amount of unrecognized tax benefits as
of July 1, 2007, the adoption date, and June 28, 2008
was approximately $3.6 million and $92.3 million,
respectively. An adjustment of $88.5 million based on
analysis performed during the year was made to the opening
July 1, 2007 balance to account for certain deferred tax
assets recorded as unrecognized tax benefits. This adjustment
was previously in the deferred tax asset which carried a full
valuation allowance; therefore, there is no impact on the
financial statements. Also, the Company had no unrecognized tax
benefits that, if recognized, would affect its effective tax
rate for July 1, 2007 or June 28, 2008 due to a full
valuation allowance against its deferred tax assets. While it is
often difficult to predict the final outcome of any particular
uncertain tax position, management does not believe that it is
reasonably possible that the estimates of unrecognized tax
benefits will change significantly in the next twelve months.
A reconciliation of the beginning and ending amount of the
consolidated liability for unrecognized income tax benefits
during the tax year ended June 28, 2008 is as follows:
|
|
|
|
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Balance at July 1, 2007
|
|
$
|
3,612
|
|
Revisions to opening unrecognized tax benefits
|
|
|
88,518
|
|
Additions for tax positions related to 2008
|
|
|
150
|
|
|
|
|
|
|
Balance at June 28, 2008
|
|
$
|
92,280
|
|
|
|
|
|
|
Upon adoption of FIN No. 48, the Companys policy
to include interest and penalties related to unrecognized tax
benefits within the Companys provision for (benefit
from) income taxes, did not change. As of July 1,
2007, and June 28, 2008, the Company did not have any
accrual for payment of interest and penalties related to
unrecognized tax benefits.
The Company files U.S. federal, U.S. state, and
foreign tax returns and has determined its major tax
jurisdictions are the United States, the United Kingdom, and
China. Certain jurisdictions remain open to examination by the
appropriate governmental agencies; U.S. federal and China
tax years 2004 to 2008, various U.S. states tax years 2003
to 2008, and the United Kingdom tax years
2002-2008.
On November 13, 2007, the Company completed a public
offering of 16,000,000 shares of its common stock at a
price to the public of $2.75 per share that generated
$40.8 million of cash, net of underwriting commissions and
offering expenses.
F-27
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On March 22, 2007, the Company entered into a definitive
agreement for a private placement pursuant to which it issued
and sold, on March 22, 2007, 13,640,224 shares of
common stock and warrants to purchase up to
4,092,066 shares of common stock with certain institutional
accredited investors for net proceeds to the Company of
approximately $26.9 million. The warrants have a five year
term and are exercisable beginning on September 23, 2007 at
an exercise price of $2.80 per share, subject to adjustment
based on a weighted average anti-dilution formula if the Company
effects certain equity issuances in the future for consideration
per share that is less than the then current exercise price per
share of such warrants. The fair value of these warrants was
determined to be $6.3 million as of March 22, 2007.
On August 31, 2006, the Company entered into an agreement
for a private placement of common stock and warrants pursuant to
which it issued and sold 8,696,000 shares of common stock
and warrants to purchase up to 2,174,000 shares of common
stock on September 1, 2006, and issued and sold an
additional 2,898,667 shares of common stock and warrants to
purchase up to an additional 724,667 shares of common stock
in a second closing on September 19, 2006. In both cases,
such shares of common stock and warrants were issued and sold to
certain institutional accredited investors. Net proceeds to the
Company from this private placement, including the second
closing, were $28.7 million. The warrants are exercisable
during the period beginning on March 2, 2007 through
September 1, 2011, at an exercise price of $4.00 per share.
The fair value of these warrants was determined to be
$6.1 million as of August 31, 2006.
On April 3, 2006, the Company entered into the Settlement
Agreement with Mr. Howard Yue relating to a lawsuit
Mr. Yue filed against New Focus, Inc., a subsidiary of the
Company, and several of its officers and directors in
Santa Clara County Superior Court. The lawsuit, which was
originally filed on February 13, 2002, relates to events
that occurred prior to the Companys acquisition of New
Focus, Inc. The terms of the Settlement Agreement provided that
the Company would issue to Mr. Yue a $7.5 million
promissory note of which $5.0 million could be satisfied by
the Company, at its option, through the issuance of its common
stock. Pursuant to the Settlement Agreement, on April 4,
2006, the Company issued 537,635 shares of its common stock
with a then current market value of $5.0 million to
Mr. Yue and, on April 5, 2006, the Company paid the
remaining $2.5 million due under the promissory note in
cash.
On March 22, 2006, the Company acquired all of the
outstanding share capital of Avalon Photonics AG for
764,951 shares of its common stock. Subject to the
achievement of certain future integration and revenue
milestones, the Avalon shareholders and their designees were
potentially entitled to receive up to 347,705 additional shares
of common stock, consisting of up to 139,082 shares for
achieving the integration milestone and up to
208,623 shares for achieving revenue milestones. The
integration milestone was not achieved resulting in adjustment
of $1.0 million against additional
paid-in-capital.
It is unlikely the revenue milestones will be achieved. See
Note 13 Business Combinations, for additional
disclosures regarding this acquisition.
On January 13, 2006, the Company entered into a series of
transactions to (i) retire $45.9 million aggregate
principal amount of outstanding notes payable to Nortel Networks
UK Limited and (ii) convert $25.5 million in
outstanding convertible debentures which were issued in December
2004. In connection with the satisfaction of these debt
obligations and conversion of the convertible debentures the
Company issued approximately 10.5 million shares of common
stock, warrants to purchase approximately 1.1 million
shares of common stock, paid approximately $22.2 million in
cash, and recorded a charge of $18.8 million in the fiscal
year ended July 1, 2006 for loss on conversion and early
extinguishment of debt. See Note 16 Debt.
On October 17, 2005, the Company completed a public
offering of its common stock, issuing a total of
11,250,000 shares at a price per share of $4.75, raising
$53.4 million and receiving $49.3 million net of
commissions to the underwriters, offering costs and expenses.
In November 2007, the Company granted 268,749 shares of
restricted stock units under existing stock incentive plans. The
Company also issued 250,000 shares of restricted stock
units to certain executives of the Company under existing stock
incentive plans. The restricted stock grants vest when the
Company achieves
F-28
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
earnings before interest, taxes, depreciation and amortization,
excluding restructuring charges, one-time items and charges for
stock-based compensation greater than zero. The Company recorded
$1.3 million of expense in its fiscal quarter ended
June 28, 2008 under SFAS 123R in connection with these
performance based grants.
In June 2007, the Company granted options to purchase
886,500 shares of common stock and issued
886,500 shares of restricted stock (including 217,500
restricted stock units) under existing stock incentive plans.
The options have an exercise price of $2.01, have a term of ten
years and vest ratably over 48 months with the first
12 months of vesting deferred until the one year
anniversary of the grant. The restricted stock grants vest when
the Company achieves earnings before interest, taxes,
depreciation and amortization, excluding restructuring charges,
one-time items and charges for stock-based compensation greater
than zero. The Company recorded $1.7 million of expense in
its fiscal quarter ended December 29, 2007 under
SFAS 123R in connection with these performance based grants.
In February 2007, the Company issued 96,300 restricted stock
units under existing stock incentive plans. The restricted stock
units vest upon the achievement of certain development targets.
Effective February 2007, the Company also accelerated the
vesting of 128,906 shares of restricted stock, granted in
November 2005, in connection with a separation agreement
executed in May 2007 with its former Chief Executive Officer.
In November 2005, the Company granted options to purchase
4,762,500 shares of common stock and issued
1,100,000 shares of restricted stock (including 50,000
restricted stock units) under existing stock incentive plans.
The options have an exercise price of $4.91, have a term of ten
years and vest ratably over 48 months with the first
12 months of vesting deferred until the one year
anniversary of the grant. The restricted stock grants vest as to
50% ratably over 48 months, as to 25% when the Company
achieves earnings before interest, taxes, depreciation and
amortization, excluding restructuring charges, one-time items
and charges for stock-based compensation cumulatively greater
than zero for two successive quarters, and as to 25% when the
Company achieves earnings before interest, taxes, depreciation
and amortization, excluding restructuring charges, one-time
items and charges for stock-based compensation cumulatively
greater than 8% of revenues for two successive quarters. During
the quarter ended June 28, 2008 the Company recorded
expenses of $657,000 under SFAS 123R related to
133,750 shares of restricted stock (and restricted stock
units) in association with certain of these performance based
targets and the remaining 133,750 unvested shares of restricted
stock (and restricted stock units) with performance based
vesting will expire November 11, 2009 if such targets are
not achieved by that date.
On September 22, 2004, options to purchase
1,730,950 shares of common stock of the Company were
granted to employees at an exercise price of $6.73 per share.
One half of the options vest on a time based schedule
(twenty-five percent of such amount vests one year from the
grant date, with the remaining seventy-five percent of such
amount vesting monthly over the next three years) and the
remaining half vest on a performance based schedule. The
performance based schedule options vest as follows:
(i) fifty percent of the performance based shares vest when
the Company achieves cash flow break-even (which is defined as
the point when the Company generates earnings before interest,
taxes, depreciation and amortization (excluding one-time items)
greater than zero in any fiscal quarter) and (ii) the
remaining fifty percent of these performance based shares vest
upon the Company achieving profitability (which is 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). As of June 28, 2008,
424,345 shares underlying these options have vested. Any
unvested performance based options will vest in full on
September 22, 2009, regardless of the achievement of the
underlying performance targets.
In December 2004, in connection with a 7% convertible note
private placement as described in
Note 16-
Debt, the Company issued warrants to purchase
2,001,963 shares of its common stock. These warrants have
an exercise price of $6.00 per share and expire on
December 20, 2009.
F-29
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In addition to the stock option grants described above, the
following summarizes all employee stock option activity for the
periods provided below:
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
Weighted Average
|
|
|
|
Outstanding
|
|
|
Exercise Price
|
|
|
Outstanding at July 2, 2005
|
|
|
3,247,252
|
|
|
$
|
13.87
|
|
Granted
|
|
|
5,130,660
|
|
|
$
|
4.97
|
|
Exercised
|
|
|
(58,627
|
)
|
|
$
|
5.15
|
|
Cancelled
|
|
|
(998,416
|
)
|
|
$
|
12.70
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 1, 2006
|
|
|
7,320,869
|
|
|
$
|
7.79
|
|
Granted
|
|
|
1,260,550
|
|
|
$
|
2.28
|
|
Exercised
|
|
|
(3,678
|
)
|
|
$
|
2.69
|
|
Cancelled
|
|
|
(2,148,293
|
)
|
|
$
|
7.23
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2007
|
|
|
6,429,448
|
|
|
$
|
9.16
|
|
Granted
|
|
|
1,749,658
|
|
|
$
|
2.13
|
|
Exercised
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(1,356,922
|
)
|
|
$
|
6.64
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 28, 2008
|
|
|
6,822,184
|
|
|
$
|
7.53
|
|
|
|
|
|
|
|
|
|
|
F-30
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following summarizes option information relating to options
outstanding under the Companys stock option plans as of
June 28, 2008 as well as options the Company assumed from
Bookham Technology plc in connection with the scheme of
arrangement pursuant to which Bookham Technology plc became a
wholly-owned subsidiary of the Company. Because the Company
tracks the options issued under Bookham Technology plcs
plans and assumed by the Company in the scheme of arrangement
separately from those issued under plans, the following
information in presented in two separate sets of exercise price
ranges (in U.S. dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Average
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Remaining
|
|
|
Weighted
|
|
|
Exercisable
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
As of June 28,
|
|
|
Contractual
|
|
|
Average
|
|
|
As of June 28,
|
|
|
Average
|
|
Range of Exercise Prices
|
|
|
|
|
|
|
|
2008
|
|
|
Term
|
|
|
Exercise Price
|
|
|
2008
|
|
|
Exercise Price
|
|
|
U.S. Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.23
|
|
|
|
|
|
$
|
1.54
|
|
|
|
155,000
|
|
|
|
9.68
|
|
|
$
|
1.33
|
|
|
|
|
|
|
$
|
0.00
|
|
$1.75
|
|
|
|
|
|
$
|
1.75
|
|
|
|
832,906
|
|
|
|
9.59
|
|
|
$
|
1.75
|
|
|
|
|
|
|
$
|
0.00
|
|
$1.86
|
|
|
|
|
|
$
|
2.00
|
|
|
|
23,000
|
|
|
|
9.92
|
|
|
$
|
1.94
|
|
|
|
10,000
|
|
|
$
|
1.86
|
|
$2.01
|
|
|
|
|
|
$
|
2.01
|
|
|
|
761,500
|
|
|
|
9.04
|
|
|
$
|
2.01
|
|
|
|
190,375
|
|
|
$
|
2.01
|
|
$2.18
|
|
|
|
|
|
$
|
2.89
|
|
|
|
718,243
|
|
|
|
9.03
|
|
|
$
|
2.77
|
|
|
|
47,169
|
|
|
$
|
2.60
|
|
$2.90
|
|
|
|
|
|
$
|
4.70
|
|
|
|
273,141
|
|
|
|
8.49
|
|
|
$
|
3.27
|
|
|
|
176,157
|
|
|
$
|
3.27
|
|
$4.91
|
|
|
|
|
|
$
|
4.91
|
|
|
|
2,740,714
|
|
|
|
7.43
|
|
|
$
|
4.91
|
|
|
|
1,816,941
|
|
|
$
|
4.91
|
|
$4.99
|
|
|
|
|
|
$
|
7.45
|
|
|
|
658,898
|
|
|
|
6.54
|
|
|
$
|
6.63
|
|
|
|
459,482
|
|
|
$
|
6.64
|
|
$7.74
|
|
|
|
|
|
$
|
206.49
|
|
|
|
352,982
|
|
|
|
4.33
|
|
|
$
|
18.40
|
|
|
|
351,773
|
|
|
$
|
18.41
|
|
$510.28
|
|
|
|
|
|
$
|
510.28
|
|
|
|
30
|
|
|
|
2.34
|
|
|
$
|
510.28
|
|
|
|
30
|
|
|
$
|
510.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.23
|
|
|
|
|
|
$
|
510.28
|
|
|
|
6,516,414
|
|
|
|
7.92
|
|
|
$
|
4.67
|
|
|
|
3,051,927
|
|
|
$
|
6.41
|
|
Assumed from U.K. Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$9.80
|
|
|
|
|
|
$
|
9.80
|
|
|
|
10,000
|
|
|
|
6.10
|
|
|
$
|
9.80
|
|
|
|
9,583
|
|
|
$
|
9.80
|
|
$11.58
|
|
|
|
|
|
$
|
11.58
|
|
|
|
50,800
|
|
|
|
5.93
|
|
|
$
|
11.58
|
|
|
|
50,800
|
|
|
$
|
11.58
|
|
$13.86
|
|
|
|
|
|
$
|
14.74
|
|
|
|
17,000
|
|
|
|
4.28
|
|
|
$
|
14.06
|
|
|
|
17,000
|
|
|
$
|
14.06
|
|
$15.44
|
|
|
|
|
|
$
|
15.44
|
|
|
|
85,230
|
|
|
|
4.38
|
|
|
$
|
15.44
|
|
|
|
85,230
|
|
|
$
|
15.44
|
|
$15.84
|
|
|
|
|
|
$
|
23.75
|
|
|
|
17,750
|
|
|
|
4.77
|
|
|
$
|
16.84
|
|
|
|
17,750
|
|
|
$
|
16.84
|
|
$23.85
|
|
|
|
|
|
$
|
23.85
|
|
|
|
35,755
|
|
|
|
3.71
|
|
|
$
|
23.85
|
|
|
|
35,755
|
|
|
$
|
23.85
|
|
$26.77
|
|
|
|
|
|
$
|
26.77
|
|
|
|
61,900
|
|
|
|
5.24
|
|
|
$
|
26.77
|
|
|
|
61,900
|
|
|
$
|
26.77
|
|
$26.82
|
|
|
|
|
|
$
|
268.23
|
|
|
|
17,235
|
|
|
|
3.17
|
|
|
$
|
69.61
|
|
|
|
17,235
|
|
|
$
|
69.61
|
|
$322.47
|
|
|
|
|
|
$
|
322.47
|
|
|
|
9,900
|
|
|
|
2.38
|
|
|
$
|
322.47
|
|
|
|
9,900
|
|
|
$
|
322.47
|
|
$713.64
|
|
|
|
|
|
$
|
713.64
|
|
|
|
200
|
|
|
|
2.13
|
|
|
$
|
713.64
|
|
|
|
200
|
|
|
$
|
713.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$9.80
|
|
|
|
|
|
$
|
713.64
|
|
|
|
305,770
|
|
|
|
4.67
|
|
|
$
|
31.35
|
|
|
|
305,353
|
|
|
$
|
31.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
6,822,184
|
|
|
|
|
|
|
|
|
|
|
|
3,357,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average remaining contractual term of options
exercisable was 6.91 years as of June 28, 2008.
Under the Companys Amended and Restated 2004 Stock
Incentive Plan, there are 12,105,257 shares available for
grant as of June 28, 2008. The Company generally grants
stock options that vest over a four to five year service period,
and restricted stock awards that vest over a one to four year
period, and in certain cases each may vest earlier based upon
the achievement of specific performance-based objectives as set
by the Companys Board of Directors.
F-31
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Common
Stock Reserved
Common stock is reserved for future issuance as follows:
|
|
|
|
|
|
|
June 28,
|
|
|
|
2008
|
|
|
Stock option plan:
|
|
|
|
|
Outstanding options
|
|
|
6,822,184
|
|
Warrants
|
|
|
10,083,578
|
|
Reserved for future grants
|
|
|
12,105,257
|
|
|
|
|
|
|
Total
|
|
|
29,011,019
|
|
|
|
|
|
|
If the Company had reported net income, as opposed to a net
loss, the calculation of diluted earnings per share would have
included an additional 18,402,270, 18,111,000 and 11,509,657
common equivalent shares related to outstanding share options
and warrants (determined using the treasury stock method) for
the years ended June 28, 2008, June 30, 2007 and
July 1, 2006, respectively.
|
|
12.
|
Segments
of an Enterprise and Related Information
|
Pursuant to SFAS 131, Disclosures about Segments of an
Enterprise and Related Information,
(SFAS 131) the Companys Chief Executive
Officer, who joined the Company during the fiscal year ended
June 28, 2008, acts in the capacity of its Chief Operating
Decision Maker (CODM) in the context defined by
SFAS 131. During the Companys fiscal year ended
June 28, 2008, the Companys CODM implemented changes
in the Companys operating structure as follows:
|
|
|
|
|
Current Structure of Business Segments. As of
June 28, 2008, and effective for the entire fiscal quarter
then ended, the Company is organized and operates as two
operating segments: (i) telecom and (ii) non-telecom.
The telecom segment is responsible for the design, the
development, the chip and filter level manufacturing, the
marketing and the selling of optical solutions for
telecommunications applications. The non-telecom segment is
responsible for the design, development, marketing and selling
of non-telecom products which include photonics and microwave
solutions, high power lasers, thin film filters and VCSELs. The
Company evaluates the performance of these segments and makes
resource allocation decisions based on segment revenues and
segment operating income/(loss), after allocating manufacturing
costs between these operating segments and allocating the
Companys corporate general and administration costs to
these operating segments. The Company does not allocate stock
compensation, gains or losses on legal settlements, or gain on
sale of property and equipment and other long-lived assets to
these operating entities, each of which are components of the
Companys consolidated operating income/(loss). The Company
also does not allocate other income/(expense), interest income,
interest expense or gain/(loss) on foreign exchange to these
operating segments.
|
|
|
|
Previous Structure of Business Segments. Prior
to the fiscal quarter ended June 28, 2008, the Company was
organized and operated as two operating segments:
(i) optics and (ii) research and industrial. The
optics segment was responsible for the design, development,
manufacturing, marketing and selling of optical solutions for
telecommunications and industrial applications. The research and
industrial segment was comprised of the Companys New Focus
subsidiary, which operated relatively autonomously as a discrete
business, and was responsible for the design, manufacturing,
marketing and selling of photonic and microwave solutions. The
Company evaluated the performance of these segments and
allocated resources based on consolidated revenues and overall
profitability as reflected by net income/(loss).
|
F-32
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Segment
Information Based on Current Business Segments
For all periods presented, the Company is presenting business
segment financial information on the current business segment
basis as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
June 28,
|
|
|
June 30,
|
|
|
July 1,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Net revenues Telecom
|
|
$
|
176,856
|
|
|
$
|
153,823
|
|
|
$
|
195,502
|
|
Non-telecom
|
|
|
58,635
|
|
|
|
48,991
|
|
|
|
36,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net revenues
|
|
$
|
235,491
|
|
|
$
|
202,814
|
|
|
$
|
231,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
June 28,
|
|
|
June 30,
|
|
|
July 1,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Operating income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Telecom
|
|
$
|
(29,641
|
)
|
|
$
|
(76,353
|
)
|
|
$
|
(64,021
|
)
|
Non-telecom
|
|
|
2,742
|
|
|
|
1,971
|
|
|
|
(1,505
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income/(loss)
|
|
|
(26,899
|
)
|
|
|
(74,382
|
)
|
|
|
(65,526
|
)
|
Stock compensation
|
|
|
8,812
|
|
|
|
6,373
|
|
|
|
8,863
|
|
Legal Settlement
|
|
|
(2,882
|
)
|
|
|
490
|
|
|
|
4,997
|
|
Acquired in-process research and development
|
|
|
|
|
|
|
|
|
|
|
118
|
|
Impairment/(recovery) of goodwill, other intangible and other
long lived assets
|
|
|
|
|
|
|
1,621
|
|
|
|
(71
|
)
|
Gain on sale of property and equipment and other long-lived
assets
|
|
|
(2,562
|
)
|
|
|
(3,009
|
)
|
|
|
(2,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating income/(loss)
|
|
$
|
(30,267
|
)
|
|
$
|
(79,857
|
)
|
|
$
|
(77,364
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of tangible assets Telecom
|
|
$
|
10,605
|
|
|
$
|
11,347
|
|
|
$
|
17,822
|
|
Non-telecom
|
|
|
1,625
|
|
|
|
2,665
|
|
|
|
2,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated depreciation
|
|
$
|
12,230
|
|
|
$
|
14,012
|
|
|
$
|
20,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenditures for long-lived assets Telecom
|
|
$
|
7,319
|
|
|
$
|
4,423
|
|
|
$
|
8,681
|
|
Non-telecom
|
|
|
1,815
|
|
|
|
2,010
|
|
|
|
1,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total expenditures for long-lived assets
|
|
$
|
9,135
|
|
|
$
|
6,433
|
|
|
$
|
10,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic revenue information for the periods presented below
is based on location of the customer:
|
|
|
|
|
|
|
|
|
|
|
|
|
F-33
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
June 28,
|
|
|
June 30,
|
|
|
July 1,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
United States
|
|
$
|
59.5
|
|
|
$
|
46.0
|
|
|
$
|
47.8
|
|
Canada
|
|
|
39.1
|
|
|
|
56.1
|
|
|
|
107.4
|
|
China
|
|
|
59.1
|
|
|
|
37.7
|
|
|
|
27.8
|
|
Europe
|
|
|
47.6
|
|
|
|
34.4
|
|
|
|
28.8
|
|
Asia other than China
|
|
|
22.4
|
|
|
|
25.2
|
|
|
|
15.6
|
|
Rest of the World
|
|
|
7.8
|
|
|
|
3.4
|
|
|
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
235.5
|
|
|
$
|
202.8
|
|
|
$
|
231.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the Companys long-lived
tangible assets by geographic region as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
June 28,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
China
|
|
$
|
20.5
|
|
|
$
|
18.5
|
|
United Kingdom
|
|
|
6.3
|
|
|
|
9.7
|
|
Europe other than United Kingdom
|
|
|
4.1
|
|
|
|
3.9
|
|
United States
|
|
|
1.8
|
|
|
|
1.3
|
|
Canada
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
33.0
|
|
|
$
|
33.7
|
|
|
|
|
|
|
|
|
|
|
|
|
13.
|
Business
Combinations
|
Acquisition
of Creekside
On August 10, 2005, the Companys wholly-owned
subsidiary, Bookham Technology plc, acquired all of the share
capital of City Leasing (Creekside) Limited
(Creekside) for consideration of approximately
£1, plus transaction costs. The following is the purchase
price allocation related to this business combination (in
thousands):
|
|
|
|
|
|
|
Purchase
|
|
|
|
Price
|
|
|
|
Allocation
|
|
|
Purchase price:
|
|
|
|
|
Cash
|
|
$
|
|
|
Transaction costs
|
|
|
685
|
|
|
|
|
|
|
|
|
$
|
685
|
|
|
|
|
|
|
Allocation of purchase price:
|
|
|
|
|
Cash, including restricted cash
|
|
$
|
8,378
|
|
Net monetary assets
|
|
|
4,092
|
|
Deferred tax liabilities
|
|
|
(11,785
|
)
|
|
|
|
|
|
|
|
$
|
685
|
|
|
|
|
|
|
F-34
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The net monetary assets acquired primarily represent lease
receivables and loans payable to and from parties related to the
entity from which Bookham Technology plc acquired Creekside.
Bookham Technology plc has the right to offset these balances,
and in accordance with FIN 39, Offsetting of Amounts
Related to Certain Contracts is reflecting these amounts
net on its balance sheet. The contracts underlying the
receivables and loans are denominated in United Kingdom pounds
sterling. These loans, in principal amounts at the date of
acquisition of $32 million and $75 million based on
the October 1, 2005 exchange rate of 1.76 U.S. dollars
per UK pound sterling, accrue interest at annual rates of 5.54%
and 5.68%, respectively. The first loan was paid in full on
October 14, 2005 and the second loan was paid in full in
equal installments on July 14, 2006, paid as scheduled on
that date, and July 16, 2007, paid as scheduled on that
date with the lease receivables received substantially
concurrent with this schedule. The Company anticipates applying
capital allowances of Bookham Technology plc to reduce tax
liabilities assumed from Creekside. Accordingly, as a result of
the acquisition of Creekside, in the year ended July 1,
2006 the Company has recognized a one time tax gain of
$11.8 million related to the expected realization of these
tax assets. No results of Creekside have been included in the
Companys results of operations for periods prior to
August 10, 2005, after which point Creekside is included in
the Companys consolidated results of operations.
Acquisition
of Avalon Photonics, AG
Avalon Photonics, AG (Avalon) is a producer of
multimode and single mode short wavelength VCSEL or
VCSEL-arrays. On March 22, 2006, the Company acquired all
of the outstanding share capital of Avalon, a company organized
under the laws of Switzerland, under an agreement pursuant to
which it issued 764,951 shares of common stock to the
Avalon shareholders and their designees, valued at $5,500,000 as
of the date of acquisition. In addition, subject to the
achievement of certain future integration and revenue
milestones, the Avalon shareholders and their designees were
entitled to receive up to 347,705 additional shares of common
stock. As 139,082 shares related to integration milestones
were fixed as to number and believed to be achievable, the value
of these shares, $1,000,000 as of the date of acquisition, was
included as part of the consideration in the allocation of the
purchase price. In the year ended June 28, 2008 it was
determined the integration milestone would not be achieved and
the $1,000,000 related to these contingent shares was reversed
as a reduction of goodwill and additional paid-in capital. The
issuance of the remaining 208,623 shares is contingent upon
Avalon achieving certain revenue criteria over a two-year
period. As of June 28, 2008, the Company does not believe
it is likely the revenue criteria will be achieved. Should any
additional contingent consideration result from the achievement
of the revenue criteria it will be accounted for as additional
goodwill. $118,000 of the proceeds was allocated to in-process
research and development (IPR&D) projects. The
pro forma results of operations of Avalon prior to
March 22, 2006 were immaterial to the Company.
To determine the value of the developed technology of Avalon,
the expected future cash flow attributed to all existing
technology was discounted, taking into account risks related to
the characteristics and application of the technology, existing
and future markets and assessments of the lifecycle stage of the
technology.
The value of IPR&D of Avalon was determined based on the
expected cash flow attributed to in-process projects, taking
into account revenue that is attributable to previously
developed technology, the level of effort to date in the
IPR&D, the percentage of completion of the project and the
level of risk associated with the in-process technology. The
projects identified as in-process are those that were underway
at Avalon at the time of the acquisition and that required
additional efforts in order to establish technological
feasibility. The value of IPR&D was included in the
Companys results of operations during the period of the
Avalon acquisition.
The value of the acquired patent portfolio was determined based
on the income approach, as it most accurately reflected the fair
value associated with unique assets such as a patent.
Specifically, the relief from royalty method was utilized to
arrive at an estimate of fair value. This methodology estimates
the amount of hypothetical royalty income that could be
generated if the patents were licensed by an independent,
third-party
F-35
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
owner to the business currently using the patents in an
arms-length transaction. This is the royalty savings to
the owners of the patent portfolio in that the owner is not
required to pay a royalty for the use of the patents.
The value of supply contracts was determined based on discounted
cash flows. The discounted cash flow method was considered to be
the most appropriate methodology, as it reflects the present
value of the operating cash flows generated by the contracts
over their returns.
A summary of the purchase price allocation pertaining to the
Avalon acquisition is as follows:
|
|
|
|
|
|
|
Avalon
|
|
|
|
(In thousands)
|
|
|
Purchase price
|
|
$
|
6,500
|
|
Transaction and other direct acquisition costs
|
|
|
200
|
|
|
|
|
|
|
|
|
$
|
6,700
|
|
|
|
|
|
|
Allocation of purchase price:
|
|
|
|
|
Net tangible assets acquired
|
|
$
|
1,804
|
|
Intangible assets acquired:
|
|
|
|
|
Supply contracts and customer relationships
|
|
|
539
|
|
Core and current technology
|
|
|
1,695
|
|
In-process research and development
|
|
|
118
|
|
Goodwill
|
|
|
2,544
|
|
|
|
|
|
|
|
|
$
|
6,700
|
|
|
|
|
|
|
Amortization period of intangibles acquired from Avalon are as
follow:
|
|
|
|
|
Supply contracts and customer relationships
|
|
|
7 years
|
|
Core and current technology
|
|
|
4 - 6 years
|
|
F-36
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
14.
|
Goodwill
and Other Intangible Assets
|
The following are summaries of information related to the
Companys goodwill and other intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Goodwill
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net Book Value
|
|
|
|
(In thousands)
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2, 2005
|
|
$
|
6,260
|
|
|
$
|
57,548
|
|
|
$
|
29,538
|
|
|
$
|
28,010
|
|
Acquired
|
|
|
2,621
|
|
|
|
2,234
|
|
|
|
|
|
|
|
2,234
|
|
Charged
|
|
|
|
|
|
|
|
|
|
|
10,004
|
|
|
|
(10,004
|
)
|
Disposals
|
|
|
|
|
|
|
(929
|
)
|
|
|
(929
|
)
|
|
|
|
|
Impairment
|
|
|
|
|
|
|
(760
|
)
|
|
|
|
|
|
|
(760
|
)
|
Exchange rate adjustment
|
|
|
|
|
|
|
739
|
|
|
|
552
|
|
|
|
187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2006
|
|
|
8,881
|
|
|
|
58,832
|
|
|
|
39,165
|
|
|
|
19,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged
|
|
|
|
|
|
|
|
|
|
|
9,155
|
|
|
|
(9,155
|
)
|
Exchange rate adjustment
|
|
|
|
|
|
|
4,868
|
|
|
|
3,614
|
|
|
|
1,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007
|
|
|
7,881
|
|
|
|
63,700
|
|
|
|
51,934
|
|
|
|
11,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment
|
|
|
|
|
|
|
(108
|
)
|
|
|
(108
|
)
|
|
|
|
|
Acquired
|
|
|
|
|
|
|
385
|
|
|
|
|
|
|
|
385
|
|
Charged
|
|
|
|
|
|
|
|
|
|
|
4,639
|
|
|
|
(4,639
|
)
|
Disposals
|
|
|
|
|
|
|
(43,665
|
)
|
|
|
(43,665
|
)
|
|
|
|
|
Exchange rate adjustment
|
|
|
|
|
|
|
(113
|
)
|
|
|
(430
|
)
|
|
|
317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 28, 2008
|
|
$
|
7,881
|
|
|
$
|
20,199
|
|
|
$
|
12,370
|
|
|
$
|
7,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
Translation
|
|
|
Balance at
|
|
|
|
June 30, 2007
|
|
|
Disposals
|
|
|
Additions
|
|
|
and adjustments
|
|
|
June 28, 2008
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supply agreements
|
|
$
|
4,213
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(187
|
)
|
|
$
|
4,026
|
|
Customer relationships
|
|
|
1,059
|
|
|
|
|
|
|
|
|
|
|
|
109
|
|
|
|
1,168
|
|
Customer databases
|
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
135
|
|
Core and current technology
|
|
|
35,155
|
|
|
|
(22,762
|
)
|
|
|
385
|
|
|
|
(124
|
)
|
|
|
12,654
|
|
Patent portfolio
|
|
|
19,446
|
|
|
|
(17,208
|
)
|
|
|
|
|
|
|
(22
|
)
|
|
|
2,216
|
|
Customer contracts
|
|
|
3,695
|
|
|
|
(3,695
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,700
|
|
|
|
(43,665
|
)
|
|
|
385
|
|
|
|
(221
|
)
|
|
|
20,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less accumulated amortization
|
|
|
(51,934
|
)
|
|
|
43,665
|
|
|
|
(4,639
|
)
|
|
|
538
|
|
|
|
(12,370
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
11,766
|
|
|
$
|
|
|
|
$
|
(4,254
|
)
|
|
$
|
317
|
|
|
$
|
7,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-37
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
|
Translation
|
|
|
Balance at
|
|
|
|
July 1, 2006
|
|
|
Impairment
|
|
|
Disposals
|
|
|
Additions
|
|
|
Adjustment
|
|
|
June 30, 2007
|
|
|
|
(In thousands)
|
|
|
Supply agreements
|
|
$
|
4,213
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,213
|
|
Customer relationships
|
|
|
1,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
1,059
|
|
Customer databases
|
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132
|
|
Core and current technology
|
|
|
35,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
35,155
|
|
Patent portfolio
|
|
|
14,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,834
|
|
|
|
19,446
|
|
Customer contracts
|
|
|
3,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,868
|
|
|
|
63,700
|
|
Less accumulated amortization
|
|
|
(39,165
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,155
|
)
|
|
|
(3,614
|
)
|
|
|
(51,934
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
19,667
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(9,155
|
)
|
|
$
|
1,254
|
|
|
$
|
11,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
|
Translation
|
|
|
Balance at
|
|
|
|
July 2, 2005
|
|
|
Impairment
|
|
|
Disposals
|
|
|
Additions
|
|
|
Adjustment
|
|
|
July 1, 2006
|
|
|
|
(In thousands)
|
|
|
Supply agreements
|
|
$
|
4,157
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
56
|
|
|
$
|
4,213
|
|
Customer relationships
|
|
|
487
|
|
|
|
|
|
|
|
|
|
|
|
539
|
|
|
|
25
|
|
|
|
1,051
|
|
Customer databases
|
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132
|
|
Core and current technology
|
|
|
34,750
|
|
|
|
(760
|
)
|
|
|
(929
|
)
|
|
|
1,695
|
|
|
|
373
|
|
|
|
35,129
|
|
Patent portfolio
|
|
|
14,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
235
|
|
|
|
14,612
|
|
Customer contracts
|
|
|
3,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
3,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,548
|
|
|
|
(760
|
)
|
|
|
(929
|
)
|
|
|
2,234
|
|
|
|
739
|
|
|
|
58,832
|
|
Less accumulated amortization
|
|
|
(29,538
|
)
|
|
|
|
|
|
|
929
|
|
|
|
(10,004
|
)
|
|
|
(552
|
)
|
|
|
(39,165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
28,010
|
|
|
$
|
(760
|
)
|
|
$
|
|
|
|
$
|
(7,770
|
)
|
|
$
|
187
|
|
|
$
|
19,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
On March 22, 2006, Bookham acquired all of the outstanding
share capital of Avalon Photonics for total stock consideration
valued at $6.7 million, including contingent consideration
valued at $1,000,000 (Note 13 Business
Combinations). The goodwill arising from this combination was
$2,544,000. This goodwill was adjusted down to $1,544,000 in the
year ended June 30, 2007 to reverse the $1,000,000
contingent consideration as a result of certain integration
milestones not being achieved.
No other acquisitions by the Company resulted in recognition of
goodwill in the years ended June 28, 2008, June 30,
2007 and July 1, 2006.
Intangible
Assets
Intangible assets have primarily been acquired through business
combinations and are being amortized on a straight line basis
over the estimated useful life of the related asset, generally
three to six years, except for fifteen years as to a specific
customer contract.
F-38
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The expected future annual amortization expense of other
intangible assets is as follows (in thousands):
|
|
|
|
|
Fiscal Year Ending
|
|
Amounts
|
|
|
|
(In thousands)
|
|
|
2009
|
|
$
|
1,904
|
|
2010
|
|
|
1,672
|
|
2011
|
|
|
1,344
|
|
2012
|
|
|
665
|
|
2013
|
|
|
665
|
|
Thereafter
|
|
|
1,579
|
|
|
|
|
|
|
Total expected future amortization
|
|
$
|
7,829
|
|
|
|
|
|
|
As of June 28, 2008, the weighted average amortization
period for intangible assets is 7 years, including
9 years for supply contracts, 3 years for the
Companys customer database, 7 years for patents and
10 for core and current technologies.
Impairment
of Goodwill and Other Intangible Assets
The Company has adopted SFAS No. 142
(SFAS 142), Goodwill and Other Intangible
Assets. SFAS 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be
amortized, but instead be tested for impairment at least
annually or sooner whenever events or changes in circumstances
indicate that they may be impaired. SFAS 142 generally
requires these impairment tests to be based on a business
units fair value, which is generally
determined through market prices, although in certain cases, in
the event of an absence of market prices for particular elements
of the relevant business, SFAS 142 also permits the use of
discounted future expected cash flows as a basis for testing.
The Company has applied both approaches, as appropriate.
The Companys annual impairment review of goodwill and
other intangibles led to the recording of no impairment charges
for the year ended June 28, 2008 and June 30, 2007,
and the recording of an impairment charge of $760,000, for the
year ended July 1, 2006 due to the impairment of
intangibles related to Ignis Optics, Inc. which had been
acquired in October 2003.
|
|
15.
|
Related
Party Transactions
|
As of July 1, 2006 Nortel Networks owned 6.9% of the
Companys outstanding shares of common stock, respectively.
To the best of the Companys knowledge, Nortel Networks
owned no outstanding shares of its common stock as of or since
June 30, 2007. Since the Companys acquisition of
Nortel Networks Optical Components in 2002, the Company has also
been party to a series of supply agreements, and addendums
thereto, with Nortel Networks, which expired as to all material
terms and obligations during the year ended June 30, 2007,
and Nortel Networks has also held notes payable from the
Company, which were settled in January 2006.
In the ordinary course of business, the Company has entered into
the following transactions with Nortel Networks for the years
ended June 30, 2007, and July 1, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
|
Sales to
|
|
|
from
|
|
|
|
Nortel
|
|
|
Nortel
|
|
|
|
(In thousands)
|
|
|
June 30, 2007
|
|
$
|
39,873
|
|
|
$
|
5,020
|
|
July 1, 2006
|
|
|
110,511
|
|
|
|
|
|
F-39
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Historical
Transactions with Nortel
Prior to January 13, 2006, Nortel Networks, and
subsidiaries of Nortel Networks, held promissory notes with an
aggregate principal amount of $45.9 million. In connection
with a series of transactions entered into on January 13,
2006, the promissory notes were settled in full on
January 13, 2006 (See Note 16 Debt).
On January 13, 2006, the Company entered into a third
addendum to the Optical Components Supply Agreement dated
November 8, 2002 with Nortel Networks Limited (the
Supply Agreement). This third addendum obligated
Nortel Networks to purchase $72 million of the
Companys product during the 2006 calendar year. The
addendum also eliminated provisions requiring the Company to
grant a license for the assembly, test, post-processing and test
intellectual property (excluding wafer technology) of certain
critical products to Nortel Networks Limited and to any
designated alternative supplier if the Companys cash
balance was less than $25 million, as well as the
provisions giving Nortel Networks Limited the right to buy all
Nortel Networks Limited inventory then held by the Company and
requiring the Company to grant a license to Nortel Networks
Limited or any alternative supplier for the manufacture of all
products covered by the first addendum to the Supply Agreement
if the Companys cash balance was less than
$10 million.
These January 13, 2006 transactions, as well as the
transactions described in Note 16, were the culmination of
a series of transactions since the Companys acquisition of
Nortel Networks Optical Components (NNOC) in 2002
under which obligations to Nortel Networks Limited were created
and amended, and a supply agreement similarly was entered into
and amended. The following describes this series of transactions:
|
|
|
|
|
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 Networks. In connection with
the issuance of these notes, the Company and Nortel Networks
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 would not convert into the
Companys common stock (collectively, the Amended and
Restated Notes). The Amended and Restated Notes were
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 contained certain
limitations, including restrictions on asset sales and a
requirement that the Company maintain a cash balance of at least
$25 million;
|
|
|
|
On February 7, 2005, the Company, Bookham Technology plc
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 was waived until August 7, 2006; and
|
|
|
|
On February 7, 2005, the Company also entered into an
addendum (the The First Addendum) to the Supply
Agreement. The First Addendum effected the following changes to
the Supply Agreement:
|
|
|
|
|
|
The term of the Supply Agreement was extended by one year to
November 2006, provided that Nortel Networks obligation to
purchase a percentage of certain optical components from the
Company was to expire in accordance with the terms of the Supply
Agreement in November 2005;
|
F-40
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Nortel Networks provided the Company with a purchase commitment
for last time buys, or certain of the Companys
discontinued products, which Nortel Networks was obligated to
purchase as these products were manufactured and delivered. If
the Company failed 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
did not rectify the failure within 30 days, those products
would have been deemed critical products, subject to the
relevant provisions of the Supply Agreement described below.
|
The following terms were put in place:
|
|
|
|
|
At Nortel Networks request, the Company agreed to increase
its manufacturing of critical product wafer in-feeds against a
Nortel Networks agreed upon manufacturing schedule. Upon
manufacture and placement into inventory, Nortel Networks agreed
to pay a holding and inventory fee pending Nortel Networks
outright purchase of such wafers. In addition, Nortel Networks
could 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 required the
Company to increase its capital equipment to meet the demand in
the required time period;
|
|
|
|
If at any time the Company (a) had a cash balance of less
than $25 million; (b) was unable to manufacture
critical products in any material respect, and that inability
continued uncured for a period of six weeks, or (c) was
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 would have to 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 were less than
$10 million or there were an insolvency event, Nortel
Networks Limited would have had the right to buy all Nortel
Networks inventory held by the Company, and the Company would
have had to 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 would
terminate on February 7, 2007, unless the license had 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 had a cash balance of
$25 million and had been able to meet Nortel Networks
demand for the subject products; and
|
|
|
|
Pursuant to the First Addendum, the Company was obligated to
make prepayments under the $30 million note 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:
|
|
|
|
|
|
$1.0 million if the Company failed to deposit intellectual
property relating to all covered products in escrow and its cash
balance was below $10 million;
|
|
|
|
$1.0 million in each case if (a) the Company failed to
deliver 90% of scheduled last time buys through April 2005,
subject to cure provisions (b) the Company failed to meet
90% of scheduled critical component wafer manufacturing through
August 2005, subject to cure provisions, or (c) the Company
failed to use commercially reasonable efforts to provide for an
alternative supplier of two identified product lines when
obligated to do so under the agreement; and
|
|
|
|
$2.0 million in each case if (a) the Company failed to
deliver 75% of scheduled last time buys through August 2005,
subject to cure provisions, or (b) the Company failed to
meet 75% of scheduled critical product deliveries through
November 2005, subject to cure provisions.
|
F-41
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
On March 28, 2005, the Company entered into a letter
agreement (the 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 entered
into 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 a 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 amended the terms and provisions of
the Supply Agreement as amended by the First Addendum, increased
the prices and adjusted the payment terms of certain products
shipped to Nortel Networks under the Supply Agreement. The
increased prices and adjusted payment terms continued for one
year beginning April 1, 2005. Such prices and payment terms
were subject to termination if an event of default occurred and
continued under the Amended and Restated Notes or if a change in
control or bankruptcy event occurred;
|
|
|
|
Pursuant to the Second Addendum, Nortel Networks confirmed the
arrangements in the Letter Agreement to issue non-cancelable
purchase orders for last-time buys for certain
products and other non last-time buy products. The
products were 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-cancelable 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 was subject to change as agreed between the parties.
The Second Addendum also formally confirmed increases in the
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 Amended and Restated
Notes requiring prepayment in the event the Company raised
additional capital. This waiver applied to net proceeds of up to
$75 million in the aggregate, provided that the Company
used such proceeds for working capital purposes in the ordinary
course of business. The waiver would have terminated prior to
May 2, 2006 if an event of default had occurred and were
continuing under the Amended and Restated Notes or if a change
in control or bankruptcy event occurred; and
|
|
|
|
The Notes Agreement further amended the Amended and Restated
Notes to provide that an event of default under the Supply
Agreement would constitute an event of default under the Amended
and Restated Notes. An event of default would occur under the
Supply Agreement (and therefore the Amended and Restated Notes)
upon:
|
|
|
|
|
|
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 provided written notice of such default;
|
|
|
|
the Companys failure to meet a milestone for a last time
buy product, provided that Nortel Networks provided written
notice of such default;
|
F-42
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
the Companys breach of or default under any one of its
material obligations under the Supply Agreement which continued
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.
|
|
|
|
|
|
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 and the Supply Agreement. These
obligations were 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 was permitted to sell the Swindon property provided that
no event of default had occurred and was continuing under the
Amended and Restated Notes, and provided that the Company used
the proceeds of such sale for working capital purposes in the
ordinary course of business.
|
On January 13, 2006, the Company entered into a series of
transactions to (i) retire $45.9 million aggregate
principal amount of outstanding notes payable to Nortel Networks
UK Limited and (ii) convert $25.5 million in
outstanding convertible debentures which were issued in December
2004. In connection with the satisfaction of these debt
obligations and conversion of these convertible debentures, the
Company issued approximately 10.5 million shares of common
stock, issued warrants to purchase approximately
1.1 million shares of common stock, paid approximately
$22.2 million in cash and recorded an expense of
$18.8 million in the fiscal year ended July 1, 2006
for loss on conversion and early extinguishment of debt.
The transactions were accounted for under the provisions of APB
26, Early Extinguishments of Debt, except for the
conversion of the convertible debentures, which have been
accounted for in accordance with SFAS 84, Induced
Conversions of Convertible Debt an amendment to APB
Opinion No. 26. In accordance with these
transactions, the Company recorded in other expense a loss of
$18.8 million in the year ended July 1, 2006.
|
|
|
|
|
On January 13, 2006, the Company paid Nortel Networks (UK)
Limited (NNUKL) all $20 million outstanding
principal of, plus all accrued interest on, the Amended and
Restated
Series A-2
Senior Secured Note Due 2007 issued by the Company to NNUKL (the
Series A Note), and the Series A Note was
retired and cancelled. The Company also paid NNUKL all of the
accrued interest on the Amended and Restated
|
Series B-1
Senior Secured Note Due 2006 issued by Bookham Technology plc to
NNUKL, the payment of which and performance of all obligations
under which had been fully and unconditionally guaranteed by the
Company.
|
|
|
|
|
On January 13, 2006, the Company, Bookham Technology plc
and certain subsidiaries of Bookham Technology plc entered into
a Release Agreement (the Release Agreement) with
Nortel Networks, NNUKL, and certain of their affiliates
(collectively, Nortel). Pursuant to the Release
Agreement, Nortel released its security interests in the
collateral securing the obligations of the Company and Bookham
Technology plc under the Series A Note, the Series B
Note and the Optical Components Supply Agreement dated
November 8, 2002 (the Supply Agreement) between
Bookham Technology plc and Nortel Networks Limited
(NNL).
|
F-43
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
On January 13, 2006, certain accredited institutional
investors entered into separate purchase agreements to purchase
portions of the Series B Note (the Note
Purchasers) from NNUKL. Pursuant to the terms of an
Exchange Agreement, dated as of January 13, 2006 (the
Exchange Agreement), by and among the Company,
Bookham Technology plc and the Note Purchasers, the Company
issued an aggregate of 5,120,793 shares of common stock and
warrants to purchase an aggregate of up to 686,000 shares
of common stock (the Note Exchange Warrants) to the
Note Purchasers in exchange for the Series B Note, which
was retired and cancelled. The Note Exchange Warrants are
exercisable from July 13, 2006 to January 13, 2011 at
an exercise price per share of $7.00.
|
|
|
|
Pursuant to the terms of a Securities Exchange Agreement, dated
as of January 13, 2006 (the Securities Exchange
Agreement), by and among the Company and the investors
named therein (the Debenture Holders), each of the
Debenture Holders exercised its rights to convert a portion of
the Companys 7.0% Senior Unsecured Convertible
Debentures issued in December 2004 and held by such Debenture
Holder (the Debentures) into shares of common stock,
resulting in the issuance of an aggregate of
3,529,887 shares of common stock. Also pursuant to the
Securities Exchange Agreement, the Company paid the Debenture
Holders an aggregate of $1,717,663.16 in cash and issued to the
Debenture Holders an aggregate of 571,011 additional shares of
common stock and warrants (the Initial Warrants) to
purchase up to 304,359 shares of common stock. The Initial
Warrants are exercisable from July 13, 2006 to
January 13, 2011 at an exercise price per share of $7.00.
Subject to the approval of the Companys stockholders
pursuant to the rules of the NASDAQ Stock Market and the terms
of the Securities Exchange Agreement, each of the Debenture
Holders agreed to exercise its rights to convert the remaining
portion of the Debentures, which would result in the issuance of
an aggregate of 178,989 additional shares of common stock. Also
pursuant to the Securities Exchange Agreement, at the time of
such subsequent conversion, the Company agreed to pay the
Debenture Holders an aggregate of $538,408.51 in cash and issue
to the Debenture Holders an aggregate of 1,106,477 shares
of common stock to the Debenture Holders and warrants to
purchase an aggregate of up to 95,461 shares of common
stock, which would be exercisable on the same terms as the
Initial Warrants. The requisite stockholder approval was
received on March 22, 2006 and the transactions described
in the preceding two sentences were consummated on
March 23, 2006.
|
|
|
|
In connection with these transactions, the Company paid
$1.8 million in fees to a third party broker.
|
In determining the accounting loss from these transactions, the
Company applied the fair value of the consideration paid, which
in the case of the warrants to purchase shares of the
Companys common stock, was based on applying the
Black-Scholes-Merton model assuming variables of 84% volatility,
zero dividend yield, an expected life of 5 years, and a
risk free interest rate of 4.34%.
The original terms of the Nortel Networks promissory notes are
described in Note 15 Related Party Transactions.
The terms and accounting for the Debentures, prior to the
January 13, 2006 were as follows:
|
|
|
|
|
On December 20, 2004, the Company closed a private
placement of $25.5 million of 7.0% senior unsecured
convertible debentures and warrants to purchase common stock
which resulted in net proceeds of $21.5 million. The
Company forwarded $4.2 million of the proceeds to Nortel
Networks, paying a portion of the Series B Note owed as
part of the acquisition of NNOC. The Debentures were convertible
into shares of 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 was $5.50 per share,
which represented a premium of approximately 16% over the
closing price of the Companys common stock on
December 20, 2004. The holder also had a right of mandatory
redemption of unpaid principle and accrued and unpaid interest
in the event of a change in control or default, including
penalties in the event of a change in control ranging from ten
percent to twenty percent of the unpaid principle, as
|
F-44
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
determined based on the timing of the triggering event. The
Company had a right to convert the Debentures into shares of
common stock under certain circumstances. The warrants issued in
connection with the sale of the debentures provided holders
thereof the right to purchase up to an aggregate of
2,001,963 shares of common stock and were 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 common stock on
December 20, 2004.
|
|
|
|
|
|
The valuation of the financial instruments issued in connection
with this private placement involved judgment affecting 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 warrant and its value relative to the Debenture.
The Company chose to use the Black-Scholes-Merton model to
determine the value of the warrant 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 and a risk free interest rate of 2.89%. The valuation
independently derived from the Black-Scholes-Merton model for
the warrant was then compared to the face value of the Debenture
and a relative value of $5.4 million was assigned to the
warrants. The value of the conversion element of the Debenture
was determined based on the difference between the relative
value of the Debenture per share of $4.35 of the
4.6 million shares into which the Debenture could have
converted, compared to the fair market value per share of $4.77
per share of the Companys common stock on the date on
which the Debentures were issued. The value of the conversion
feature of the Debenture was thereby 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 and were amortized to interest expense based on
the life of the Debenture of three years. In addition, the
Company capitalized $1.9 million related to issuance costs
associated with the Debentures and warrants, which was being
amortized as part of interest expense for the term of the
Debentures, prior to the January 13, 2006 settlement of the
Debentures, as described above.
|
The warrants issued to the holders of the Debentures on
December 20, 2004 are still outstanding.
Other
Debt
As of June 28, 2008, the Companys Switzerland
subsidiary has an unsecured loan payable to a third party for
$229,000 which is repayable in equal monthly installments until
December 2013. This loan bears interest at 5% per annum, which
is payable monthly in arrears.
F-45
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
17.
|
Quarter
Summaries (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 28,
|
|
|
March 29,
|
|
|
December 29,
|
|
|
September 29,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
December 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues
|
|
$
|
62,550
|
|
|
$
|
59,703
|
|
|
$
|
58,956
|
|
|
$
|
54,282
|
|
|
$
|
45,106
|
|
|
$
|
44,989
|
|
|
$
|
56,328
|
|
|
$
|
56,391
|
|
Cost of revenues
|
|
|
48,731
|
|
|
|
46,320
|
|
|
|
45,522
|
|
|
|
41,945
|
|
|
|
37,733
|
|
|
|
40,707
|
|
|
|
48,103
|
|
|
|
46,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
13,819
|
|
|
|
13,383
|
|
|
|
13,434
|
|
|
|
12,337
|
|
|
|
7,373
|
|
|
|
4,282
|
|
|
|
8,225
|
|
|
|
9,441
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
8,203
|
|
|
|
7,570
|
|
|
|
8,168
|
|
|
|
8,692
|
|
|
|
9,154
|
|
|
|
10,853
|
|
|
|
11,525
|
|
|
|
11,493
|
|
Selling, general and administrative
|
|
|
12,742
|
|
|
|
11,711
|
|
|
|
12,162
|
|
|
|
11,326
|
|
|
|
10,837
|
|
|
|
12,043
|
|
|
|
12,081
|
|
|
|
12,859
|
|
Amortization of intangible assets
|
|
|
622
|
|
|
|
667
|
|
|
|
1,353
|
|
|
|
1,997
|
|
|
|
1,956
|
|
|
|
2,170
|
|
|
|
2,484
|
|
|
|
2,274
|
|
Restructuring and severance charges
|
|
|
1,020
|
|
|
|
672
|
|
|
|
562
|
|
|
|
1,217
|
|
|
|
1,872
|
|
|
|
4,273
|
|
|
|
1,301
|
|
|
|
2,901
|
|
Certain legal actions/(recovery), settlements and related costs
|
|
|
(3,813
|
)
|
|
|
54
|
|
|
|
877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
490
|
|
Impairment/ (recovery) of goodwill, other intangible and other
long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(280
|
)
|
|
|
|
|
|
|
|
|
|
|
1,901
|
|
(Gain)/loss on sale of fixed assets
|
|
|
(250
|
)
|
|
|
(596
|
)
|
|
|
(1,481
|
)
|
|
|
(235
|
)
|
|
|
(2,185
|
)
|
|
|
6
|
|
|
|
270
|
|
|
|
(1,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
18,524
|
|
|
|
20,078
|
|
|
|
21,641
|
|
|
|
22,997
|
|
|
|
21,354
|
|
|
|
29,345
|
|
|
|
27,661
|
|
|
|
30,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(4,705
|
)
|
|
|
(6,695
|
)
|
|
|
(8,207
|
)
|
|
|
(10,660
|
)
|
|
|
(13,981
|
)
|
|
|
(25,063
|
)
|
|
|
(19,436
|
)
|
|
|
(21,377
|
)
|
Other income/(expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income/(expense) , net
|
|
|
2,841
|
|
|
|
1,312
|
|
|
|
2,973
|
|
|
|
(294
|
)
|
|
|
389
|
|
|
|
777
|
|
|
|
(1,862
|
)
|
|
|
(1,517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax
|
|
|
(1,864
|
)
|
|
|
(5,383
|
)
|
|
|
(5,234
|
)
|
|
|
(10,954
|
)
|
|
|
(13,592
|
)
|
|
|
(24,286
|
)
|
|
|
(21,298
|
)
|
|
|
(22,894
|
)
|
Income tax provision/(benefit)
|
|
|
35
|
|
|
|
17
|
|
|
|
(47
|
)
|
|
|
|
|
|
|
22
|
|
|
|
37
|
|
|
|
50
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,899
|
)
|
|
$
|
(5,400
|
)
|
|
$
|
(5,187
|
)
|
|
$
|
(10,954
|
)
|
|
$
|
(13,614
|
)
|
|
$
|
(24,323
|
)
|
|
$
|
(21,348
|
)
|
|
$
|
(22,890
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.02
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(0.38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute net loss per share
|
|
|
99,604
|
|
|
|
99,316
|
|
|
|
90,963
|
|
|
|
82,586
|
|
|
|
82,454
|
|
|
|
70,077
|
|
|
|
68,635
|
|
|
|
60,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-46
BOOKHAM,
INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 27,
|
|
|
June 28,
|
|
|
|
2008
|
|
|
2008
|
|
|
|
(unaudited, in thousands,
|
|
|
|
except par value amount)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
35,296
|
|
|
$
|
32,863
|
|
Short-term investments
|
|
|
8,894
|
|
|
|
17,845
|
|
Restricted cash
|
|
|
513
|
|
|
|
1,154
|
|
Accounts receivable, net
|
|
|
33,119
|
|
|
|
45,665
|
|
Inventories
|
|
|
58,448
|
|
|
|
59,612
|
|
Prepaid expenses and other current assets
|
|
|
4,842
|
|
|
|
6,007
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
141,112
|
|
|
|
163,146
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
7,881
|
|
Other intangible assets, net
|
|
|
6,191
|
|
|
|
7,829
|
|
Property and equipment, net
|
|
|
32,509
|
|
|
|
32,962
|
|
Other non-current assets
|
|
|
274
|
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
180,086
|
|
|
$
|
212,090
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
15,402
|
|
|
$
|
21,501
|
|
Accrued expenses and other liabilities
|
|
|
21,245
|
|
|
|
20,789
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
36,647
|
|
|
|
42,290
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
1,821
|
|
|
|
1,336
|
|
Deferred gain on sale-leaseback
|
|
|
14,019
|
|
|
|
19,402
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
52,487
|
|
|
|
63,028
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
(Note 9) Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock: 5,000 shares authorized; none issued and
outstanding
|
|
|
|
|
|
|
|
|
Common stock:
|
|
|
|
|
|
|
|
|
$0.01 par value per share; 175,000 shares authorized;
100,868 shares issued and outstanding at December 27,
2008 100,740 shares issued and outstanding at June 28,
2008
|
|
|
1,009
|
|
|
|
1,007
|
|
Additional paid-in capital
|
|
|
1,165,695
|
|
|
|
1,163,598
|
|
Accumulated other comprehensive income
|
|
|
24,742
|
|
|
|
44,036
|
|
Accumulated deficit
|
|
|
(1,063,847
|
)
|
|
|
(1,059,579
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
127,599
|
|
|
|
149,062
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
180,086
|
|
|
$
|
212,090
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes form an integral part of these condensed
consolidated financial statements.
F-47
BOOKHAM,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 27,
|
|
|
December 29,
|
|
|
December 27,
|
|
|
December 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(unaudited, in thousands, except per share amounts)
|
|
|
Revenues
|
|
$
|
50,204
|
|
|
$
|
58,956
|
|
|
$
|
116,735
|
|
|
$
|
113,238
|
|
Cost of revenues
|
|
|
41,499
|
|
|
|
45,522
|
|
|
|
91,401
|
|
|
|
87,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
8,705
|
|
|
|
13,434
|
|
|
|
25,334
|
|
|
|
25,771
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
6,897
|
|
|
|
8,168
|
|
|
|
14,832
|
|
|
|
16,860
|
|
Selling, general and administrative
|
|
|
9,282
|
|
|
|
12,162
|
|
|
|
19,966
|
|
|
|
23,488
|
|
Amortization of intangible assets
|
|
|
444
|
|
|
|
1,353
|
|
|
|
907
|
|
|
|
3,350
|
|
Restructuring and severance charges
|
|
|
482
|
|
|
|
562
|
|
|
|
1,968
|
|
|
|
1,779
|
|
Legal settlement
|
|
|
|
|
|
|
877
|
|
|
|
(184
|
)
|
|
|
877
|
|
Impairment of goodwill
|
|
|
7,881
|
|
|
|
|
|
|
|
7,881
|
|
|
|
|
|
(Gain) loss on sale of property and equipment
|
|
|
(8
|
)
|
|
|
(1,481
|
)
|
|
|
8
|
|
|
|
(1,716
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
24,978
|
|
|
|
21,641
|
|
|
|
45,378
|
|
|
|
44,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(16,273
|
)
|
|
|
(8,207
|
)
|
|
|
(20,044
|
)
|
|
|
(18,867
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
(95
|
)
|
|
|
|
|
|
|
(695
|
)
|
|
|
|
|
Interest income
|
|
|
209
|
|
|
|
494
|
|
|
|
457
|
|
|
|
746
|
|
Interest expense
|
|
|
(132
|
)
|
|
|
(253
|
)
|
|
|
(324
|
)
|
|
|
(387
|
)
|
Gain on foreign exchange
|
|
|
9,866
|
|
|
|
2,732
|
|
|
|
16,362
|
|
|
|
2,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
9,848
|
|
|
|
2,973
|
|
|
|
15,800
|
|
|
|
2,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(6,425
|
)
|
|
|
(5,234
|
)
|
|
|
(4,244
|
)
|
|
|
(16,188
|
)
|
Income tax provision (benefit)
|
|
|
36
|
|
|
|
(47
|
)
|
|
|
24
|
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,461
|
)
|
|
$
|
(5,187
|
)
|
|
$
|
(4,268
|
)
|
|
$
|
(16,141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.06
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.19
|
)
|
Diluted
|
|
$
|
(0.06
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.19
|
)
|
Shares used in computing net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
100,339
|
|
|
|
90,963
|
|
|
|
100,209
|
|
|
|
86,775
|
|
Diluted
|
|
|
100,339
|
|
|
|
90,963
|
|
|
|
100,209
|
|
|
|
86,775
|
|
The accompanying notes form an integral part of these condensed
consolidated financial statements.
F-48
BOOKHAM,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
December 27,
|
|
|
December 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(unaudited, in thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,268
|
)
|
|
$
|
(16,141
|
)
|
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
6,720
|
|
|
|
9,604
|
|
Stock-based compensation
|
|
|
2,241
|
|
|
|
4,409
|
|
Amortization of deferred gain on sale-leaseback
|
|
|
(486
|
)
|
|
|
(714
|
)
|
Impairment of short-term investments
|
|
|
706
|
|
|
|
|
|
Impairment of goodwill
|
|
|
7,881
|
|
|
|
|
|
Accretion on short-term investments
|
|
|
(102
|
)
|
|
|
|
|
(Gain) loss on sale of property and equipment
|
|
|
8
|
|
|
|
(1,716
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
1,721
|
|
|
|
(6,614
|
)
|
Inventories
|
|
|
(825
|
)
|
|
|
(4,524
|
)
|
Prepaid expenses and other current assets
|
|
|
684
|
|
|
|
4,925
|
|
Other assets
|
|
|
(88
|
)
|
|
|
|
|
Accounts payable
|
|
|
(5,264
|
)
|
|
|
3,714
|
|
Accrued expenses and other liabilities
|
|
|
762
|
|
|
|
(1,884
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
9,690
|
|
|
|
(8,941
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(6,934
|
)
|
|
|
(5,688
|
)
|
Proceeds from sale of property and equipment
|
|
|
14
|
|
|
|
1,775
|
|
Purchases of available-for-sale investments
|
|
|
(6,945
|
)
|
|
|
|
|
Sales and maturities of available-for-sale investments
|
|
|
15,350
|
|
|
|
|
|
Transfer from restricted cash
|
|
|
575
|
|
|
|
4,480
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
2,060
|
|
|
|
567
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock, net
|
|
|
|
|
|
|
40,902
|
|
Proceeds from bank loan payable
|
|
|
|
|
|
|
501
|
|
Repayment of bank loan payable
|
|
|
|
|
|
|
(4,313
|
)
|
Repayment of other loans
|
|
|
(31
|
)
|
|
|
(12
|
)
|
Amount paid to repurchase shares from former officer
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(31
|
)
|
|
|
37,076
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate on cash and cash equivalents
|
|
|
(9,286
|
)
|
|
|
(2,331
|
)
|
Net increase in cash and cash equivalents
|
|
|
2,433
|
|
|
|
26,371
|
|
Cash and cash equivalents at beginning of period
|
|
|
32,863
|
|
|
|
36,631
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
35,296
|
|
|
$
|
63,002
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes form an integral part of these condensed
consolidated financial statements.
F-49
BOOKHAM,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
Note 1.
|
Nature of
Business
|
Bookham, Inc., a Delaware corporation (Bookham,
Inc.), designs, manufactures and markets optical
components, modules and subsystems that generate, detect,
amplify, combine and separate light signals principally for use
in high-performance fiber optics communications networks. Due to
its advantages of higher capacity and transmission speed,
optical transmission has become the predominant technology for
large-scale communications networks. The Companys primary
operating segment is its telecom segment, which addresses this
optical communications market. The Companys remaining
product lines, which address certain other optics and photonics
markets, such as material processing, inspection and
instrumentation, and research and development, and which
leverage the resources, infrastructure and expertise of its
telecom segment, comprise its non-telecom segment. References
herein to the Company mean Bookham, Inc. and its
subsidiaries.
|
|
Note 2.
|
Basis of
Preparation
|
The accompanying unaudited condensed consolidated financial
statements as of December 27, 2008 and for the three and
six months ended December 27, 2008 and December 29,
2007 have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim
financial information and with the instructions to
Article 10 of
Regulation S-X,
and include the accounts of Bookham, Inc. and all of its
subsidiaries. Accordingly, they do not include all of the
information and footnotes required by such accounting principles
for annual financial statements. In the opinion of management,
all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation of the
Companys consolidated financial position and operations
have been included. The consolidated results of operations for
the three and six months ended December 27, 2008 are not
necessarily indicative of results that may be expected for any
other interim period or for the full fiscal year ending
June 27, 2009.
The condensed consolidated balance sheet as of June 28,
2008 has been derived from the audited consolidated financial
statements as of such date. These unaudited condensed
consolidated financial statements should be read in conjunction
with the Companys audited consolidated financial
statements included in the Companys Annual Report on
Form 10-K
for the fiscal year ended June 28, 2008 (the 2008
Form 10-K).
The preparation of the Companys financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses reported in those financial
statements. These judgments can be subjective and complex, and
consequently actual results could differ materially from those
estimates and assumptions. Descriptions of these estimates and
assumptions are included in the 2008
Form 10-K.
Revenue
Recognition for Financially Distressed Customers
The Companys revenue recognition policy, which is more
fully described in its 2008
Form 10-K,
follows Securities and Exchange Commission (SEC)
Staff Accounting Bulletin, or SAB, No. 104, Revenue
Recognition in Financial Statements. Specifically, the
Company recognizes product revenue when (i) persuasive
evidence of an arrangement exists, (ii) the product has
been shipped and title has transferred,
(iii) collectability is reasonably assured, (iv) fees
are fixed or determinable and (v) there are no
uncertainties with respect to customer acceptance.
In the second quarter of fiscal 2009 the Company issued billings
of (i) $4.1 million for products that were shipped to
Nortel Networks, but for which payment was not received prior to
its bankruptcy filing on January 14, 2009, and
(ii) $1.3 million for products that were shipped to a
contract manufacturer for which payment may not be received due
to the Nortel Networks bankruptcy filing. As a result, an
aggregate of $5.4 million in revenue was deferred, and
therefore was not recognized as revenues or accounts receivable
in
F-50
BOOKHAM,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the accompanying consolidated financial statements at the time
of such billings, as the Company determined that such amounts
were not reasonably assured of collectability in accordance with
its revenue recognition policy. The Company recognizes revenues
from financially distressed customers when collectability
becomes reasonably assured, assuming all other criteria for
revenue recognition have been met.
In the Companys first quarter of fiscal 2009, the Company
adopted Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards (SFAS)
No. 157, Fair Value Measurements, for all financial
assets and financial liabilities and for all non-financial
assets and non-financial liabilities recognized or disclosed at
fair value in the financial statements on a recurring basis (at
least annually). SFAS No. 157 clarifies that fair
value is an exit price, representing the amount that would be
received from the sale of an asset or paid to transfer a
liability in an orderly transaction between market participants.
As such, fair value is a market-based measurement that should be
determined based on assumptions that market participants would
use in pricing an asset or liability. As a basis for considering
such assumptions, SFAS No. 157 establishes a
three-tier value hierarchy, which prioritizes the inputs used in
measuring fair value as follows: (Level 1) observable
inputs such as quoted prices in active markets;
(Level 2) inputs other than quoted prices in active
markets that are observable either directly or indirectly; and
(Level 3) unobservable inputs in which there is little
or no market data, which require the Company to develop its own
assumptions. This hierarchy requires the Company to use
observable market data, when available, and to minimize the use
of unobservable inputs when determining fair value. On a
recurring basis, the Company measures certain financial assets,
primarily marketable securities, and liabilities at fair value.
The Companys cash equivalents and short-term investment
instruments are classified within Level 1, Level 2 or
Level 3 of the fair value hierarchy because they are valued
using quoted market prices, broker or dealer quotations, or
alternative pricing sources with reasonable levels of price
transparency. The types of instruments valued based on quoted
market prices in active markets include most
U.S. government and agency securities and money market
securities. Such instruments are generally classified within
Level 1 of the fair value hierarchy. The types of
instruments valued based on other observable inputs include
investment-grade corporate bonds, mortgage-backed and
asset-backed securities and foreign currency forward exchange
contracts. Such instruments are generally classified within
Level 2 of the fair value hierarchy.
In September 2008, Lehman Brothers Holdings Inc.
(Lehman) filed a petition under Chapter 11 of
the U.S. Bankruptcy Code. At December 27, 2008, the
Company held a Lehman security with par value of
$0.8 million. As of January 30, 2009, the Company does
not have an estimate of the recovery value of this security, but
has reduced the carrying value of this security to
$0.1 million based on Level 3 inputs. For the three
and six months ended December 27, 2008, the Company has
recorded impairment charges for the Lehman security of
$0.1 million and $0.7 million, respectively, which are
included in other expense in the condensed consolidated
statement of operations.
F-51
BOOKHAM,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Assets
and Liabilities Measured at Fair Value on a Recurring
Basis
Assets and liabilities measured at fair value on a recurring
basis are shown in the table below by their corresponding
balance sheet caption and consisted of the following types of
instruments at December 27, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at Reporting Date Using
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
|
(Thousands)
|
|
|
Assets:
|
Cash and cash equivalents(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
14,092
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
14,092
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States agency securities
|
|
|
6,177
|
|
|
|
|
|
|
|
|
|
|
|
6,177
|
|
United States corporate bonds
|
|
|
|
|
|
|
2,637
|
|
|
|
80
|
|
|
|
2,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
20,269
|
|
|
$
|
2,637
|
|
|
$
|
80
|
|
|
$
|
22,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
Accrued expenses and other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on hedges
|
|
$
|
|
|
|
$
|
3,332
|
|
|
$
|
|
|
|
$
|
3,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value
|
|
$
|
|
|
|
$
|
3,332
|
|
|
$
|
|
|
|
$
|
3,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes $21.2 million in cash held in Company bank
accounts. |
Derivative
Financial Instruments
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, requires the Company to recognize
all derivatives, such as foreign currency forward exchange
contracts, on the condensed consolidated balance sheet at fair
value regardless of the purpose for holding the instrument. If
the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of the derivative will either be
offset against the change in fair value of the hedged assets,
liabilities or firm commitments through operating results or
recognized in accumulated other comprehensive income until the
hedged item is recognized in operating results in the condensed
consolidated statements of operations.
At the end of each accounting period, the Company
marks-to-market all foreign currency forward exchange contracts
that have been designated as cash flow hedges and changes in
fair value are recorded in accumulated other comprehensive
income until the underlying cash flow is settled and the
contract is recognized in operating results. As of
December 27, 2008, the Company held nineteen outstanding
foreign currency forward exchange contracts to sell
U.S. dollars and buy U.K. pounds sterling. These contracts
had an aggregate notional value of approximately
$22.0 million of put and call options expiring at various
times between January 2009 and December 2009. To date, the
Company has not entered into any such contracts for longer than
12 months and accordingly, all amounts included in
accumulated other comprehensive income as of December 27,
2008 will generally be reclassified into earnings within the
next 12 months. As of December 27, 2008, the Company
has recorded an unrealized loss of $3.3 million to
accumulated other comprehensive income related to recording the
fair value of the nineteen foreign currency forward exchange
contracts designated as hedges for accounting purposes.
F-52
BOOKHAM,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 4.
|
Balance
Sheet Details
|
The following table provides details regarding the
Companys cash, cash equivalents and short-term investments
at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
December 27,
|
|
|
June 28,
|
|
|
|
2008
|
|
|
2008
|
|
|
|
(Thousands)
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Cash-in-bank
|
|
$
|
21,204
|
|
|
$
|
16,361
|
|
Money market funds
|
|
|
14,092
|
|
|
|
10,022
|
|
Commercial paper
|
|
|
|
|
|
|
6,480
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,296
|
|
|
$
|
32,863
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
United States agency securities
|
|
$
|
6,177
|
|
|
$
|
2,977
|
|
United States corporate bonds
|
|
|
2,717
|
|
|
|
14,868
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,894
|
|
|
$
|
17,845
|
|
|
|
|
|
|
|
|
|
|
As of December 27, 2008 and June 28, 2008, all of the
Companys short-term investments had a maturity of less
than one year.
The following table provides details regarding the
Companys inventories at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
December 27,
|
|
|
June 28,
|
|
|
|
2008
|
|
|
2008
|
|
|
|
(Thousands)
|
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
19,558
|
|
|
$
|
21,140
|
|
Work-in-process
|
|
|
28,806
|
|
|
|
24,786
|
|
Finished goods
|
|
|
10,084
|
|
|
|
13,686
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
58,448
|
|
|
$
|
59,612
|
|
|
|
|
|
|
|
|
|
|
The following table provides details regarding the
Companys property and equipment, net at the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
December 27,
|
|
|
June 28,
|
|
|
|
2008
|
|
|
2008
|
|
|
|
(Thousands)
|
|
|
Property and equipment, net:
|
|
|
|
|
|
|
|
|
Buildings
|
|
$
|
15,842
|
|
|
$
|
18,411
|
|
Plant and machinery
|
|
|
78,388
|
|
|
|
78,652
|
|
Fixtures, fittings and equipment
|
|
|
956
|
|
|
|
1,098
|
|
Computer equipment
|
|
|
11,475
|
|
|
|
13,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106,661
|
|
|
|
112,007
|
|
Less: accumulated depreciation
|
|
|
(74,152
|
)
|
|
|
(79,045
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
32,509
|
|
|
$
|
32,962
|
|
|
|
|
|
|
|
|
|
|
F-53
BOOKHAM,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table provides details regarding the
Companys accrued expenses and other liabilities at the
dates indicated:
|
|
|
|
|
|
|
|
|
|
|
December 27,
|
|
|
June 28,
|
|
|
|
2008
|
|
|
2008
|
|
|
|
(thousands)
|
|
|
Accrued expenses and other liabilities:
|
|
|
|
|
|
|
|
|
Trade creditor accruals
|
|
$
|
2,599
|
|
|
$
|
4,090
|
|
Compensation and benefits related accruals
|
|
|
7,090
|
|
|
|
6,724
|
|
Warranty accrual
|
|
|
2,174
|
|
|
|
2,598
|
|
Unrealized loss on hedges
|
|
|
3,332
|
|
|
|
|
|
Other accruals
|
|
|
4,464
|
|
|
|
5,657
|
|
Current portion of restructuring accrual
|
|
|
1,586
|
|
|
|
1,720
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,245
|
|
|
$
|
20,789
|
|
|
|
|
|
|
|
|
|
|
Note 5. Goodwill
and Other Intangible Assets
The Company reviews its goodwill and other intangible assets for
impairment whenever events or changes in circumstances indicate
that the carrying amount of these assets may not be recoverable,
and also reviews goodwill annually in accordance with
SFAS No. 142, Goodwill and Other Intangibles.
The values assigned to goodwill and other intangible assets are
based on estimates and judgments regarding expectations for the
success and life cycle of products and technologies acquired.
During the three month period ended December 27, 2008, the
Company observed indicators of potential impairment of its
goodwill, including the impact of the current general economic
downturn on the Companys future prospects and the
continued decline of its current market capitalization, which
caused the Company to conduct a preliminary interim goodwill
impairment analysis. Specifically, indicators emerged within the
New Focus reporting unit for SFAS No. 142 purposes,
which includes the technology acquired in the March 2004
acquisition of New Focus, Inc. and is in the Companys
non-telecom segment, and one other reporting unit in the
non-telecom segment that includes the technology acquired in the
March 2006 acquisition of Avalon Photonics AG, (the
Avalon reporting unit) that led the Company to
conclude that a SFAS No. 142 impairment test was
required to be performed during the second quarter for goodwill
in these reporting units.
Goodwill is tested for impairment using a two-step process. In
the first step, the fair value of a reporting unit is compared
to its carrying value. If the fair value of a reporting unit
exceeds the carrying value of the net assets assigned to a
reporting unit, goodwill is considered not impaired and no
further testing is required. If the carrying value of the net
assets assigned to a reporting unit exceeds the fair value of a
reporting unit, a second step of the impairment test is
performed in order to determine the implied fair value of a
reporting units goodwill.
The Company determined, in its preliminary first step goodwill
impairment analysis, that its goodwill in the New Focus and
Avalon reporting units was in fact impaired. In the second step,
the measurement of the impairment, the Company hypothetically
applies purchase accounting to the reporting units using the
fair values from the first step. Due to the timing and
complexity of step two, the Company has yet to complete this
step. However, based upon preliminary calculations, the Company
recorded a preliminary estimate of $7.9 million for the
impairment loss in its statements of operations for the three
and six months ended December 27, 2008 as management
concluded that the loss was probable and that the amount of loss
was reasonably determinable. The $7.9 million estimate is
only preliminary. The Company is continuing to evaluate the
impairment of its goodwill, and the amount of the actual
impairment charge may vary from this initial estimate. The
Company expects that it will complete the full evaluation of the
impairment analysis
F-54
BOOKHAM,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
during the quarter ending March 28, 2009. The impairment
will not result in any current or future cash expenditures.
The Company also tested the intangible assets of these two
reporting units during the second quarter in accordance with
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Based on this testing, the
Company has determined that no impairment charge was necessary.
At December 27, 2008, intangible assets subject to the
amortization provisions of SFAS No. 142, net of
accumulated amortization and impairment charges, were
$6.2 million.
Note 6. Restructuring
Liabilities
The following table summarizes the activity related to the
Companys restructuring liability for the six months ended
December 27, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
Accrued
|
|
|
Amounts
|
|
|
|
|
|
|
|
|
Restructuring
|
|
|
|
Restructuring
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
Costs at
|
|
|
|
Costs at June 28,
|
|
|
Restructuring
|
|
|
Amounts Paid
|
|
|
Adjustments
|
|
|
December 27,
|
|
|
|
2008
|
|
|
Costs
|
|
|
or Written-off
|
|
|
and Reversals
|
|
|
2008
|
|
|
|
(Thousands)
|
|
|
Lease cancellations and commitments
|
|
$
|
2,074
|
|
|
$
|
1,638
|
|
|
$
|
(686
|
)
|
|
$
|
|
|
|
$
|
3,026
|
|
Termination payments to employees and related costs
|
|
|
754
|
|
|
|
378
|
|
|
|
(887
|
)
|
|
|
(53
|
)
|
|
|
192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accrued restructuring
|
|
|
2,828
|
|
|
$
|
2,016
|
|
|
$
|
(1,573
|
)
|
|
$
|
(53
|
)
|
|
|
3,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less non-current accrued restructuring charges
|
|
|
(1,108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,632
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued restructuring charges included within accrued expenses
and other liabilities
|
|
$
|
1,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with earlier plans of restructuring and cost
reduction efforts, the Company continued to make scheduled
payments drawing down the related lease cancellations and
commitments and made further payments to terminated employees
and for related costs. In the first quarter of fiscal 2009, the
Company accrued an additional $1.5 million in expense
related to existing restructuring plans for revised estimates of
the cash flows for lease cancellations and commitments.
Remaining net payments of lease cancellations and other
commitments in connection with the Companys earlier
restructuring and cost reduction efforts are included in the
restructuring accrual as of December 27, 2008 and will be
paid out through April 2011.
For the three and six months ended December 27, 2008, the
Company made payments of $0.4 million and
$0.7 million, respectively, related to lease commitments
and made payments of $0.6 million and $0.9 million,
respectively, in personnel related costs in connection with
transferring certain non-telecom manufacturing activities from
its San Jose, California facility to its Shenzhen, China
facility. Separation payments under the restructuring and cost
reduction efforts were accrued and charged to restructuring in
the period that both the benefit amounts were determined and the
amounts had been communicated to the affected employees.
|
|
Note 7.
|
Accounting
for Uncertainty in Income Taxes
|
FASB Interpretation No. (FIN) 48, Accounting for
Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109, prescribes a recognition
threshold and measurement attribute for the financial
F-55
BOOKHAM,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
statement recognition and measurement of uncertain tax positions
taken, or expected to be taken, in a companys income tax
return. FIN 48 also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim
periods, disclosure, and transition. FIN 48 utilizes a
two-step approach for evaluating uncertain tax positions
accounted for in accordance with SFAS No. 109,
Accounting for Income Taxes. Step one, referred to as
recognition, requires a company to determine if the weight of
available evidence indicates that a tax position is more likely
than not to be sustained upon audit, including resolution of
related appeals or litigation processes, if any. Step two,
measurement, is based on the largest amount of benefit which is
more likely than not to be realized on ultimate settlement.
The Companys total amount of unrecognized tax benefits as
of June 28, 2008 was approximately $92.3 million. For
the six months ended December 27, 2008, there have been no
material changes to the amount of unrecognized tax benefits.
Also, the Company had no unrecognized tax benefits that, if
recognized, would affect its effective tax rate for the six
months ended December 27, 2008. Included in the balance of
unrecognized tax benefits at December 27, 2008 is
$1.3 million related to tax positions and estimated
interest and penalties for which it is reasonably possible that
the statute of limitations will expire in various jurisdictions
within the next twelve months.
The Companys policy is to include interest and penalties
related to unrecognized tax benefits within the Companys
provision for (benefit from) income taxes. As of
December 27, 2008, the Company did not have any accrual for
payment of interest and penalties related to unrecognized tax
benefits.
The Company files U.S. federal, U.S. state and foreign
tax returns and has determined its major tax jurisdictions are
the United States, the United Kingdom and China. Tax returns in
the following jurisdictions remain open to examination by the
appropriate governmental agencies: U.S. federal and China
for tax years 2004 to 2008, Switzerland and various
U.S. states for tax years 2003 to 2008 and the United
Kingdom for tax years 2002 to 2008. The Company is not currently
under audit in any major tax jurisdiction.
On August 2, 2006, the Company and its wholly-owned
subsidiaries Bookham Technology plc, New Focus, Inc. (New
Focus) and Bookham (U.S.) Inc. (collectively the
Borrowers) entered into a credit agreement with
Wells Fargo Foothill, Inc. and other lenders for a three year
$25.0 million senior secured revolving credit facility (the
Credit Agreement). Advances are available under the
Credit Agreement based on 80 percent of qualified
accounts receivable, as defined in the Credit Agreement,
at the time an advance is requested.
The obligations of the Borrowers under the Credit Agreement are
guaranteed by the Company, Ignis Optics, Inc., Bookham (Canada)
Inc., Bookham Nominees Limited and Bookham International Ltd.,
each a wholly-owned subsidiary of the Company (together, the
Guarantors and together with the Borrowers, the
Obligors), and are secured pursuant to a security
agreement (the Security Agreement) by the assets of
the Obligors, including a pledge of the capital stock holdings
of the Obligors in certain of their direct subsidiaries. Any new
direct subsidiary of the Obligors is required to execute a
guaranty agreement and join in the Security Agreement. Pursuant
to the terms of the Credit Agreement, borrowings made under the
Credit Agreement bear interest at a rate based on either the
London Interbank Offered Rate (LIBOR) plus 2.75 percentage
points or the banks prime rate plus 1.25 percentage
points. In the absence of an event of default, any amounts
outstanding under the Credit Agreement may be repaid and
re-borrowed at any time until maturity, which is August 2,
2009.
The obligations of the Borrowers under the Credit Agreement may
be accelerated upon the occurrence of an event of default under
the Credit Agreement, which includes customary events of
default, including payment defaults, defaults in the performance
of affirmative and negative covenants, the material inaccuracy
of representations or warranties, a cross-default related to
other indebtedness in an aggregate amount of
F-56
BOOKHAM,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$1.0 million or more, bankruptcy and insolvency related
defaults, defaults relating to such matters as ERISA and
judgments and a change of control default. The Credit Agreement
contains negative covenants applicable to the Company, the
Borrowers and their subsidiaries, including financial covenants
requiring the Borrowers to maintain a minimum level of earnings
before interest, taxes, depreciation and amortization
(EBITDA) if the Borrowers have not maintained
minimum liquidity (defined as $30 million of
qualified cash and excess availability, each as also defined in
the Credit Agreement), as well as restrictions on liens, capital
expenditures, investments, indebtedness, fundamental changes to
the borrowers business, dispositions of property, making
certain restricted payments (including restrictions on dividends
and stock repurchases), entering into new lines of business, and
transactions with affiliates. As of December 27, 2008 and
June 28, 2008, there were no borrowings under the Credit
Agreement. As of December 27, 2008, the Company was in
compliance with all covenants under the Credit Agreement and
there was $0.3 million in an outstanding letter of credit
with a vendor secured by this credit facility which expires in
February 2009. As of June 28, 2008, there were
$4.8 million in outstanding letters of credit with vendors
secured by this credit facility.
In connection with the Credit Agreement, the Company agreed to
pay a monthly servicing fee of $3,000 and an unused line fee
equal to 0.375 percentage points per annum, payable monthly
on the unused amount of revolving credit commitments. To the
extent there are letters of credit outstanding under the Credit
Agreement, the Borrowers are obligated to pay the administrative
agent a letter of credit fee at a rate equal to
2.75 percentage points per annum.
|
|
Note 9.
|
Commitments
and Contingencies
|
Guarantees
The Company follows the provisions of FIN 45,
Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness to
Others, an interpretation of FASB Statements No. 5, 57 and
107 and a rescission of FASB Interpretation No. 34. The
Company has the following financial guarantees:
|
|
|
|
|
In connection with the sale by New Focus of its passive
component line to Finisar, Inc., New Focus agreed to indemnify
Finisar for claims related to the intellectual property sold to
Finisar. This obligation expires in May 2009 and has no
limitation on maximum liability. The Company has not
historically paid out any amounts related to this
indemnification obligation and does not expect to in the future,
therefore no accrual has been made for this indemnification
obligation.
|
|
|
|
The Company indemnifies its directors and certain employees as
permitted by law, and has entered into indemnification
agreements with its directors and senior officers. The Company
has not recorded a liability associated with these
indemnification arrangements as the Company historically has not
incurred any costs associated with such indemnification
arrangements and does not expect to in the future. Costs
associated with such indemnification arrangements may be
mitigated by insurance coverage that the Company maintains.
|
|
|
|
The Company also has indemnification clauses in various
contracts that it enters into in the normal course of business,
such as those issued by its banks in favor of several of its
suppliers or indemnification in favor of customers in respect of
liabilities they may incur as a result of purchasing the
Companys products should such products infringe the
intellectual property rights of a third party. The Company has
not historically paid out any amounts related to these
indemnification obligations and does not expect to in the
future, therefore no accrual has been made for these
indemnification obligations.
|
F-57
BOOKHAM,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Provision
for 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 a decrease to gross profit and to net income (loss).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 27,
|
|
|
December 29,
|
|
|
December 27,
|
|
|
December 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Thousands)
|
|
|
Warranty provision beginning of period
|
|
$
|
2,594
|
|
|
$
|
2,370
|
|
|
$
|
2,598
|
|
|
$
|
2,569
|
|
Warranties issued
|
|
|
694
|
|
|
|
681
|
|
|
|
1,622
|
|
|
|
1,303
|
|
Warranties utilized or expired
|
|
|
(727
|
)
|
|
|
(693
|
)
|
|
|
(1,488
|
)
|
|
|
(1,550
|
)
|
Currency translation adjustment
|
|
|
(387
|
)
|
|
|
(27
|
)
|
|
|
(558
|
)
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty provision end of period
|
|
$
|
2,174
|
|
|
$
|
2,331
|
|
|
$
|
2,174
|
|
|
$
|
2,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Litigation
On June 26, 2001, a putative securities class action
captioned Lanter v. New Focus, Inc. et al., Civil Action
No. 01-CV-5822
was filed against New Focus 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 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
Class Action Complaint, described below. The Amended
Class Action 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 Bookham Technology plcs initial
public offering.
Various plaintiffs have filed similar actions asserting
virtually identical allegations against more than 300 other
public companies, their underwriters, and their officers and
directors arising out of each companys initial public
offering. These actions, including the action against New Focus
and the action against Bookham Technology plc, have been
coordinated for pretrial purposes and captioned In re Initial
Public Offering Securities Litigation, 21 MC 92.
On April 19, 2002, plaintiffs filed a Consolidated Amended
Class Action Complaint in the New Focus action and an
Amended Class Action Complaint in the Bookham Technology
plc action (together, the Amended Class Action
Complaints). The Amended Class Action 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 Class Action
Complaints seek unspecified damages (or, in the alternative,
rescission for those class members who no longer hold our or New
Focus common stock), costs, attorneys fees,
experts fees, interest
F-58
BOOKHAM,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and other expenses. In October 2002, the Individual Defendants
were dismissed, without prejudice, from the action subject to
their execution of tolling agreements. In July 2002, all
defendants filed Motions to Dismiss the Amended
Class Action Complaints. The motions were 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.
The plaintiffs and most of the issuer defendants and their
insurers entered into a stipulation of settlement for the claims
against the issuer defendants, including Bookham Technology plc
and New Focus. This stipulation of settlement was subject to,
among other things, certification of the underlying class of
plaintiffs. Under the stipulation of settlement, the plaintiffs
would 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
District Court issued an Opinion and Order preliminarily
approving the settlement provided that the defendants and
plaintiffs agree to a modification narrowing the scope of the
bar order set forth in the original settlement agreement. The
parties agreed to the modification narrowing the scope of the
bar order, and on August 31, 2005, the District Court
issued an order preliminarily approving the settlement.
On December 5, 2006, following an appeal from the
underwriter defendants the United States Court of Appeals for
the Second Circuit overturned the District Courts
certification of the class of plaintiffs who are pursuing the
claims that would be settled in the settlement against the
underwriter defendants. Plaintiffs filed a Petition for
Rehearing and Rehearing En Banc with the Second Circuit on
January 5, 2007 in response to the Second Circuits
decision and have informed the District Court that they would
like to be heard as to whether the settlement may still be
approved even if the decision of the Court of Appeals is not
reversed. The District Court indicated that it would defer
consideration of final approval of the settlement pending
plaintiffs request for further appellate review.
On April 6, 2007, the Second Circuit denied
plaintiffs petition for rehearing, but clarified that the
plaintiffs may seek to certify a more limited class in the
District Court. In light of the overturned class certification
on June 25, 2007, the District Court signed an Order
terminating the settlement. The actions against Bookham
Technology plc and New Focus remain stayed while litigation
proceeds in six test cases against other companies which involve
claims virtually identical to those that have been asserted
against Bookham Technology plc and New Focus. On
November 13, 2007, the issuer defendants in certain
designated focus cases filed a motion to dismiss the
second consolidated amended class action complaints that were
filed in those cases. On March 26, 2008, the District Court
issued an Opinion and Order denying, in large part, the motions
to dismiss the amended complaints in the focus cases.
It is uncertain if the litigations will settle. If settlement of
the litigations does not occur and litigation against Bookham
Technology plc and New Focus continues, the Company believes
that both Bookham Technology plc and New Focus have meritorious
defenses to the claims made in the Amended Class Action
Complaints and therefore believes that such claims will not have
a material effect on its financial position, results of
operations or cash flows.
On March 4, 2008, Bookham filed a declaratory judgment
complaint captioned Bookham, Inc. v. JDS Uniphase Corp.
and Agility Communications, Inc., Civil Action
No. 5:08-CV-01275-RMW,
in the United States District Court for the Northern District of
California, San Jose Division. Bookhams complaint
seeks declaratory judgments that its tunable laser products do
not infringe any valid, enforceable claim of U.S. Patent
Nos. 6,658,035, 6,654,400 and 6,687,278, and that all claims of
the aforementioned patents are invalid and unenforceable.
Bookhams complaint also contains affirmative claims for
relief against JDS Uniphase Corp. and Agility Communications,
Inc. for statutory unfair competition, and for intentional
interference with economic advantage.
F-59
BOOKHAM,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On July 21, 2008, JDS Uniphase Corp. and Agility
Communications, Inc. answered Bookhams complaint and
asserted counterclaims against Bookham for infringement of
U.S. Patent Nos. 6,658,035, 6,654,400 and 6,687,278, which
JDS Uniphase Corp. acquired from Agility Communications, Inc. On
October 6, 2008, JDS Uniphase Corp. indicated that its
infringement claims are directed at Bookhams
LamdaFlexTM
TL500 VCJ; TL5000VLJ; TL3000; TL7000; TL8000 and TL9000
products. JDS Uniphase Corp. seeks unspecified compensatory
damages, treble damages and attorneys fees from Bookham,
and an order enjoining Bookham from future infringement of the
patents-in-suit.
This litigation has been stayed due to JDS Uniphase Corp.s
commencement of a U.S. International Trade Commission
Investigation, which is described below.
On November 7, 2008, JDS Uniphase Corp. petitioned the
U.S. International Trade Commission to commence an
investigation into alleged violations by Bookham of
Section 337 of the Tariff Act of 1930. On December 8,
2008, the U.S. International Trade Commission commenced
investigation
No. 337-TA-662
into Bookhams alleged importation into the United States,
sale for importation, and sale within the United States after
importation of tunable laser chips, assemblies, and products
containing the same that infringe U.S. Patent Nos.
6,658,035 and 6,687,278. JDS Uniphase Corp. seeks a general
exclusion order prohibiting the importation of any Bookham
tunable laser chip, assembly, or product containing the same
that infringes any claim of the aforementioned patents, as well
as an order prohibiting sales after importation into the United
States of any allegedly infringing products. The
U.S. International Trade Commission has adopted a target
completion date of March 19, 2010 for the investigation,
and indicated that a final initial determination should be filed
by November 19, 2009. Any adverse ruling by the
U.S. International Trade Commission, including an exclusion
order that could prohibit us from importing into the United
States tunable laser chips, assemblies, or products containing
the same, or prolonged litigation will have an adverse effect on
the Companys business and any resolution may not be in the
Companys favor.
On April 18, 2008, the Company settled a lawsuit in the
United Kingdom under which it had been seeking claims against a
land developer in connection with the Companys sale of a
certain parcel of land in 2005. In the fiscal year ended
June 28, 2008, the Company has recorded a gain of
$2.9 million, net of costs, associated with this settlement.
Note 10. Stock-based
Compensation Expense
The Company accounts for stock-based compensation under
SFAS No. 123R, Share-Based Payment, which
requires companies to recognize in their statement of operations
all share-based payments, including grants of stock options,
based on the grant date fair value of such share-based awards.
The application of SFAS No. 123R requires the
Companys management to make judgments in the determination
of inputs into the Black-Scholes stock option pricing model
which the Company uses to determine the grant date fair value of
stock options it grants. This model requires assumptions to be
made related to expected stock price volatility, expected option
life, risk-free interest rate and dividend yield. While the
risk-free interest rate is a less subjective assumption,
typically based on factual data derived from public sources, the
expected stock price volatility and option life assumptions
require a greater level of judgment, which makes them critical
accounting estimates. The Company has not issued and does not
anticipate issuing dividends to stockholders and accordingly
uses a zero percent dividend yield assumption for all
Black-Scholes stock option pricing calculations. The Company
uses an expected stock-price volatility assumption that is based
on historical realized volatility of the underlying common stock
during a period of time. With regard to the weighted-average
option life assumption, the Company evaluates the exercise
behavior of past grants as a basis to predict future activity.
F-60
BOOKHAM,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The assumptions used to value stock option grants for the three
and six months ended December 27, 2008 and
December 29, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 27,
|
|
|
December 29,
|
|
|
December 27,
|
|
|
December 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Expected life
|
|
|
4.5 years
|
|
|
|
4.5 years
|
|
|
|
4.5 years
|
|
|
|
4.5 years
|
|
Risk-free interest rate
|
|
|
2.3
|
%
|
|
|
4.1
|
%
|
|
|
3.1
|
%
|
|
|
4.6
|
%
|
Volatility
|
|
|
82.9
|
%
|
|
|
77.0
|
%
|
|
|
70.4
|
%
|
|
|
81.7
|
%
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts included in cost of revenues and operating expenses
for stock-based compensation expenses for the three and six
months ended December 27, 2008 and December 29, 2007
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 27,
|
|
|
December 29,
|
|
|
December 27,
|
|
|
December 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Thousands)
|
|
|
Stock-based compensation by category of expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of revenues
|
|
$
|
284
|
|
|
$
|
708
|
|
|
$
|
679
|
|
|
$
|
1,323
|
|
Research and development
|
|
|
222
|
|
|
|
643
|
|
|
|
472
|
|
|
|
1,094
|
|
Selling, general and administrative
|
|
|
518
|
|
|
|
1,332
|
|
|
|
1,090
|
|
|
|
1,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,024
|
|
|
$
|
2,683
|
|
|
$
|
2,241
|
|
|
$
|
4,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation by type of award Stock options
|
|
$
|
842
|
|
|
$
|
1,061
|
|
|
$
|
1,669
|
|
|
$
|
2,177
|
|
Restricted stock awards
|
|
|
150
|
|
|
|
1,835
|
|
|
|
430
|
|
|
|
2,179
|
|
Inventory adjustment to cost of revenues
|
|
|
32
|
|
|
|
(213
|
)
|
|
|
142
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,024
|
|
|
$
|
2,683
|
|
|
$
|
2,241
|
|
|
$
|
4,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 27, 2008 and June 28, 2008, the Company
had capitalized $0.2 million and $0.3 million,
respectively, of stock-based compensation as inventory.
The following table summarizes the combined activity under all
of the Companys equity incentive plans for the six months
ended December 27, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards
|
|
|
Stock
|
|
|
Weighted-
|
|
|
Restricted Stock
|
|
|
Weighted-
|
|
|
|
Available
|
|
|
Options
|
|
|
Average
|
|
|
Awards / Units
|
|
|
Average Grant
|
|
|
|
For Grant
|
|
|
Outstanding
|
|
|
Exercise Price
|
|
|
Outstanding
|
|
|
Date Fair Value
|
|
|
|
(Thousands)
|
|
|
(Thousands)
|
|
|
|
|
|
(Thousands)
|
|
|
|
|
|
Balances at June 28, 2008
|
|
|
9,603
|
|
|
|
6,822
|
|
|
$
|
5.87
|
|
|
|
1,503
|
|
|
$
|
2.91
|
|
Granted
|
|
|
(2,707
|
)
|
|
|
2,707
|
|
|
$
|
1.74
|
|
|
|
|
|
|
$
|
|
|
Exercised or released
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
(741
|
)
|
|
$
|
3.06
|
|
Cancelled or forfeited
|
|
|
1,029
|
|
|
|
(870
|
)
|
|
$
|
5.20
|
|
|
|
(211
|
)
|
|
$
|
4.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 27, 2008
|
|
|
7,925
|
|
|
|
8,659
|
|
|
$
|
4.36
|
|
|
|
551
|
|
|
$
|
2.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company generally grants stock options that vest over a four
to five year service period and restricted stock awards that
vest over a one to four year service period, and in certain
cases each may vest earlier based upon the achievement of
specific performance-based objectives or pursuant to action by
the Companys Board of Directors or a committee of the
Board.
F-61
BOOKHAM,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Supplemental disclosure information about the Companys
stock options outstanding as of December 27, 2008 was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Contractual Life
|
|
|
Value
|
|
|
|
(Thousands)
|
|
|
|
|
|
(Years)
|
|
|
(Thousands)
|
|
|
Options exercisable at December 27, 2008
|
|
|
3,515
|
|
|
$
|
7.36
|
|
|
|
6.6
|
|
|
$
|
|
|
Options expected to vest at December 27, 2008
|
|
|
8,298
|
|
|
$
|
4.47
|
|
|
|
6.7
|
|
|
$
|
|
|
Options outstanding at December 27, 2008
|
|
|
8,659
|
|
|
$
|
4.36
|
|
|
|
8.0
|
|
|
$
|
|
|
The aggregate intrinsic value in the table above represents the
total pretax intrinsic value, based on the Companys
closing stock price of $0.45 as of December 27, 2008, which
would have been received by the option holders had all option
holders exercised their options as of that date. There were no
shares of common stock subject to in-the-money options which
were exercisable as of December 27, 2008. The Company
settles employee stock option exercises with newly issued shares
of common stock.
|
|
Note 11.
|
Earnings
(Loss) Per Share
|
SFAS No. 128, Earnings Per Share, requires dual
presentation of basic and diluted earnings per share on the face
of the statement of operations. Basic earnings per share is
computed using only the weighted-average number of shares of
common stock outstanding for the applicable period, while
diluted earnings per share is computed assuming conversion of
all potentially dilutive securities, such as stock options,
unvested restricted stock awards and units and warrants during
such period.
For the three and six months ended December 27, 2008 and
for the three and six months ended December 29, 2007, there
were no stock options, warrants or restricted stock awards
factored into the computation of diluted shares outstanding
since the Company incurred a net loss in these periods and their
inclusion would be anti-dilutive.
For the three and six months ended December 27, 2008, the
effects of potentially dilutive securities (which include
warrants, stock options and restricted stock awards) totaling
19.0 million and 18.5 million common shares,
respectively, have been excluded from the calculation of diluted
net loss per share because their inclusion would have been
anti-dilutive. For the three and six months ended
December 29, 2007, the effects of potentially dilutive
securities totaling 16.9 million in each period have been
excluded from the calculation of diluted net loss per share
because their inclusion would have been anti-dilutive.
|
|
Note 12.
|
Comprehensive
Loss
|
For the three and six months ended December 27, 2008 and
December 29, 2007, the Companys comprehensive loss
was primarily comprised of its net loss, the change in the
unrealized loss on currency instruments designated as hedges,
and unrealized gain on short-term investments and foreign
currency translation adjustments.
F-62
BOOKHAM,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of comprehensive loss were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 27,
|
|
|
December 29,
|
|
|
December 27,
|
|
|
December 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Thousands)
|
|
|
Net loss
|
|
$
|
(6,461
|
)
|
|
$
|
(5,187
|
)
|
|
$
|
(4,268
|
)
|
|
$
|
(16,141
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on currency instruments designated as hedges
|
|
|
(2,982
|
)
|
|
|
(384
|
)
|
|
|
(4,023
|
)
|
|
|
(222
|
)
|
Unrealized gain on short-term investments
|
|
|
61
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
Currency translation adjustments
|
|
|
(8,903
|
)
|
|
|
(1,175
|
)
|
|
|
(15,315
|
)
|
|
|
562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(18,285
|
)
|
|
$
|
(6,746
|
)
|
|
$
|
(23,562
|
)
|
|
$
|
(15,801
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 13.
|
Segments
of an Enterprise and Related Information
|
SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, establishes standards
for reporting information about operating segments, geographic
areas and major customers in financial statements. Operating
segments are defined as components of an enterprise about which
separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how
to allocate resources and in assessing performance. The Chief
Executive Officer of the Company is the Companys chief
operating decision maker. As of December 27, 2008, the
Company is organized and operates as two operating segments:
(i) telecom and (ii) non-telecom. The telecom segment
is responsible for the design, development, chip and filter
level manufacturing, marketing and selling of optical solutions
for telecommunications applications. The non-telecom segment is
responsible for the design, development, marketing and selling
of non-telecom products, which include photonics and microwave
solutions, high power lasers, thin film filters and VCSELs
(vertical cavity surface emitting lasers). The Company evaluates
the performance of its segments and allocates resources based on
consolidated revenues and overall performance.
Segment information for the three and six months ended
December 27, 2008 and December 29, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 27,
|
|
|
December 29,
|
|
|
December 27,
|
|
|
December 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Thousands)
|
|
|
|
|
|
Revenues Telecom
|
|
$
|
37,418
|
|
|
$
|
44,799
|
|
|
$
|
89,673
|
|
|
$
|
85,532
|
|
Non-telecom
|
|
|
12,786
|
|
|
|
14,157
|
|
|
|
27,062
|
|
|
|
27,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenues
|
|
$
|
50,204
|
|
|
$
|
58,956
|
|
|
$
|
116,735
|
|
|
$
|
113,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-63
BOOKHAM,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 27,
|
|
|
December 29,
|
|
|
December 27,
|
|
|
December 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Thousands)
|
|
|
|
|
|
|
|
|
Operating loss Telecom
|
|
$
|
(6,922
|
)
|
|
$
|
(6,916
|
)
|
|
$
|
(8,262
|
)
|
|
$
|
(15,802
|
)
|
Non-telecom
|
|
|
(454
|
)
|
|
|
788
|
|
|
|
(1,836
|
)
|
|
|
505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating loss
|
|
|
(7,376
|
)
|
|
|
(6,128
|
)
|
|
|
(10,098
|
)
|
|
|
(15,297
|
)
|
Stock compensation
|
|
|
1,024
|
|
|
|
2,683
|
|
|
|
2,241
|
|
|
|
4,409
|
|
Legal settlement
|
|
|
|
|
|
|
877
|
|
|
|
(184
|
)
|
|
|
877
|
|
(Gain) loss on sale of property and equipment
|
|
|
(8
|
)
|
|
|
(1,481
|
)
|
|
|
8
|
|
|
|
(1,716
|
)
|
Impairment of goodwill
|
|
|
7,881
|
|
|
|
|
|
|
|
7,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating loss
|
|
$
|
(16,273
|
)
|
|
$
|
(8,207
|
)
|
|
$
|
(20,044
|
)
|
|
$
|
(18,867
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows revenues by geographic area based on
the delivery locations of the Companys products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 27,
|
|
|
December 29,
|
|
|
December 27,
|
|
|
December 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Thousands)
|
|
|
|
|
|
United States
|
|
$
|
11,780
|
|
|
$
|
13,604
|
|
|
$
|
30,981
|
|
|
$
|
28,357
|
|
Canada
|
|
|
3,243
|
|
|
|
10,832
|
|
|
|
7,898
|
|
|
|
21,456
|
|
Europe:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom
|
|
|
2,324
|
|
|
|
2,581
|
|
|
|
5,860
|
|
|
|
4,264
|
|
Other
|
|
|
10,313
|
|
|
|
9,656
|
|
|
|
21,091
|
|
|
|
18,350
|
|
Asia:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China
|
|
|
12,567
|
|
|
|
14,659
|
|
|
|
27,432
|
|
|
|
25,263
|
|
Other
|
|
|
6,851
|
|
|
|
5,702
|
|
|
|
13,263
|
|
|
|
11,483
|
|
Rest of world
|
|
|
3,126
|
|
|
|
1,922
|
|
|
|
10,210
|
|
|
|
4,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
50,204
|
|
|
$
|
58,956
|
|
|
$
|
116,735
|
|
|
$
|
113,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the Companys long-lived
tangible assets by geographic region as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
December 27,
|
|
|
June 28,
|
|
|
|
2008
|
|
|
2008
|
|
|
|
(Thousands)
|
|
|
United States
|
|
$
|
1,842
|
|
|
$
|
1,824
|
|
China
|
|
|
22,802
|
|
|
|
20,443
|
|
United Kingdom
|
|
|
3,312
|
|
|
|
6,296
|
|
Other
|
|
|
4,553
|
|
|
|
4,399
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
32,509
|
|
|
$
|
32,962
|
|
|
|
|
|
|
|
|
|
|
Significant
Customers and Concentration of Credit Risk
For the three months ended December 27, 2008, Nortel
Networks accounted for 11 percent and Huawei Technologies
accounted for 15 percent of the Companys revenues.
For the three months ended December 29,
F-64
BOOKHAM,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2007, Nortel Networks accounted for 15 percent and Cisco
Systems accounted for 11 percent of the Companys
revenues. For the six months ended December 27, 2008,
Nortel Networks accounted for 15 percent and Huawei
Technologies accounted for 14 percent of the Companys
revenues. For the six months ended December 29, 2007,
Nortel Networks accounted for 15 percent and Cisco Systems
accounted for 11 percent of the Companys revenues.
As of December 27, 2008, Huawei Technologies accounted for
17 percent and Cisco Systems accounted for 14 percent
of accounts receivable. As of June 28, 2008, Nortel
Networks accounted for 15 percent and Huawei Technologies
accounted for 12 percent of accounts receivable.
In the second quarter of fiscal 2009 the Company issued billings
of (i) $4.1 million for products that were shipped to
Nortel Networks, but for which payment was not received prior to
its bankruptcy filing on January 14, 2009, and
(ii) $1.3 million for products that were shipped to a
contract manufacturer for which payment may not be received due
to the Nortel Networks bankruptcy filing. As a result, an
aggregate of $5.4 million in revenue was deferred, and
therefore was not recognized as revenues or accounts receivable
in the accompanying consolidated financial statements at the
time of such billings, as the Company determined that such
amounts were not reasonably assured of collectability in
accordance with its revenue recognition policy. As of
December 27, 2008, the Company had contractual receivables
from these two customers totaling $5.4 million, which are
not reflected in the accompanying condensed consolidated balance
sheet as of such date.
|
|
Note 14.
|
Recent
Accounting Pronouncements
|
With the exception of those discussed below, there have been no
recent accounting pronouncements or changes in accounting
pronouncements during the six months ended December 27,
2008, as compared to the recent accounting pronouncements
described in the 2008
Form 10-K,
that are of significance, or potential significance, to the
Company.
In December 2007, the FASB issued SFAS No. 141R,
Business Combinations. This standard establishes
principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any non-controlling interest
in the acquiree and the goodwill acquired in a business
combination. This standard also establishes disclosure
requirements that will enable users to evaluate the nature and
financial effects of a business combination.
SFAS No. 141R is effective for the Company for
acquisitions made after June 27, 2009. The Company does not
anticipate that the adoption of this pronouncement will have a
significant impact on its financial statements; however, the
implementation of SFAS No. 141R may have a material
impact on the Companys accounting for businesses acquired
by the Company post-adoption.
In February 2008, the FASB issued FASB Staff Position
(FSP)
No. 157-2,
Effective Date of FASB Statement No. 157. FSP
No. 157-2
delays the effective date of SFAS No. 157 for all
non-financial assets and non-financial liabilities, except for
items that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually),
until the beginning of the first quarter of fiscal 2010. The
Company is currently evaluating the impact that
SFAS No. 157 will have on its consolidated financial
statements when it is applied to non-financial assets and
non-financial liabilities that are not measured at fair value on
a recurring basis beginning in the first quarter of fiscal 2010.
The major categories of non-financial assets and non-financial
liabilities that are measured at fair value, for which the
Company has not yet applied the provisions of
SFAS No. 157, are goodwill and intangible assets.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133.
SFAS No. 161 requires enhanced disclosures for
derivative instruments, including those used in hedging
activities. It is effective for fiscal years and interim periods
beginning after November 15, 2008, and will be applicable
to the Company in the third quarter of
F-65
BOOKHAM,
INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
fiscal 2009. The Company is currently evaluating the effect, if
any, that the adoption of SFAS No. 161 may have on its
consolidated results of operations and financial condition.
In April 2008, the FASB issued FSP
No. 142-3,
Determination of the Useful Life of Intangible Assets.
FSP
No. 142-3
amends the factors that should be considered in developing
assumptions about renewal or extension used in estimating the
useful life of a recognized intangible asset under
SFAS No. 142, Goodwill and Other Intangible
Assets. FSP
No. 142-3
is intended to improve the consistency between the useful life
of a recognized intangible asset under SFAS No. 142
and the period of expected cash flows used to measure the fair
value of the asset under SFAS No. 141R and other
generally accepted accounting principles. FSP
No. 142-3
is effective for financial statements issued for fiscal years
beginning after December 15, 2008. The measurement
provisions of this standard will apply only to intangible assets
of the Company acquired after June 27, 2009.
In May 2008, the FASB issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles.
SFAS No. 162 supersedes the existing hierarchy
contained in the U.S. auditing standards. The existing
hierarchy was carried over to SFAS No. 162 essentially
unchanged. SFAS No. 162 becomes effective 60 days
following the Securities and Exchange Commissions approval
of the Public Company Accounting Oversight Board amendments to
the auditing literature. The new hierarchy is not expected to
change the Companys current accounting practice in any
area.
In October 2008, the FASB issued FSP
No. 157-3,
Determining the Fair Value of a Financial Asset When the
Market for That Asset Is Not Active. FSP
No. 157-3
clarifies the application of SFAS No. 157 for
financial assets in a market that is not active. FSP
No. 157-3
was effective upon issuance. SFAS No. 157 was adopted
by the Company, as it applies to its financial instruments, in
the first quarter of fiscal 2009. The impact of adoption of
SFAS No. 157 is discussed in Note 3.
|
|
Note 15.
|
Subsequent
Events
|
Merger
of Bookham Inc. and Avanex Corporation
On January 27, 2009, Bookham announced that it had entered
into a definitive agreement providing for the merger of Bookham
and Avanex Corporation (Avanex). In connection with
the merger, which is subject to customary closing conditions,
including shareholder approval by both companies, Avanex
shareholders will receive, at a fixed exchange ratio,
5.426 shares of Bookham common stock for every share of
Avanex common stock. Bookham expects to issue approximately
88.6 million shares of Bookham common stock in the proposed
transaction. Upon the close of the transaction, Bookham
shareholders will own approximately 53.25 percent and
Avanex shareholders will own approximately 46.75 percent of
the combined company. Based on the closing price of Bookham
common stock of $0.397 per share on January 27, 2009, the
total consideration to be paid to Avanex shareholders would be
equivalent to $35.2 million or $2.15 per share of Avanex
common stock. The merger is expected to be completed within the
next three to six months.
On February 3, 2009, a purported class action complaint was
filed against Avanex and its directors, Bookham, Inc., and
Ultraviolet Acquisition Sub, Inc. in the Superior Court of
California, Alameda County by two individuals who purport to be
shareholders of Avanex. Plaintiffs purport to bring this action
on behalf of all shareholders of Avanex. On March 3, 2009,
these individuals filed an amended complaint. The amended
complaint alleges that the defendants breached their fiduciary
duties by failing to maximize shareholder value in connection
with the contemplated merger of Avanex and Bookham, and
that the joint proxy statement/prospectus fails to provide
stockholders with material information or contains materially
misleading information thereby rendering the stockholders unable
to cast an informed vote on the proposed merger. The complaint
also alleges that Avanex, Bookham, and Ultraviolet Acquisition
Sub aided and abetted the individual defendants alleged
breach of fiduciary duties. Plaintiffs seek to permanently
enjoin the merger with Bookham, monetary damages in an
unspecified amount attributable to the alleged breach of duties,
and legal fees and expenses. Avanex, Bookham and the individual
defendants intend to defend against the complaint vigorously.
F-66
REPORT OF
DELOITTE & TOUCHE LLP
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Avanex Corporation
We have audited the accompanying consolidated balance sheets of
Avanex Corporation and subsidiaries (the Company) as
of June 30, 2008 and 2007, and the related consolidated
statements of operations, stockholders equity and
comprehensive income (loss), and cash flows for each of the
three years in the period ended June 30, 2008. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on the financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Avanex Corporation and subsidiaries as of June 30, 2008 and
2007, and the results of their operations and their cash flows
for each of the three years in the period ended June 30,
2008, in conformity with accounting principles generally
accepted in the United States of America.
As discussed in Note 1 to the consolidated financial
statements, the Company changed its method of accounting for
uncertainties in income taxes upon adoption of Financial
Accounting Standards Board (FASB) Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement
No. 109 effective July 1, 2007, and its method of
accounting for defined benefit pension and other postretirement
plans upon the adoption of FASB Statement No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans an amendment of FASB
Statements No. 87, 88, 106, and 132(R) as of
June 30, 2007.
We have not audited any financial statements of the Company for
any period subsequent to June 30, 2008. However, as
discussed in Note 17 to the consolidated financial
statements, during the six months ended December 31, 2008,
the Company incurred operating losses and negative cash flows
from operations, resulting in declines in total unrestricted
cash, cash equivalents and short-term investments, and limited
operating capital to fund future operations. These matters raise
substantial doubt about the Companys ability to continue
as a going concern. Managements plans in regard to these
matters are also described in Note 17. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
June 30, 2008, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report (not included herein) dated
September 4, 2008, expressed an adverse opinion on the
Companys internal control over financial reporting because
of a material weakness.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
September 4, 2008 (February 23, 2009 as to
Note 17)
F-67
AVANEX
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except share and per share data)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
14,839
|
|
|
$
|
14,837
|
|
Restricted cash
|
|
|
3,776
|
|
|
|
3,620
|
|
Short-term investments
|
|
|
40,590
|
|
|
|
28,942
|
|
Accounts receivable
|
|
|
39,032
|
|
|
|
33,764
|
|
Inventories
|
|
|
15,979
|
|
|
|
15,188
|
|
Due from related party
|
|
|
85
|
|
|
|
14,381
|
|
Other current assets
|
|
|
6,486
|
|
|
|
5,716
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
120,787
|
|
|
|
116,448
|
|
Property and equipment, net
|
|
|
7,688
|
|
|
|
5,900
|
|
Intangibles, net
|
|
|
314
|
|
|
|
559
|
|
Goodwill
|
|
|
9,408
|
|
|
|
9,408
|
|
Deposits and other assets
|
|
|
2,870
|
|
|
|
2,685
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
141,067
|
|
|
$
|
135,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
33,255
|
|
|
$
|
32,549
|
|
Accrued compensation
|
|
|
6,272
|
|
|
|
6,091
|
|
Accrued warranty
|
|
|
626
|
|
|
|
873
|
|
Due to related party
|
|
|
110
|
|
|
|
2,144
|
|
Other accrued expenses and deferred revenue
|
|
|
5,893
|
|
|
|
8,796
|
|
Current portion of long-term obligations
|
|
|
13
|
|
|
|
9
|
|
Current portion of accrued restructuring
|
|
|
2,940
|
|
|
|
2,837
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
49,109
|
|
|
|
53,299
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
Accrued restructuring
|
|
|
5,043
|
|
|
|
8,269
|
|
Other long-term obligations
|
|
|
1,520
|
|
|
|
1,350
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
55,672
|
|
|
|
62,918
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 30,000,000 shares
authorized; 15,318,982 and 15,078,955 shares outstanding,
net of 10,555 treasury shares, at June 30, 2008 and
June 30, 2007, respectively
|
|
|
15
|
|
|
|
15
|
|
Additional paid-in capital
|
|
|
784,492
|
|
|
|
776,112
|
|
Accumulated other comprehensive income
|
|
|
1,277
|
|
|
|
1,064
|
|
Accumulated deficit
|
|
|
(700,389
|
)
|
|
|
(705,109
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
85,395
|
|
|
|
72,082
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
141,067
|
|
|
$
|
135,000
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-68
AVANEX
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Third parties
|
|
$
|
189,821
|
|
|
$
|
151,380
|
|
|
$
|
119,054
|
|
Related parties
|
|
|
18,273
|
|
|
|
61,375
|
|
|
|
43,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
|
208,094
|
|
|
|
212,755
|
|
|
|
162,944
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue except for purchases from related parties
|
|
|
143,518
|
|
|
|
174,059
|
|
|
|
151,758
|
|
Purchases from related parties
|
|
|
991
|
|
|
|
491
|
|
|
|
2,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
144,509
|
|
|
|
174,550
|
|
|
|
154,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
63,585
|
|
|
|
38,205
|
|
|
|
8,460
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
28,325
|
|
|
|
25,231
|
|
|
|
23,471
|
|
Sales and marketing
|
|
|
16,735
|
|
|
|
15,261
|
|
|
|
13,236
|
|
General and administrative:
|
|
|
|
|
|
|
|
|
|
|
|
|
Third parties
|
|
|
18,238
|
|
|
|
22,663
|
|
|
|
15,701
|
|
Related parties
|
|
|
|
|
|
|
615
|
|
|
|
951
|
|
Amortization of intangibles
|
|
|
771
|
|
|
|
2,703
|
|
|
|
5,448
|
|
Restructuring
|
|
|
(164
|
)
|
|
|
1,511
|
|
|
|
1,912
|
|
Gain on disposal of property and equipment
|
|
|
(23
|
)
|
|
|
(527
|
)
|
|
|
(5,064
|
)
|
(Gain) loss on sale of subsidiary
|
|
|
(1,996
|
)
|
|
|
3,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
61,886
|
|
|
|
70,673
|
|
|
|
55,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
1,699
|
|
|
|
(32,468
|
)
|
|
|
(47,195
|
)
|
Interest and other income
|
|
|
4,100
|
|
|
|
2,292
|
|
|
|
2,787
|
|
Interest and other expense
|
|
|
(152
|
)
|
|
|
35
|
|
|
|
(10,284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
5,647
|
|
|
|
(30,141
|
)
|
|
|
(54,692
|
)
|
Income tax provision
|
|
|
(927
|
)
|
|
|
(464
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,720
|
|
|
$
|
(30,605
|
)
|
|
$
|
(54,692
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share
|
|
$
|
0.31
|
|
|
$
|
(2.16
|
)
|
|
$
|
(5.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per common share
|
|
$
|
0.31
|
|
|
$
|
(2.16
|
)
|
|
$
|
(5.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares used in computing:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share
|
|
|
15,242
|
|
|
|
14,196
|
|
|
|
10,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per common share
|
|
|
15,370
|
|
|
|
14,196
|
|
|
|
10,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-69
AVANEX
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY AND
COMPREHENSIVE
INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Deferred
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Stock
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Compensation
|
|
|
Deficit
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
|
(In thousands, except share data)
|
|
|
Balance at June 30, 2005
|
|
$
|
10
|
|
|
$
|
668,058
|
|
|
$
|
(353
|
)
|
|
$
|
(619,445
|
)
|
|
$
|
5,478
|
|
|
$
|
53,748
|
|
Reclassification of deferred stock compensation to additional
paid-in capital upon the adoption of SFAS 123(R)
|
|
|
|
|
|
|
(353
|
)
|
|
|
353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 103,408 shares of common stock upon exercise of
stock options
|
|
|
|
|
|
|
2,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,107
|
|
Issuance of 77,105 shares of common stock in connection
with restricted stock units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 39,149 shares of common stock in connection
with employee stock purchase plan
|
|
|
|
|
|
|
409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
409
|
|
Modification of warrants, net of issuance costs of $258
|
|
|
|
|
|
|
686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
686
|
|
Issuance of common stock, net of issuance costs of $3,509
|
|
|
2
|
|
|
|
44,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,665
|
|
Issuance of common stock in connection with conversion of senior
secured debentures
|
|
|
1
|
|
|
|
23,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,121
|
|
Stock-based compensation
|
|
|
|
|
|
|
4,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,452
|
|
Common stock withheld on exercise of restricted stock units for
tax withholding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(367
|
)
|
|
|
|
|
|
|
(367
|
)
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
461
|
|
|
|
461
|
|
Cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,252
|
)
|
|
|
(1,252
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(54,692
|
)
|
|
|
|
|
|
|
(54,692
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55,483
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2006
|
|
|
13
|
|
|
|
743,142
|
|
|
|
|
|
|
|
(674,504
|
)
|
|
|
4,687
|
|
|
|
73,338
|
|
Issuance of 23,667 shares of common stock upon exercise of
stock options
|
|
|
|
|
|
|
363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
363
|
|
Issuance of 151,619 shares of common stock in connection
with restricted stock units
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Issuance of 82,645 shares of common stock upon exercise of
warrants
|
|
|
|
|
|
|
1,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,400
|
|
Issuance of 28,456 shares of common stock in connection
with employee stock purchase plan
|
|
|
|
|
|
|
367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
367
|
|
Issuance of 410,767 shares of common stock in connection
with conversion of 8% senior convertible notes
|
|
|
|
|
|
|
4,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,986
|
|
Issuance of 719,670 shares of common stock, net of issuance
costs of $1,267
|
|
|
1
|
|
|
|
18,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,744
|
|
Stock-based compensation
|
|
|
|
|
|
|
7,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,109
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
Cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,968
|
)
|
|
|
(3,968
|
)
|
Net actuarial gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
335
|
|
|
|
335
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,605
|
)
|
|
|
|
|
|
|
(30,605
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007
|
|
|
15
|
|
|
|
776,112
|
|
|
|
|
|
|
|
(705,109
|
)
|
|
|
1,064
|
|
|
|
72,082
|
|
Issuance of 25,321 shares of common stock upon exercise of
stock options
|
|
|
|
|
|
|
398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
398
|
|
Issuance of 193,562 shares of common stock in connection
with restricted stock units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 31,383 shares of common stock in connection
with employee stock purchase plan
|
|
|
|
|
|
|
382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
382
|
|
Issuance of 482 shares in connection with Officer and
Director Purchase Plan
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
Issuance of restricted stock units in connection with accrued
compensation distribution
|
|
|
|
|
|
|
1,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,553
|
|
Stock-based compensation
|
|
|
|
|
|
|
6,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,039
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31
|
)
|
|
|
(31
|
)
|
Cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
207
|
|
|
|
207
|
|
Net actuarial gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
37
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,720
|
|
|
|
|
|
|
|
4,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2008
|
|
$
|
15
|
|
|
$
|
784,492
|
|
|
$
|
|
|
|
$
|
(700,389
|
)
|
|
$
|
1,277
|
|
|
$
|
85,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-70
AVANEX
CORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,720
|
|
|
$
|
(30,605
|
)
|
|
$
|
(54,692
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on disposal of property and equipment
|
|
|
(23
|
)
|
|
|
(767
|
)
|
|
|
(5,064
|
)
|
Depreciation and amortization
|
|
|
3,476
|
|
|
|
2,360
|
|
|
|
5,565
|
|
Amortization of intangibles
|
|
|
769
|
|
|
|
2,698
|
|
|
|
5,448
|
|
Gain on investment in subsidiary
|
|
|
|
|
|
|
(223
|
)
|
|
|
|
|
Stock-based compensation
|
|
|
6,039
|
|
|
|
7,109
|
|
|
|
4,452
|
|
(Reversal of) provision for doubtful accounts and sales returns
|
|
|
(1,199
|
)
|
|
|
1,194
|
|
|
|
(2,538
|
)
|
Net cash used in sale of subsidiary
|
|
|
|
|
|
|
(19,557
|
)
|
|
|
|
|
Loss in connection with convertible notes modification
|
|
|
|
|
|
|
|
|
|
|
4,525
|
|
Non-cash interest expense
|
|
|
|
|
|
|
424
|
|
|
|
2,160
|
|
Write-down of excess and obsolete inventory
|
|
|
4,725
|
|
|
|
13,034
|
|
|
|
12,790
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
7,115
|
|
|
|
(7,646
|
)
|
|
|
(10,727
|
)
|
Inventories
|
|
|
(4,806
|
)
|
|
|
(11,739
|
)
|
|
|
5,488
|
|
Other current assets
|
|
|
(327
|
)
|
|
|
8,813
|
|
|
|
16,828
|
|
Other assets
|
|
|
(173
|
)
|
|
|
331
|
|
|
|
(53
|
)
|
Due to/from related parties
|
|
|
(2,662
|
)
|
|
|
(10,595
|
)
|
|
|
10,364
|
|
Accounts payable
|
|
|
4,604
|
|
|
|
(1,685
|
)
|
|
|
8,127
|
|
Accrued compensation
|
|
|
908
|
|
|
|
3,312
|
|
|
|
(2,912
|
)
|
Accrued restructuring
|
|
|
(3,123
|
)
|
|
|
(3,462
|
)
|
|
|
(26,787
|
)
|
Accrued warranty
|
|
|
(247
|
)
|
|
|
(1,006
|
)
|
|
|
(3,521
|
)
|
Other accrued expenses and deferred revenues
|
|
|
(3,287
|
)
|
|
|
1,892
|
|
|
|
(12,053
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
16,509
|
|
|
|
(46,118
|
)
|
|
|
(42,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of investments
|
|
|
(174,108
|
)
|
|
|
(418,704
|
)
|
|
|
(123,005
|
)
|
Maturities of investments
|
|
|
162,429
|
|
|
|
428,468
|
|
|
|
123,699
|
|
Decrease (increase) in restricted cash
|
|
|
(156
|
)
|
|
|
3,085
|
|
|
|
1,489
|
|
Investment in third parties
|
|
|
|
|
|
|
(1,250
|
)
|
|
|
|
|
Purchases of property and equipment
|
|
|
(3,542
|
)
|
|
|
(2,403
|
)
|
|
|
(2,508
|
)
|
Proceeds from sale of property and equipment
|
|
|
28
|
|
|
|
106
|
|
|
|
4,824
|
|
Net cash used in asset purchase
|
|
|
(2,139
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(17,488
|
)
|
|
|
9,302
|
|
|
|
4,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on capital lease obligations
|
|
|
(8
|
)
|
|
|
|
|
|
|
(2,268
|
)
|
Payments in connection with convertible notes modification
|
|
|
|
|
|
|
|
|
|
|
(4,075
|
)
|
Proceeds from issuance of capital lease obligations with related
party
|
|
|
|
|
|
|
637
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
787
|
|
|
|
20,869
|
|
|
|
47,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
779
|
|
|
|
21,506
|
|
|
|
40,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
202
|
|
|
|
1,184
|
|
|
|
(585
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
2
|
|
|
|
(14,126
|
)
|
|
|
2,152
|
|
Cash and cash equivalents at beginning of period
|
|
|
14,837
|
|
|
|
28,963
|
|
|
|
26,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
14,839
|
|
|
$
|
14,837
|
|
|
$
|
28,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
4
|
|
|
$
|
36
|
|
|
$
|
164
|
|
Income taxes
|
|
$
|
348
|
|
|
$
|
|
|
|
$
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance and modifications of warrants
|
|
$
|
|
|
|
$
|
|
|
|
$
|
686
|
|
Conversion of senior convertible notes into common stock
|
|
$
|
|
|
|
$
|
4,994
|
|
|
$
|
23,121
|
|
Investment in equity securities in exchange for equipment
|
|
$
|
|
|
|
$
|
|
|
|
$
|
658
|
|
Reduction in pension liability in connection with sale of
subsidiary
|
|
$
|
|
|
|
$
|
2,122
|
|
|
$
|
|
|
Fixed asset purchases included in accounts payable
|
|
$
|
269
|
|
|
$
|
28
|
|
|
$
|
110
|
|
Pension liability recognized in accumulated other comprehensive
income
|
|
$
|
37
|
|
|
$
|
335
|
|
|
$
|
|
|
Net issuance of restricted stock awards (restricted stock and
restricted stock units)
|
|
$
|
4,311
|
|
|
$
|
4,124
|
|
|
$
|
2,812
|
|
See accompanying notes.
F-71
AVANEX
CORPORATION
|
|
Note 1.
|
Description
of Business and Summary of Significant Accounting
Policies
|
The
Company
Avanex Corporation (the Company, we,
us and our) designs, manufactures and
markets fiber optic-based products, known as photonic
processors, which are designed to increase the performance of
optical networks. The Company sells products to
telecommunications system integrators and their network carrier
customers. The Company was incorporated in October 1997 in
California and reincorporated in Delaware in January 2000.
Basis
of Presentation
The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All inter-company
balances have been eliminated in consolidation.
Use of
Estimates
The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results
could differ materially from those estimates. Significant
estimates made by management include revenue recognition, sales
returns provision, bad debt provision, inventory write-downs,
warranty provision, impairment of goodwill and other acquired
intangible assets, restructuring expenses, tax valuation
allowance, and litigation and contingency assessments.
Cash
and Cash Equivalents and Short-Term Investments
Cash and cash equivalents consist of cash deposited in checking
and money market accounts. They are recorded at market value.
Restricted cash is security for certain leasing arrangements.
The Company considers all other highly liquid investment
securities to be short-term investments. All of our short-term
investments are classified as available-for-sale securities and
are carried at fair value, with unrealized gains and losses, if
any, included as a component of accumulated other comprehensive
income in stockholders equity.
Interest, dividends, realized gains and losses and any other
borrowing-related costs are included in interest and other
income (expense). Realized gains and losses are recognized based
on the specific identification method.
Fair
Value of Financial Instruments
The Company evaluates the estimated fair value of financial
instruments using available market information. The use of
different market assumptions could have a negative effect on the
estimated fair value amounts. The fair value of the
Companys cash and cash equivalents, accounts receivable,
accounts payable, accrued liabilities and debt approximates the
carrying amount due to the relatively short maturity of these
items.
Concentration
of Credit and Other Risks
Financial instruments, which subject the Company to potential
credit risk, consist of demand deposit accounts, money market
accounts, short-term investments and accounts receivable. The
Company maintains its demand deposit accounts, money market
accounts and short-term investments primarily with three
financial institutions. The Company invests its excess cash
principally in debt securities.
F-72
AVANEX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company sells its products primarily to large communications
equipment vendors. The Company extends collection terms standard
within the industry but does not require collateral from its
customers. When the Company becomes aware, subsequent to
delivery, of a customers potential inability to meet its
payment obligations, the Company records a specific allowance
for doubtful accounts. In the last four years, our uncollectible
accounts experience has been insignificant. At June 30,
2008, we determined that an allowance was not required. If the
financial condition of its customers were to deteriorate,
resulting in an impairment of their ability to make payments,
additional allowances may be required. This may be magnified due
to the concentration of its sales to a limited number of
customers. The Company has not experienced significant credit
losses to date. Concentrations of credit risk exist to the
extent of amounts presented in the financial statements.
Inventories
Inventories consist of raw materials,
work-in-process
and finished goods and are stated at the lower of cost or
market. Cost is computed on a currently adjusted standard basis
(which approximates actual costs on a
first-in,
first-out basis).
The Company writes off the cost of inventory that the Company
specifically identifies and considers obsolete or excessive to
fulfill future sales estimates. The Company defines obsolete
inventory as products that we no longer market, for which there
is no demand, or inventory that will no longer be used in the
manufacturing process. Excess inventory is generally defined as
inventory in excess of projected usage, and is determined using
managements best estimate of future demand at the time,
based upon information then available to the Company.
In estimating excess inventory, the Company used a range of
six-month to twelve-month demand forecasts in fiscal 2008 and
2007. In addition, we assess inventory on a quarterly basis and
write-down those inventories which are obsolete or in excess of
our forecasted usage to their estimated realizable value. Our
estimates of realizable value are based upon our analysis
including, but not limited to, forecasted sales by product,
expected product life cycle, product development plans and
future demand requirements. Our marketing department plays a key
role in our excess review process by providing updated sales
forecasts, managing product rollovers and working with
sub-contract manufacturing to maximize recovery of excess
inventory.
Property
and Equipment
Property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is calculated using
the straight-line method over the estimated useful lives of the
assets, or two to four years for computer hardware and software
except for enterprise resource planning software, three to five
years for production and engineering equipment, and five years
for office equipment, furniture and fixtures, and enterprise
resource planning software. The Company amortizes capital leases
and leasehold improvements using the straight-line method over
the lesser of the assets estimated useful lives or
remaining lease terms (typically two to five years).
Goodwill
and Intangibles, Net
Statement of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible Assets
(SFAS 142) prescribes a two-step process for
impairment testing of goodwill. The first step screens for
impairment, while the second step, measures the impairment, if
any. SFAS 142 requires impairment testing based on
reporting units. Management believes that we operate in one
segment, which we consider our sole reporting unit. Therefore,
goodwill is tested for impairment at the enterprise level. The
fair value of the enterprise, which was determined based on our
market capitalization at June 30, 2008 and 2007, exceeded
its carrying value, and goodwill was determined not to be
impaired at June 30, 2008 and 2007. Goodwill at
June 30, 2008 and 2007 was $9.4 million.
F-73
AVANEX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We periodically review our intangible assets for impairment and
assess whether significant events or changes in business
circumstances indicate that the carrying value of the assets may
not be recoverable. This could occur when the carrying amount of
an asset exceeds the anticipated future undiscounted cash flows
expected to result from the use of the asset and its eventual
disposition. The amount of the impairment loss to be recorded,
if any, is calculated as the excess of the assets carrying
value over its estimated fair value. Changes to estimated useful
lives would impact the amount of amortization expense recorded
in earnings.
Impairment
of Long-Lived Assets
The Company evaluates the recoverability of long-lived assets in
accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. When events
or changes in circumstances indicate that the carrying amount of
long-lived assets may not be recoverable, the Company recognizes
such impairment in the event the net book value of such assets
exceeds the future undiscounted cash flows attributable to such
assets. We also periodically reassess the estimated remaining
useful lives of our long lived assets. As of June 30, 2008,
we determined there was no impairment of long-lived assets.
Restructuring
Costs
During the past few years, the Company has recorded significant
accruals in connection with restructuring programs. Given the
significance and complexity of restructuring activities, and the
timing of the execution of such activities, the restructuring
accrual process involves periodic reassessments of estimates
made at the time the original decisions were made, including
evaluating real estate market conditions for expected vacancy
periods and sub-lease rents. Although these estimates accurately
reflect the costs of the restructuring programs, actual results
may differ, thereby requiring the Company to record additional
provisions or reverse a portion of such provisions.
Pension
Benefits
For defined benefit pension plans, liabilities and prepaid
expenses are determined using the Projected Unit Credit Method
(with projected final salary), and recognizing actuarial gains
and losses in excess of more than 10% of the present value of
the defined benefit obligation or 10% of the fair value of any
plan assets over the expected average remaining working lives of
the employees participating in the plan.
The Company adopted SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans an amendment of Financial
Accounting Standard Board (FASB) Statements
No. 87, 88, 106, and 132(R) in fiscal 2007. Upon
adoption, the Company recorded an adjustment of
$0.3 million to the ending balance of accumulated other
comprehensive income for pension benefit plan.
Contingency
Accruals
The Company evaluates contingent liabilities including
threatened or pending litigation in accordance with
SFAS No. 5, Accounting for Contingencies.
If the potential loss from any claim or legal proceedings is
considered probable and the amount can be estimated, the Company
accrues a liability for the estimated loss. Because of
uncertainties related to these matters, accruals are based upon
managements judgment and the best information available to
management at the time. As additional information becomes
available, the Company reassesses the potential liability
related to its pending claims and litigation and may revise its
estimates.
In addition to product warranties, Avanex, from time to time, in
the normal course of business, indemnifies certain customers
with whom it enters into contractual relationships. Avanex has
agreed to hold the other party harmless against third party
claims that Avanexs products, when used for their intended
purpose, infringe the intellectual property rights of such third
party or other claims made against certain parties. It is not
possible to determine the maximum potential amount of liability
under these indemnification
F-74
AVANEX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
obligations due to the limited history of prior indemnification
claims and the unique facts and circumstances that are likely to
be involved in each particular claim. The estimated fair value
of these indemnification provisions is minimal. To date, the
Company has not incurred any costs related to claims under these
provisions, and no amounts have been accrued in the accompanying
financial statements.
Foreign
Currency
The functional currencies of the Companys foreign
subsidiaries are their respective local currencies. Accordingly,
all assets and liabilities of the foreign operations are
translated to U.S. dollars at current period end exchange
rates, and revenues and expenses are translated to
U.S. dollars using weighted average exchange rates in
effect during the period. The gains and losses from the
translation of these subsidiaries financial statements
into the U.S. dollar are recorded directly into a separate
component of stockholders equity under the caption
Accumulated Other Comprehensive Income. Currency
transaction gains and losses are included in the Companys
results of operations.
Accumulated
Other Comprehensive Income
SFAS No. 130 Reporting Comprehensive
Income (FAS 130) requires that all items
required to be recognized under accounting standards as
components of comprehensive income, including unrealized gains
and losses on available-for-sale securities and foreign currency
translation adjustments be reported in the consolidated
financial statements. As a result, the Company has reported
comprehensive income (loss) within the accompanying Consolidated
Statements of Stockholders Equity and Comprehensive Income
(Loss).
Revenue
Recognition
Revenue is recognized when persuasive evidence of an arrangement
exists, the product has been shipped, risk of loss has been
transferred, collectibility is reasonably assured, fees are
fixed or determinable, and there are no uncertainties with
respect to customer acceptance. In addition, when the Company
approves sales returns or becomes aware of disputed sales
invoices, the Company records an allowance for estimated sales
returns and price adjustments. The Company generally does not
accept product returns from customers; however, the Company does
sell its products under warranty. Specific warranty terms and
conditions vary by customer and region in which the Company does
business; however, the warranty period is generally one year.
Stock-Based
Compensation
The Company grants stock options and stock purchase rights for a
fixed number of shares to employees and directors with an
exercise price equal to the fair value of the shares at the date
of grant. We adopted SFAS No. 123 (revised 2004),
Share-Based Payment (SFAS 123(R)), effective
July 1, 2005. SFAS 123(R) requires the recognition of
the fair value of stock compensation in net income. We recognize
the stock compensation expense over the requisite service period
of the individual grantees, which generally equals the vesting
period. For more information, please see Note 12 to
Consolidated Financial Statements.
Equity instruments granted to consultants are accounted for
under the fair value method using the Black-Scholes
option-pricing model and are subject to periodic revaluations
over their vesting terms. The expense is recognized as the
instruments vest.
Research
and Development Costs
Research and development costs are expensed as incurred.
F-75
AVANEX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income
Taxes
The Company uses the liability method to account for income
taxes. Under this method, deferred tax assets and liabilities
are determined based on differences between financial reporting
and tax bases of assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates and laws that
will be in effect when the differences are expected to reverse.
A valuation allowance is provided to reduce net deferred tax
assets to an amount that is more likely than not to be realized.
In June 2006, the FASB issued FASB Interpretation
(FIN) No. 48, Accounting for Uncertainty
in Income Taxes an interpretation of FASB Statement
No. 109. This interpretation clarifies the accounting
for uncertainty in income taxes recognized in an entitys
financial statements in accordance with SFAS No. 109,
Accounting for Income Taxes. It prescribes a
recognition threshold and measurement attribute for financial
statement disclosure of tax positions taken or expected to be
taken on a tax return. We adopted FIN 48 effective for our
fiscal year beginning July 1, 2007 and the adoption did not
have a material impact on our consolidated balance sheet and
statement of operations for fiscal 2008.
Earnings
per Share
Basic net income (loss) per share is calculated using the
weighted average number of shares of common stock outstanding.
Diluted earnings per share is computed in the same manner and
also gives effect to all dilutive common equivalent shares
outstanding during the period using the treasury stock method.
Common equivalent shares consist of stock options issued to
employees under employee stock option plans and warrants.
Following the close of market on August 12, 2008, we
effected a fifteen-for-one reverse stock split of our common
stock. Accordingly, each fifteen shares of issued and
outstanding Avanex common stock and equivalents as of the close
of market on August 12, 2008 was converted into one share
of common stock, and the reverse stock split was reflected in
the trading price of Avanexs common stock at the opening
of market on August 13, 2008. Unless indicated otherwise,
all share amounts and per share prices appearing in these
consolidated financial statements for all periods presented
reflect the reverse stock split.
Recent
Accounting Pronouncements
In September 2006, the FASB issued Statement No. 157,
Fair Value Measurements (Statement 157).
Statement 157 defines fair value, establishes a framework for
measuring fair value and expands fair value measurement
disclosures. Statement 157 is effective for our fiscal year
beginning July 1, 2008. We are currently evaluating the
impact of the adoption of Statement 157 on our consolidated
balance sheet and statement of operations.
In February 2007, the FASB issued Statement No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities, including an amendment of FASB Statement
No. 115 (Statement 159), which allows an
entity the irrevocable option to elect fair value for the
initial and subsequent measurement for certain financial assets
and liabilities under an
instrument-by-instrument
election. Subsequent measurements for the financial assets and
liabilities an entity elects to fair value will be recognized in
earnings. Statement 159 also establishes additional disclosure
requirements. Statement 159 is effective for our fiscal year
beginning July 1, 2008. The adoption of Statement 159 will
not have a material impact on our consolidated balance sheet and
statement of operations.
On February 28, 2007, the Company entered into a share
purchase agreement with Global Research Company, a
société à responsibilité limitée
incorporated under the laws of France (GRC), and
Mr. Didier Sauvage, an individual and former employee of
the Company (together with GRC, the Purchasers),
pursuant
F-76
AVANEX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
to which the Company sold ninety percent (90%) of the share
capital and voting rights of its wholly owned subsidiary, Avanex
France, a société anonyme incorporated under the laws
of France, which owned the Companys semiconductor fabs and
associated product lines located in Nozay, France, to the
Purchasers for the nominal amount of 1.00. The sale closed
on April 16, 2007. The Purchasers changed the name of
Avanex France to 3S Photonics following the closing.
The sale involved the divestiture of the Companys laser,
terrestrial and submarine pumps and Fiber Bragg Grating product
lines. The Company has continued to operate its optical
interfaces (OIF) business and optical fiber amplifiers and raman
amplifiers business, which were transferred to a new wholly
owned subsidiary of the Company in France prior to the closing.
The sale resulted in a loss to the Company of approximately
$3.2 million primarily as a result of the approximately
$24.9 million cash paid, transaction expenses incurred of
approximately $1.0 million, and transfer of approximately
$4.3 million of assets, partially offset by approximately
$15.9 million of liabilities written-off, the assumption of
approximately $6.7 million of liabilities by 3S Photonics,
the write-off of cumulative translation gain related to Nozay of
approximately $3.3 million, and a reduction of the pension
obligation of approximately $1.1 million related to the
sale.
In July 2007, the Company and 3S Photonics entered into a Cash
Settlement Agreement that finalized the cash payments between
the two parties under the share purchase agreement entered into
in February 2007. As part of the Cash Settlement Agreement, the
Company placed in an escrow account the amount of
2 million to provide for payment of certain vendor
liabilities claimed by 3S Photonics. In March 2008, the parties
finalized the liabilities and the remaining escrow funds of
1,512,506 were returned to the Company and recognized as a
gain on the subsidiary sale.
In July 2007, the Company and 3S Photonics entered into an
Amendment Agreement to the Global Distributor Agreement whereby
the Company distributed products manufactured by 3S Photonics.
The Amendment Agreement provided that the Global Distributor
Agreement between the Company and 3S Photonics terminated in
April 2008, except for one customer, Alcatel-Lucent, for which
3S Photonics had the right to extend the term of the Global
Distributor Agreement for an additional year. This amendment was
granted in exchange for a cash payment by 3S Photonics to
Avanex. 3S Photonics agreed to provide Avanex with free product
or cash under the Global Distributor Agreement in the amount of
415,806 per quarter for six quarters. As a result of the
Global Distributor Agreement and legal settlement in June 2008,
the Company reduced cost of goods sold by approximately
$3.7 million in fiscal 2008.
On December 27, 2007, the Company filed an arbitration
claim against 3S Photonics in New York regarding disputes
primarily involving the early termination of the Global
Distributor Agreement by 3S Photonics and other payment
obligations the Company believed 3S Photonics owes to it. 3S
Photonics filed a response and counter-claim to the arbitration
in which it denied the Companys claim and alleged among
other matters that the Company had breached certain contractual
agreements resulting in damages to 3S Photonics. In March 2008,
3S Photonics instituted legal proceedings against the Company in
the Commercial Court of Evry in France. 3S Photonics alleged
that the Company disparaged 3S Photonics by, among other things,
issuing a press release announcing that the Company had
initiated arbitration proceedings against 3S Photonics relating
to the early termination of the Global Distributor Agreement. 3S
Photonics alleged damages in excess of 21 million.
In June, 2008, the Company and 3S Photonics settled their
dispute. While neither side admitted liability, the two parties
agreed to a settlement that included payables, receivables and
lost profits under the parties terminated Global
Distributor Agreement, and a release by both parties of all
claims asserted against each other. With this resolution, there
is no remaining litigation between Avanex and 3S Photonics.
F-77
AVANEX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of the Companys accrued restructuring liability
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
Accrued facility closure costs
|
|
$
|
7,983
|
|
|
$
|
11,106
|
|
Less current portion
|
|
|
(2,940
|
)
|
|
|
(2,837
|
)
|
|
|
|
|
|
|
|
|
|
Non-current portion
|
|
$
|
5,043
|
|
|
$
|
8,269
|
|
|
|
|
|
|
|
|
|
|
Accrued
Restructuring Liability Related to Acquisitions
In fiscal 2004, the Company acquired the optical components
businesses of Alcatel and Corning. As part of the acquisitions,
the Company recorded restructuring liabilities at July 31,
2003 with a fair value of $64.1 million relating to future
workforce reductions, which were included in the purchase price
of the optical components businesses of Alcatel and Corning.
During fiscal 2007, the Company made cash payments to
participants and to third parties who assumed liabilities of the
remaining $3.4 million relating to the 2003 workforce
reduction.
Other
Restructuring
Over the past several years, the Company has implemented various
restructuring programs to realign resources in response to the
changes in the industry and customer demand, and the Company
continues to assess its current and future operating
requirements accordingly. The Companys restructuring
programs include centralizing global manufacturing at its
operations center in Thailand.
During fiscal 2006, the Company approved a work force reduction
of 41 employees due to the re-alignment of our work force
as a result of the transfer of most of our manufacturing
operations to third-party contract manufacturers. The reduction
in force was completed in October 2006. The costs associated
with this restructuring consisted primarily of severance costs
of $1.7 million.
The restructurings have resulted and will result in, among other
things, a significant reduction in the size of the
Companys workforce, consolidation of its facilities and
increased reliance on outsourced, third-party manufacturing.
The following table summarizes changes in accrued restructuring
for fiscal 2008 and 2007, excluding accruals related to the
acquisitions noted above (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
Additional
|
|
|
Cash
|
|
|
|
|
|
Accrued
|
|
|
|
Liability at
|
|
|
Accruals
|
|
|
Payments
|
|
|
Recovery
|
|
|
Liability at
|
|
|
|
June 30,
|
|
|
During
|
|
|
During
|
|
|
During
|
|
|
June 30,
|
|
|
|
2007
|
|
|
Fiscal 2008
|
|
|
Fiscal 2008
|
|
|
Fiscal 2008
|
|
|
2008
|
|
|
Workforce reduction, fiscal 2004
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Workforce reduction, fiscal 2005
|
|
|
11
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
Workforce reduction, fiscal 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Abandonment of excess leased facilities
|
|
|
11,095
|
|
|
|
615
|
|
|
|
(2,948
|
)
|
|
|
(779
|
)
|
|
|
7,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,106
|
|
|
$
|
615
|
|
|
$
|
(2,959
|
)
|
|
$
|
(779
|
)
|
|
$
|
7,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-78
AVANEX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
Additional
|
|
|
Cash
|
|
|
|
|
|
Accrued
|
|
|
|
Liability at
|
|
|
Accruals
|
|
|
Payments
|
|
|
Recovery
|
|
|
Liability at
|
|
|
|
June 30,
|
|
|
During
|
|
|
During
|
|
|
During
|
|
|
June 30,
|
|
|
|
2006
|
|
|
Fiscal 2007
|
|
|
Fiscal 2007
|
|
|
Fiscal 2007
|
|
|
2007
|
|
|
Workforce reduction, fiscal 2004
|
|
$
|
542
|
|
|
$
|
|
|
|
$
|
(542
|
)
|
|
$
|
|
|
|
$
|
|
|
Workforce reduction, fiscal 2005
|
|
|
2,828
|
|
|
|
320
|
|
|
|
(3,135
|
)
|
|
|
(2
|
)
|
|
|
11
|
|
Workforce reduction, fiscal 2006
|
|
|
62
|
|
|
|
|
|
|
|
(60
|
)
|
|
|
(2
|
)
|
|
|
|
|
Abandonment of excess leased facilities
|
|
|
12,708
|
|
|
|
1,278
|
|
|
|
(2,803
|
)
|
|
|
(88
|
)
|
|
|
11,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,140
|
|
|
$
|
1,598
|
|
|
$
|
(6,540
|
)
|
|
$
|
(92
|
)
|
|
$
|
11,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 4.
|
Net
Income (Loss) per Share
|
The following table presents the calculation of basic and
diluted net income (loss) per share (in thousands, except per
share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net income (loss)
|
|
$
|
4,720
|
|
|
$
|
(30,605
|
)
|
|
$
|
(54,692
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute basic net income (loss) per share
|
|
|
15,242
|
|
|
|
14,196
|
|
|
|
10,882
|
|
Potentially dilutive shares used to compute net income per share
on a diluted basis
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute diluted net income (loss) per share
|
|
|
15,370
|
|
|
|
14,196
|
|
|
|
10,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.31
|
|
|
$
|
(2.16
|
)
|
|
$
|
(5.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.31
|
|
|
$
|
(2.16
|
)
|
|
$
|
(5.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the periods presented, the Company had securities
outstanding that could potentially dilute basic earnings per
share in the future, but were excluded from the computation of
diluted net loss per share, as their effect would have been
anti-dilutive. The anti-dilutive securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Employee stock options
|
|
|
811,080
|
|
|
|
887,175
|
|
|
|
842,804
|
|
8% convertible notes
|
|
|
|
|
|
|
|
|
|
|
410,767
|
|
Warrants attached to 8% convertible notes
|
|
|
|
|
|
|
529,201
|
|
|
|
578,512
|
|
Warrants granted to landlord
|
|
|
4,000
|
|
|
|
4,000
|
|
|
|
4,000
|
|
Warrants attached to March 2006 equity securities offering
|
|
|
489,315
|
|
|
|
489,315
|
|
|
|
481,500
|
|
Warrants attached to March 2007 equity securities offering
|
|
|
179,917
|
|
|
|
179,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,484,312
|
|
|
|
2,089,608
|
|
|
|
2,317,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 5.
|
Consolidated
Balance Sheet Detail
|
Cash,
Cash Equivalents, and Short-term Investments
The Company generally invests its excess cash in debt
instruments of the U.S. Treasury, government agencies, and
corporations with strong credit ratings. Such investments are
made in accordance with the Companys investment policy,
which establishes guidelines relative to diversification and
maturities designed
F-79
AVANEX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
to maintain safety and liquidity. To date, the Company has not
experienced any significant losses on its debt investments.
The table below summarizes the amortized cost, fair value and
gross unrealized gains and losses related to available-for-sale
securities, aggregated by security type. All of our investments
have maturity dates of one year or less from the date of
purchase.
Cash, Cash equivalents, and short-term investments consist of
the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
10,106
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
10,106
|
|
Cash Equivalents Money Market Funds
|
|
|
4,733
|
|
|
|
|
|
|
|
|
|
|
|
4,733
|
|
Restricted cash Certificates of Deposit and United
States Government Agencies
|
|
|
3,776
|
|
|
|
|
|
|
|
|
|
|
|
3,776
|
|
Short-term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Paper
|
|
|
7,981
|
|
|
|
1
|
|
|
|
|
|
|
|
7,982
|
|
United States Government Agencies
|
|
|
32,653
|
|
|
|
2
|
|
|
|
(47
|
)
|
|
|
32,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal, short-term investments
|
|
|
40,634
|
|
|
|
3
|
|
|
|
(47
|
)
|
|
|
40,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and short-term investments
|
|
$
|
59,249
|
|
|
$
|
3
|
|
|
$
|
(47
|
)
|
|
$
|
59,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
14,661
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
14,661
|
|
Cash Equivalents Money Market Funds
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
176
|
|
Restricted cash Certificates of Deposit and United
States Government Agencies
|
|
|
3,620
|
|
|
|
|
|
|
|
|
|
|
|
3,620
|
|
Short-term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of Deposit
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
Commercial Paper
|
|
|
17,060
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
17,059
|
|
United States Government Agencies
|
|
|
4,019
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
4,014
|
|
Corporate Notes
|
|
|
3,272
|
|
|
|
1
|
|
|
|
|
|
|
|
3,273
|
|
Corporate Bonds
|
|
|
2,580
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
2,571
|
|
Foreign Debt Securities
|
|
|
2,013
|
|
|
|
1
|
|
|
|
|
|
|
|
2,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal, short-term investments
|
|
|
28,955
|
|
|
|
2
|
|
|
|
(15
|
)
|
|
|
28,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and short-term investments
|
|
$
|
47,412
|
|
|
$
|
2
|
|
|
$
|
(15
|
)
|
|
$
|
47,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-80
AVANEX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Inventory
Inventories, net, consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
Raw materials
|
|
$
|
7,981
|
|
|
$
|
4,781
|
|
Work-in-process
|
|
|
360
|
|
|
|
591
|
|
Finished goods
|
|
|
7,638
|
|
|
|
9,816
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,979
|
|
|
$
|
15,188
|
|
|
|
|
|
|
|
|
|
|
The Company recorded charges to cost of revenue of
$4.7 million for excess and obsolete inventory in fiscal
2008, $12.9 million in fiscal 2007, and $12.8 million
in fiscal 2006. The write-off was primarily due to lower demand
for certain products and lower expected usage of previously
purchased inventory. Management did not believe it could fully
recover the purchase price of this inventory in the future.
The Company sold inventory previously written-off with original
cost totaling $2.9 million in fiscal 2008,
$1.2 million in fiscal 2007 and $0.2 million in fiscal
2006. The majority of this inventory sold in each year had been
written-off in a prior year. As a result, cost of revenue
associated with the sale of this inventory was zero.
Other
Current Assets
Other current assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
VAT receivable and research tax credit receivable
|
|
$
|
2,424
|
|
|
$
|
1,213
|
|
Prepaid insurance
|
|
|
305
|
|
|
|
493
|
|
Prepaid rent
|
|
|
|
|
|
|
10
|
|
Billings to contract manufacturers
|
|
|
2,714
|
|
|
|
3,302
|
|
Prepaid expenses and other assets
|
|
|
1,043
|
|
|
|
698
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,486
|
|
|
$
|
5,716
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment
Property and equipment consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
Computer hardware and software
|
|
$
|
9,893
|
|
|
$
|
9,217
|
|
Production and engineering equipment
|
|
|
39,813
|
|
|
|
34,537
|
|
Office equipment, furniture and fixtures
|
|
|
1,360
|
|
|
|
971
|
|
Leasehold improvements
|
|
|
1,852
|
|
|
|
1,791
|
|
|
|
|
|
|
|
|
|
|
Total acquisition cost
|
|
|
52,918
|
|
|
|
46,516
|
|
Accumulated depreciation and amortization
|
|
|
(45,229
|
)
|
|
|
(40,616
|
)
|
|
|
|
|
|
|
|
|
|
Net book value
|
|
$
|
7,688
|
|
|
$
|
5,900
|
|
|
|
|
|
|
|
|
|
|
F-81
AVANEX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Warranties
In general, the Company provides a product warranty for one year
from the date of shipment. The Company accrues for the estimated
costs of product warranties during the period in which revenue
is recognized. The Company estimates the costs of its warranty
obligations based on its historical experience and expectation
of future conditions. The Company periodically assesses the
adequacy of its recorded warranty liabilities and adjusts the
amounts as necessary.
Changes in the Companys product warranty accrual for
fiscal 2008, fiscal 2007 and fiscal 2006 are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Balance at beginning of year
|
|
$
|
873
|
|
|
$
|
1,799
|
|
|
$
|
5,268
|
|
Accrual for sales during the year
|
|
|
197
|
|
|
|
1,334
|
|
|
|
1,826
|
|
Cost of warranty repair
|
|
|
(444
|
)
|
|
|
(906
|
)
|
|
|
(877
|
)
|
Change in estimate and expiration for prior provisions
|
|
|
|
|
|
|
(1,354
|
)
|
|
|
(4,418
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
626
|
|
|
$
|
873
|
|
|
$
|
1,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During fiscal 2007, the Company determined that the pattern for
replacement as opposed to repair had shifted resulting in
decreases to previous estimates for product warranty costs.
Other
Accrued Expenses and Deferred Revenue
Other accrued expenses and deferred revenue consist of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
Accrued escrow agreement
|
|
$
|
|
|
|
$
|
2,700
|
|
Professional services
|
|
|
1,243
|
|
|
|
1,899
|
|
Other accruals
|
|
|
2,138
|
|
|
|
1,196
|
|
Taxes foreign income, sales & use, and
other taxes
|
|
|
1,511
|
|
|
|
843
|
|
Contract manufacturer contingent liability
|
|
|
320
|
|
|
|
981
|
|
Deferred revenue
|
|
|
442
|
|
|
|
508
|
|
Building deposits owed to third parties
|
|
|
97
|
|
|
|
439
|
|
Accrued severance
|
|
|
142
|
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,893
|
|
|
$
|
8,796
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Other Comprehensive Income
Accumulated other comprehensive income is comprised of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
Unrealized loss on investments
|
|
$
|
(44
|
)
|
|
$
|
(13
|
)
|
Cumulative translation adjustment
|
|
|
949
|
|
|
|
742
|
|
Net actuarial gain
|
|
|
372
|
|
|
|
335
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,277
|
|
|
$
|
1,064
|
|
|
|
|
|
|
|
|
|
|
F-82
AVANEX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 6.
|
Other
Intangibles
|
The following table reflects the carrying amount of intangible
assets at June 30, 2008 and June 30, 2007 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
Weighted-
|
|
|
Carrying
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
|
Average
|
|
|
Amount,
|
|
|
Less Fiscal
|
|
|
Amount,
|
|
|
|
|
|
Less Fiscal
|
|
|
Amount,
|
|
|
|
Life, in
|
|
|
June 30,
|
|
|
2007
|
|
|
June 30,
|
|
|
|
|
|
2008
|
|
|
June 30,
|
|
|
|
Quarters
|
|
|
2006
|
|
|
Amortization
|
|
|
2007
|
|
|
Acquisition
|
|
|
Amortization
|
|
|
2008
|
|
|
Purchased technology
|
|
|
12
|
|
|
$
|
3,034
|
|
|
$
|
(2,475
|
)
|
|
$
|
559
|
|
|
$
|
300
|
|
|
$
|
(659
|
)
|
|
$
|
200
|
|
Supply agreement
|
|
|
|
|
|
|
136
|
|
|
|
(136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
8
|
|
|
|
76
|
|
|
|
(76
|
)
|
|
|
|
|
|
|
226
|
|
|
|
(112
|
)
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,246
|
|
|
$
|
(2,687
|
)
|
|
$
|
559
|
|
|
$
|
526
|
|
|
$
|
(771
|
)
|
|
$
|
314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortization of other intangible assets is expected to be
$314,000 in fiscal 2009.
|
|
Note 7.
|
Related
Party Transactions
|
On July 31, 2003, Alcatel (now known as Alcatel-Lucent) was
issued 28% of the Companys common stock and Corning was
issued 17% of the Companys common stock on a
post-transaction basis. On October 29, 2007, the Pirelli
Group acquired all the shares of the Companys common stock
then held by Alcatel-Lucent. As of June 30, 2008, Pirelli
and Corning owned shares representing 12% and zero percent,
respectively, of the outstanding shares of Avanex common stock.
The Company sells products to and purchases raw materials and
components from the Pirelli Group and Alcatel-Lucent in the
regular course of business. Additionally, Alcatel-Lucent and
Corning provided certain administrative and other transitional
services to the Company.
Amounts
sold to and purchased from related parties were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2008*
|
|
|
2007**
|
|
|
2006***
|
|
|
Related party transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to related parties
|
|
$
|
18,273
|
|
|
$
|
61,375
|
|
|
$
|
43,890
|
|
Purchases from/services provided to related parties in cost of
revenue
|
|
|
991
|
|
|
|
491
|
|
|
|
2,726
|
|
Administrative and transitional services purchased from/provided
to related parties; fiscal 2007 and 2006 amounts include
facilities rent credits
|
|
|
|
|
|
|
615
|
|
|
|
951
|
|
Royalty income
|
|
|
|
|
|
|
|
|
|
|
190
|
|
|
|
|
* |
|
On October 29, 2007, the Pirelli Group acquired all the
shares of the Companys common stock held by
Alcatel-Lucent. Thus, related party transactions for the year
ended June 20, 2008 include Alcatel-Lucent through
October 29, 2007, and the Pirelli Group from
October 20, 2007 to June 30, 2008. |
|
** |
|
On November 30, 2006, the merger of Alcatel and Lucent was
completed and the combined company was named
Alcatel-Lucent. As a result, we have included both
Alcatel and Lucent transactions in the related party disclosure
beginning December 1, 2006. |
|
*** |
|
On December 31, 2005, Corning no longer owned shares in
Avanex. As a result, we have only included transactions with
Corning in the related party disclosure for fiscal 2006. |
F-83
AVANEX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Amounts
due from and due to related parties (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2008*
|
|
|
2007**
|
|
|
Due from related parties
|
|
$
|
85
|
|
|
$
|
14,381
|
|
Due to related parties
|
|
$
|
110
|
|
|
$
|
2,144
|
|
|
|
|
* |
|
On October 29, 2007, the Pirelli Group acquired all the
shares of the Companys common stock held by
Alcatel-Lucent. Thus, as of June 30, 2008, the Pirelli
Group is a related party, and as of June 30, 2007,
Alcatel-Lucent is a related party. |
|
** |
|
On November 30, 2006, the merger of Alcatel and Lucent was
completed and the combined company was named Alcatel
Lucent. As a result, we have included both Alcatel and
Lucent transactions in the related party disclosure beginning
December 1, 2006. |
Receivables due from related parties at June 30, 2008 are
amounts owed by the Pirelli Group contractually payable to the
Company.
|
|
Note 8.
|
Commitments
and Contingencies
|
Operating
Leases
In September 1999 and April 2000, the Company entered into
operating leases for its corporate headquarters and
manufacturing facility. Upon the expiration of each lease in
October 2009 and April 2010, the Company has an option to extend
the respective lease term for an additional five-year period. In
July 2004, the Company assumed certain operating leases in
Europe in connection with its acquisitions. The Company also has
an operating lease for certain facilities in Newark, California
which the Company no longer occupies. The remaining lease
obligation is included in accrued restructuring costs.
Future minimum lease payments under non-cancelable operating
leases having initial terms in excess of one year as of
June 30, 2008 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Included in
|
|
|
|
|
|
|
|
|
|
Total Cash
|
|
|
Accrued Restructuring
|
|
|
Sublease
|
|
|
Future
|
|
|
|
Obligation
|
|
|
Liability
|
|
|
Payments
|
|
|
Expense
|
|
|
Years ending June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
5,779
|
|
|
$
|
(2,940
|
)
|
|
$
|
(1,012
|
)
|
|
$
|
1,827
|
|
2010
|
|
|
4,631
|
|
|
|
(2,690
|
)
|
|
|
(695
|
)
|
|
|
1,246
|
|
2011
|
|
|
3,114
|
|
|
|
(2,353
|
)
|
|
|
(80
|
)
|
|
|
681
|
|
2012
|
|
|
182
|
|
|
|
|
|
|
|
|
|
|
|
182
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
13,706
|
|
|
$
|
(7,983
|
)
|
|
$
|
(1,787
|
)
|
|
$
|
3,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts shown in the above table are net of sublease income. The
Companys rental expense under operating leases was
$2.8 million, $2.5 million and $7.3 million for
the years ended June 30, 2008, 2007 and 2006, respectively.
Contingencies
From time to time, in the normal course of business, Avanex
indemnifies certain customers with whom it enters into
contractual relationships. Avanex has agreed to hold the other
party harmless against third party claims that Avanexs
products, when used for their intended purpose, infringe the
intellectual property rights of
F-84
AVANEX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
such third party or other claims made against certain parties.
It is not possible to determine the maximum potential amount of
liability under these indemnification obligations due to the
limited history of prior indemnification claims and the unique
facts and circumstances that are likely to be involved in each
particular claim. The estimated fair value of these
indemnification provisions is minimal. To date, the Company has
not incurred any costs related to claims under these provisions,
and no amounts have been accrued in the accompanying financial
statements.
In addition, from time to time, Avanex is subject to various
legal proceedings that arise from the normal course of business
activities. In addition, from time to time, third parties assert
patent or trademark infringement claims against Avanex in the
form of letters and other forms of communication. Avanex does
not believe that any of these legal proceedings or claims is
likely to have a material adverse effect on its consolidated
results of operations, financial condition, or cash flows.
However, it is possible that an unfavorable resolution of one or
more such proceedings could in the future materially affect
Avanexs future results of operations, cash flows, or
financial position in a particular period.
IPO
Class Action Lawsuit
On August 6, 2001, Avanex, certain of its officers and
directors, and various underwriters in its initial public
offering (IPO) were named as defendants in a class
action filed in the United States District Court for the
Southern District of New York, captioned Beveridge v.
Avanex Corporation et al., Civil Action
No. 01-CV-7256.
This action and other subsequently filed substantially similar
class actions have been consolidated into In re Avanex Corp.
Initial Public Offering Securities Litigation, Civil Action
No. 01 Civ. 6890. The consolidated amended complaint in the
action generally alleges that various investment bank
underwriters engaged in improper and undisclosed activities
related to the allocation of shares in Avanexs IPO.
Plaintiffs have brought claims for violation of several
provisions of the federal securities laws against those
underwriters, and also against Avanex and certain of its
directors and officers, seeking unspecified damages on behalf of
a purported class of purchasers of Avanexs common stock
between February 3, 2000 and December 6, 2000. Various
plaintiffs have filed similar actions asserting virtually
identical allegations against more than 40 investment banks and
250 other companies. All of these IPO allocation
securities class actions currently pending in the Southern
District of New York have been assigned to Judge Shira A.
Scheindlin for coordinated pretrial proceedings as In re Initial
Public Offering Securities Litigation, 21 MC 92. On
October 9, 2002, the claims against Avanexs directors
and officers were dismissed without prejudice pursuant to a
tolling agreement. The issuer defendants filed a coordinated
motion to dismiss all common pleading issues, which the Court
granted in part and denied in part in an order dated
February 19, 2003. The Courts order did not dismiss
the Section 10(b) or Section 11 claims against Avanex.
In June 2004, a stipulation of settlement and release of claims
against the issuer defendants, including Avanex, was submitted
to the Court for approval. In August 2005, the Court
preliminarily approved the settlement. In December 2006, the
appellate court overturned the certification of classes in the
six test cases that were selected by the underwriter defendants
and plaintiffs in the coordinated proceedings. The case
involving Avanex is not one of the six test cases. Because class
certification was a condition of the settlement, it was unlikely
that the settlement would receive final Court approval. On
June 25, 2007, the Court entered an order terminating the
proposed settlement based upon a stipulation among the parties
to the settlement. Plaintiffs have filed amended master
allegations and amended complaints and moved for class
certification in the six focus cases, which the defendants in
those cases have opposed. On March 26, 2008, the Court
largely denied the defendants motion to dismiss the
amended complaints. It is uncertain whether there will be any
revised or future settlement. If a settlement does not occur,
and litigation against Avanex continues, Avanex believes it has
meritorious defenses and intends to defend the action
vigorously. Nevertheless, an unfavorable result in litigation
may result in substantial costs and may divert managements
attention and resources, which could harm our business,
financial condition, results of operations or cash flow in a
particular period.
F-85
AVANEX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Section 16(b)
Demand
On October 3, 2007, a purported Avanex stockholder filed a
complaint for violation of Section 16(b) of the Securities
Exchange Act of 1934, which prohibits short-swing trading,
against the Companys IPO underwriters. The complaint,
Vanessa Simmonds v. Morgan Stanley, et al., Case
No. C07-01568,
filed in District Court for the Western District of Washington,
seeks the recovery of short-swing profits. The Company is named
as a nominal defendant. No recovery is sought from the Company.
|
|
Note 9.
|
Pension
and Post-Retirement Benefits Other Than Pension Plans
|
With the acquisition of the optical components business of
Alcatel, Avanex assumed a defined benefit pension plan covering
the employees in France. The benefit obligation recorded on
acquisition (project benefit obligation) was actuarially
determined. The Company has not funded any of the benefit
obligation as of June 30, 2008 and 2007.
Adoption
of SFAS No. 158
SFAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement
Plans an amendment of FASB Statements No. 87,
88, 106, and 132(R), requires an employer to recognize the
overfunded or underfunded status of a defined benefit
postretirement plan (other than a multiemployer plan) as an
asset or liability on its statement of financial position using
prospective application. SFAS No. 158 also requires an
employer to recognize changes in that funded status in the year
in which the changes occur through comprehensive income.
The Company adopted SFAS No. 158 in fiscal 2007. Upon
adoption, the Company recorded an adjustment of
$0.3 million to the ending balance of accumulated other
comprehensive income for pension benefit plan.
The following table provides the incremental effect of applying
SFAS No. 158 on the Consolidated Balance Sheets as of
June 30, 2007 for the pension plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before
|
|
Adjustments
|
|
After
|
|
|
Application
|
|
Due to
|
|
Application
|
|
|
of SFAS
|
|
SFAS
|
|
of SFAS
|
|
|
No. 158
|
|
No. 158
|
|
No. 158
|
|
|
(In thousands)
|
|
Pension liability
|
|
$
|
560
|
|
|
$
|
(335
|
)
|
|
$
|
225
|
|
Total liabilities
|
|
$
|
63,253
|
|
|
$
|
(335
|
)
|
|
$
|
62,918
|
|
Accumulated other comprehensive income (loss)
|
|
$
|
729
|
|
|
$
|
335
|
|
|
$
|
1,064
|
|
Total stockholders equity
|
|
$
|
71,747
|
|
|
$
|
335
|
|
|
$
|
72,082
|
|
F-86
AVANEX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Pension
Benefit Plan
The following table provides information about changes in the
benefit obligation and amounts recognized on the Consolidated
Balance Sheets and in accumulated other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Pension
|
|
|
|
Benefits
|
|
|
Benefits
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
225
|
|
|
$
|
1,062
|
|
Service cost
|
|
|
13
|
|
|
|
69
|
|
Interest cost
|
|
|
12
|
|
|
|
51
|
|
Actuarial loss (gain)
|
|
|
(68
|
)
|
|
|
(9
|
)
|
Curtailment/settlement
|
|
|
|
|
|
|
(998
|
)
|
Exchange rate changes
|
|
|
41
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
223
|
|
|
$
|
225
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized on the consolidated balance sheets consist
of:
|
|
|
|
|
|
|
|
|
Other long term obligations
|
|
$
|
223
|
|
|
$
|
225
|
|
Accumulated other comprehensive income
|
|
|
427
|
|
|
|
335
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
650
|
|
|
$
|
560
|
|
|
|
|
|
|
|
|
|
|
The change in accumulated other comprehensive income includes
the actuarial gain/loss, as well as foreign exchange gain/loss
on accumulated other comprehensive income for $55,000 as of
June 30, 2008.
Components of net periodic benefit (gain)/cost for pension
benefits were as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Pension benefit:
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
13
|
|
|
$
|
69
|
|
Interest cost
|
|
|
12
|
|
|
|
51
|
|
Amortization of actuarial gain
|
|
|
(31
|
)
|
|
|
|
|
Settlement associated with sale of subsidiary
|
|
|
|
|
|
|
(998
|
)
|
Effect of settlement on actuarial gain
|
|
|
|
|
|
|
(1,371
|
)
|
|
|
|
|
|
|
|
|
|
Net periodic benefit (gain) cost
|
|
$
|
(6
|
)
|
|
$
|
(2,249
|
)
|
|
|
|
|
|
|
|
|
|
Contributions
and Estimated Future Benefit Payments
To date, the Company has made no contribution to its pension
plan. The Company does not have significant statutory or
contractual funding requirements for the qualified defined
benefit plan.
F-87
AVANEX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following estimated future benefit payments, which reflect
expected future service, as appropriate, are expected to be paid:
|
|
|
|
|
|
|
Pension
|
|
|
|
Benefit
|
|
|
|
(In thousands)
|
|
|
Year
|
|
|
|
|
2009 2013
|
|
$
|
|
|
2014 2018
|
|
|
209
|
|
2019
|
|
|
97
|
|
|
|
|
|
|
Total
|
|
$
|
306
|
|
|
|
|
|
|
Weighted
Average Assumptions Used
Weighted average assumptions used to determine benefit
obligations at June 30, 2008 and June 30, 2007 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
2008
|
|
|
2007
|
|
|
Discount rate
|
|
|
5.20
|
%
|
|
|
4.65
|
%
|
Rate of compensation increase
|
|
|
3.5
|
%
|
|
|
2.5
|
%
|
Expected residual active life (in years)
|
|
|
11.0
|
|
|
|
9.3
|
|
Assumed discount rates are used in measurements of the
projected, accumulated and vested benefit obligations and the
service and interest cost components of net periodic pension
cost. Management makes estimates of discount rates to reflect
the rates at which the pension benefits could be effectively
settled. In making those estimates, management evaluates rates
of return on high-quality fixed-income investments currently
available and expected to be available during the period to
maturity of the pension benefits.
|
|
Note 10.
|
Financing
Arrangements
|
Senior
Convertible Notes and Capital Lease Obligations
Senior
Convertible Notes
On May 19, 2005, the Company closed a private placement of
$35 million of the Companys 8.0% senior secured
convertible notes and warrants to purchase common stock. On
November 8, 2005, certain terms of the May 2005 convertible
note financing were amended pursuant to Amendment Agreements
entered into between Avanex and each holder of such notes, and
the Company issued amended and restated notes and amended and
restated warrants.
During fiscal 2006, the amortization of prepaid interest,
accretion of notes discount and the increase in the valuation of
the Companys warrants prior to their registration totaled
$3.8 million. Unaccreted discount was $1.0 million at
June 30, 2006.
During fiscal 2006, holders of $29.5 million of the
outstanding Amended and Restated Notes converted to common
stock. At June 30, 2006, the notes balance was
$5.5 million at face value, and $4.6 million net of
unaccreted discount.
During fiscal 2007, holders of the remaining $5.5 million
of the Amended and Restated Notes converted to common stock.
Accordingly, as of June 30, 2008, the Company does not have
any outstanding Notes.
F-88
AVANEX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Capital
Lease Obligations
Payments due under capital lease agreements for equipment as of
June 30, 2008 are as follows (in thousands):
|
|
|
|
|
|
|
Total Cash
|
|
|
|
Obligation
|
|
|
Year ending June 30, 2009
|
|
$
|
15
|
|
Less: Amounts representing interest
|
|
|
(2
|
)
|
|
|
|
|
|
Present value of net minimum lease payments
|
|
$
|
13
|
|
|
|
|
|
|
The Company leases certain equipment and other fixed assets
under capital lease agreements. The assets and liabilities under
the capital leases are recorded at the lesser of the present
value of aggregate future minimum lease payments, including
estimated bargain purchase options, or the fair value of the
assets under lease. Assets under capital leases are amortized
over the shorter of the lease term or useful life of the assets.
At June 30, 2007 and 2008, the Company had minimal capital
lease obligations.
|
|
Note 11.
|
Stockholders
Equity
|
Following the close of market on August 12, 2008, we
effected a fifteen-for-one reverse stock split of our common
stock. Accordingly, each fifteen shares of issued and
outstanding Avanex common stock and equivalents as of the close
of market on August 12, 2008 was converted into one share
of common stock, and the reverse stock split was reflected in
the trading price of Avanexs common stock at the opening
of market on August 13, 2008. Unless indicated otherwise,
all share amounts and per share prices appearing in the
consolidated financial statements reflect the reverse stock
split.
Securities
Purchase Agreements
On March 6, 2006, the Company entered into a Securities
Purchase Agreement with certain buyers who were parties to the
agreement for the sale of 1.6 million registered shares of
common stock at a price per share of $30.00 for an aggregate
purchase price of approximately $48.1 million. The
investors also received warrants to purchase up to an aggregate
of 0.5 million shares of common stock at an exercise price
of $40.95 per share, subject to adjustment for antidilution,
exercisable on or before March 9, 2010.
The number of shares deliverable upon exercise of the warrants
and the exercise price of the warrants are each subject to
adjustment whenever we issue or sell certain of our equity
securities for a consideration per share less than a price equal
to the applicable exercise price of the warrants. In connection
with the Companys March 1, 2007 financing, the
holders of such warrants received an antidilution adjustment
pursuant to the terms of such warrants resulting in up to 7,815
additional shares being issued upon the exercise of such
warrants and the reduction of the exercise price of the warrants
from $40.95 per share to $40.30 per share.
The net proceeds from the sale of the shares of common stock
were $44.7 million, after deducting a placement fee and the
Companys offering expenses. In addition, if the warrants
issued to the investors are exercised in full for cash, the
Company will receive an additional $18.5 million in net
proceeds.
On March 1, 2007, the Company sold 719,670 shares of
common stock of Avanex at a price per share of $27.79 for an
aggregate purchase price of $20 million. In connection with
the sale, the investor received a warrant to purchase up to an
additional 179,918 shares of common stock. The warrant is
exercisable at an exercise price of $32.18 per share through
March 1, 2011.
F-89
AVANEX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Shares
Reserved
Common stock reserved for future issuance is as follows:
|
|
|
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
Stock Option:
|
|
|
|
|
Options outstanding
|
|
|
909,126
|
|
Restricted stock units outstanding
|
|
|
235,260
|
|
Reserved for future grants
|
|
|
1,525,609
|
|
Employee stock purchase plan
|
|
|
176,456
|
|
Officer and director share purchase plan
|
|
|
132,851
|
|
Warrants
|
|
|
673,232
|
|
|
|
|
|
|
Total shares reserved for future issuance
|
|
|
3,652,534
|
|
|
|
|
|
|
|
|
Note 12.
|
Stock-based
Compensation
|
Stock
Option and Stock Rights Plans
The Company adopted the 1998 Stock Plan, which has been amended
(the Option Plan), under which officers, employees,
directors, and consultants may be granted options to purchase
shares of the Companys common stock. The Option Plan
permits options to be granted at an exercise price of not less
than the fair value on the date of grant as determined by the
Board of Directors. Options are generally granted with ten-year
terms and four-year vesting periods.
The authorized shares under the Option Plan automatically
increase each July 1 by an amount equal to the lesser of
(i) 400,000 shares, (ii) 4.9% of the
Companys outstanding shares, or (iii) a smaller
amount determined by the Companys Board of Directors. A
total of 1,460,056 shares of the Companys common
stock have been reserved for future issuance under the Option
Plan as of June 30, 2008.
The Option Plan also permits the Company to grant restricted
stock units to employees. During fiscal 2008, the Company
granted restricted stock units to employees that vest over
periods of two to four years.
In January 2000, the Company adopted the 1999 Director
Option Plan, which has been amended (the Director
Plan). Non-employee directors are entitled to participate
in the Director Plan. The Director Plan provides for an
automatic initial grant of an option to purchase
5,333 shares of Avanex common stock to each non-employee
director on the date when a person first becomes a non-employee
director. Each initial option grant will vest as to 25% of the
shares subject to the option on each anniversary of its date of
grant. After each initial option grant, each non-employee
director will automatically be granted an option to purchase
1,333 shares of Avanex common stock each year on the date
of the Companys annual stockholders meeting. These
options will vest and become fully exercisable on the
anniversary of the date of grant. Option grants generally have a
term of 10 years. The exercise price of all options will be
the fair market value per share of Avanex common stock on the
date of grant. After the initial grant, each non-employee
director will automatically be granted 667 Restricted Stock
Units each year on the date of the Companys annual
stockholders meeting. The Restricted Stock Unit grants
will fully vest and become 100% payable on the anniversary of
the date of grant.
The Director Plan also provides for automatic annual increases
each July 1, by an amount equal to the lesser of
(i) 10,000 shares, (ii) 0.25% of the outstanding
shares on that date, or (iii) a smaller amount determined
by the Companys Board of Directors. A total of
40,220 shares of the Companys common stock have been
reserved for future issuance under the Director Plan as of
June 30, 2008.
F-90
AVANEX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Determining
Fair Value
Valuation and amortization method The Company
estimates the fair value of stock options granted using the
Black-Scholes option-pricing formula and a single option award
approach. This fair value is then amortized on a straight-line
basis over the requisite service periods of the awards, which is
generally the vesting period.
Expected Term Through December 31, 2007,
the Companys expected term was based on the SEC Staff
Accounting Bulletin 107 simplified method. Beginning
January 1, 2008, the Company has estimated the
time-to-exercise based on historical exercise patterns of
employee and director populations.
Expected Volatility The Companys
volatility factor is estimated using the Companys stock
price history.
Expected Dividend The Black-Scholes valuation
model calls for a single expected dividend yield as an input.
The dividend yield of zero is based on the fact that the Company
has never paid cash dividends and has no present intention to
pay cash dividends in the future.
Risk-Free Interest Rate The Company bases the
risk-free interest rate used in the Black-Scholes valuation
method on the implied yield currently available on
U.S. Treasury zero-coupon issues with an equivalent
remaining term. Where the expected term of the Companys
stock-based awards does not correspond with the terms for which
interest rates are quoted, the Company performs a straight-line
interpolation to determine the rate from the available term
maturities.
Fair Value Fair value of the Companys
stock options granted to employees for the years ended
June 30, 2008 and 2007 was estimated using the following
weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Option Plan Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected term (in years)
|
|
|
6.06
|
|
|
|
6.25
|
|
|
|
6.25
|
|
Volatility
|
|
|
76.2
|
%
|
|
|
77.0
|
%
|
|
|
80.0
|
%
|
Expected dividend
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk-free interest rate
|
|
|
3.62
|
%
|
|
|
4.70
|
%
|
|
|
4.63
|
%
|
Weighted-average fair value
|
|
$
|
15.50
|
|
|
$
|
18.66
|
|
|
$
|
21.67
|
|
ESPP Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected term (in years)
|
|
|
1.00
|
|
|
|
1.00
|
|
|
|
1.00
|
|
Volatility
|
|
|
64.8
|
%
|
|
|
79.0
|
%
|
|
|
79.5
|
%
|
Expected dividend
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk-free interest rate
|
|
|
3.07
|
%
|
|
|
4.93
|
%
|
|
|
4.31
|
%
|
Weighted-average fair value
|
|
$
|
12.08
|
|
|
$
|
12.86
|
|
|
$
|
11.99
|
|
F-91
AVANEX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock
Compensation Expense
The following table summarizes the Companys stock-based
compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Cost of sales
|
|
$
|
1,051
|
|
|
$
|
1,110
|
|
|
$
|
422
|
|
Research and development
|
|
|
2,097
|
|
|
|
2,292
|
|
|
|
1,321
|
|
Sales and marketing
|
|
|
884
|
|
|
|
854
|
|
|
|
451
|
|
General and administrative
|
|
|
2,007
|
|
|
|
2,853
|
|
|
|
2,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
6,039
|
|
|
$
|
7,109
|
|
|
$
|
4,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2008, the total compensation cost related to
unvested stock-based awards granted to employees under the
Companys stock option plans but not yet recognized was
approximately $9.6 million, net of estimated forfeitures of
$4.2 million. This cost will be amortized on a
straight-line basis over a weighted-average period of
approximately 2.7 years and will be adjusted for subsequent
changes in estimated forfeitures.
Stock
Option Activity
The Company issues new shares of common stock upon exercise of
stock options. The following is a summary of option activity for
Avanexs stock option plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Value, in
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term in Years
|
|
|
Thousands
|
|
|
Outstanding at July 1, 2005
|
|
|
1,309,332
|
|
|
$
|
76.24
|
|
|
|
4.3
|
|
|
$
|
2,010
|
|
Granted
|
|
|
177,286
|
|
|
$
|
26.42
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(103,408
|
)
|
|
$
|
20.36
|
|
|
|
|
|
|
|
|
|
Forfeitures and cancellations
|
|
|
(540,406
|
)
|
|
$
|
75.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2006
|
|
|
842,804
|
|
|
$
|
72.88
|
|
|
|
7.6
|
|
|
$
|
1,986
|
|
Granted
|
|
|
228,170
|
|
|
$
|
25.80
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(23,667
|
)
|
|
$
|
15.38
|
|
|
|
|
|
|
|
|
|
Forfeitures and cancellations
|
|
|
(160,132
|
)
|
|
$
|
68.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2007
|
|
|
887,175
|
|
|
$
|
63.13
|
|
|
|
6.6
|
|
|
$
|
1,889
|
|
Granted
|
|
|
216,436
|
|
|
$
|
22.47
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(25,321
|
)
|
|
$
|
15.71
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(169,164
|
)
|
|
$
|
51.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008
|
|
|
909,126
|
|
|
$
|
57.02
|
|
|
|
5.1
|
|
|
$
|
269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at June 30, 2008
|
|
|
849,273
|
|
|
$
|
59.39
|
|
|
|
5.0
|
|
|
$
|
240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2008
|
|
|
569,840
|
|
|
$
|
76.62
|
|
|
|
4.1
|
|
|
$
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-92
AVANEX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
Outstanding
|
|
|
Average
|
|
|
Weighted
|
|
|
Exercisable,
|
|
|
Weighted
|
|
|
|
As of
|
|
|
Remaining
|
|
|
Average
|
|
|
As of
|
|
|
Average
|
|
|
|
June 30,
|
|
|
Contractual
|
|
|
Exercise
|
|
|
June 30,
|
|
|
Exercise
|
|
Range of Exercise Prices
|
|
2008
|
|
|
Term, in Years
|
|
|
Price
|
|
|
2008
|
|
|
Price
|
|
|
$5.85 $16.50
|
|
|
98,046
|
|
|
|
6.72
|
|
|
$
|
13.76
|
|
|
|
53,550
|
|
|
$
|
13.96
|
|
$16.51 $23.85
|
|
|
90,359
|
|
|
|
8.37
|
|
|
$
|
20.62
|
|
|
|
23,995
|
|
|
$
|
20.36
|
|
$24.15 $24.15
|
|
|
2,366
|
|
|
|
9.22
|
|
|
$
|
24.15
|
|
|
|
0
|
|
|
$
|
0.00
|
|
$24.60 $24.60
|
|
|
169,641
|
|
|
|
3.93
|
|
|
$
|
24.60
|
|
|
|
33,609
|
|
|
$
|
24.60
|
|
$25.20 $29.70
|
|
|
95,793
|
|
|
|
7.99
|
|
|
$
|
27.81
|
|
|
|
34,958
|
|
|
$
|
27.93
|
|
$30.90 $34.80
|
|
|
98,234
|
|
|
|
1.73
|
|
|
$
|
34.15
|
|
|
|
86,023
|
|
|
$
|
34.48
|
|
$34.95 $43.20
|
|
|
91,869
|
|
|
|
6.20
|
|
|
$
|
39.89
|
|
|
|
77,651
|
|
|
$
|
39.55
|
|
$44.25 $59.25
|
|
|
122,443
|
|
|
|
5.05
|
|
|
$
|
54.48
|
|
|
|
119,679
|
|
|
$
|
54.65
|
|
$60.00 $87.75
|
|
|
91,746
|
|
|
|
3.63
|
|
|
$
|
71.37
|
|
|
|
91,746
|
|
|
$
|
71.37
|
|
$96.90 $2,088.75
|
|
|
48,629
|
|
|
|
2.04
|
|
|
$
|
442.09
|
|
|
|
48,629
|
|
|
$
|
442.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
909,126
|
|
|
|
5.13
|
|
|
$
|
57.02
|
|
|
|
569,840
|
|
|
$
|
76.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value is calculated as the difference
between the exercise price of the underlying awards and the
quoted price of the Companys common stock. During the
years ended June 30, 2008, 2007 and 2006, the aggregate
intrinsic value of options exercised under the Companys
stock option plans was $274,000, $338,000 and $915,000,
respectively. Intrinsic value was determined as of the date of
option exercise.
Under the Option Plan, the Company may also grant share purchase
rights either alone, in addition to, or in tandem with other
awards granted under the Option Plan
and/or cash
awards granted outside the Option Plan. Exercise of these share
purchase rights are made pursuant to restricted stock purchase
agreements containing provisions established by the Board of
Directors. These provisions may give the Company the right to
repurchase the shares at the original sales price. This right
expires at a rate determined by the Board of Directors,
generally at a rate of 25% after one year and
1/48
per month thereafter. There were 1,800 share purchase
rights issued in the year ended June 30, 2006, and there
were no share purchase rights issued in the years ended
June 30, 2008 and 2007. As of June 30, 2008, 2007 and
2006, no shares were subject to repurchase.
The weighted-average fair value of stock options granted during
fiscal 2008, 2007 and 2006 were $15.50, $18.66 and $21.67 per
share, respectively.
F-93
AVANEX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Restricted
Stock Unit Activity
The Company issues new shares of common stock upon the vesting
of restricted stock units. The following is a summary of
activity for Avanexs restricted stock unit awards granted
under its option plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
Aggregate
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
Average
|
|
|
|
Number
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Value, in
|
|
|
Grant Date
|
|
|
|
of Shares
|
|
|
Price
|
|
|
Term in Years
|
|
|
Thousands
|
|
|
Fair Value
|
|
|
Outstanding at July 1, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awarded
|
|
|
395,217
|
|
|
$
|
0.015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Released
|
|
|
(77,105
|
)
|
|
$
|
0.015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(46,886
|
)
|
|
$
|
0.015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2006
|
|
|
271,226
|
|
|
$
|
0.015
|
|
|
|
2.5
|
|
|
$
|
7,154
|
|
|
$
|
26.83
|
|
Awarded
|
|
|
213,560
|
|
|
$
|
0.015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Released
|
|
|
(151,619
|
|
|
$
|
0.015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(52,568
|
)
|
|
$
|
0.015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2007
|
|
|
280,599
|
|
|
$
|
0.015
|
|
|
|
1.3
|
|
|
$
|
7,575
|
|
|
$
|
24.60
|
|
Awarded
|
|
|
217,994
|
|
|
$
|
0.015
|
|
|
|
|
|
|
|
|
|
|
$
|
26.03
|
|
Released
|
|
|
(193,562
|
|
|
$
|
0.015
|
|
|
|
|
|
|
|
|
|
|
$
|
22.27
|
|
Forfeited
|
|
|
(69,771
|
)
|
|
$
|
0.015
|
|
|
|
|
|
|
|
|
|
|
$
|
24.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008
|
|
|
235,260
|
|
|
$
|
0.015
|
|
|
|
1.5
|
|
|
$
|
3,877
|
|
|
$
|
25.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at June 30, 2008
|
|
|
200,032
|
|
|
$
|
0.015
|
|
|
|
1.4
|
|
|
$
|
3,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value is calculated as the difference
between the exercise price of the underlying awards and the
quoted price of the Companys common stock. During the
years ended June 30, 2008, 2007 and 2006, the aggregate
intrinsic value of restricted stock units vested under the
Companys stock option plans was $4.3 million,
$4.1 million and $2.8 million, respectively. Intrinsic
value was determined as of the date of restricted stock unit
release.
1999
Employee Stock Purchase Plan
In January 2000, the Company adopted the 1999 Employee Stock
Purchase Plan (the Stock Purchase Plan) for its
employees. The Stock Purchase Plan permits participants to
purchase the Companys common stock through payroll
deductions of up to 10% of the participants compensation.
The maximum number of shares a participant may purchase during
each offering period is 200 shares. The price of common
stock purchases will be 85% of the lower of the fair market
value at the beginning of the offering period and the ending of
the offering period.
The Stock Purchase Plan provides for automatic annual increases
each July 1, to shares reserved for issuance by an amount
equal to the lesser of (i) 50,000 shares, (ii) 1%
of the outstanding shares on that date, or (iii) a smaller
amount determined by the Companys Board of Directors. A
total of 176,456 shares of the Companys common stock
have been reserved for future issuance under the Stock Purchase
Plan as of June 30, 2008.
F-94
AVANEX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Employee
Stock Purchase Plan (ESPP) Information
In connection with our ESPP, the following shares were issued
during the years ended June 30, 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Number of shares issued
|
|
|
31,383
|
|
|
|
28,456
|
|
|
|
39,149
|
|
Weighted-average purchase price
|
|
$
|
12.08
|
|
|
$
|
12.86
|
|
|
$
|
11.99
|
|
During the years ended June 30, 2008, 2007 and 2006, the
aggregate intrinsic value of shares purchased under the
Companys ESPP was $182,000, $326,000 and $143,000,
respectively.
Officer
and Director Share Purchase Plan
In April 2008, the Company adopted the Officer and Director
Share Purchase Plan (ODPP) for its executive
officers and directors. The ODPP permits participants to
purchase shares of the Companys common stock at fair
market value in lieu of salary or, in the case of directors,
retainer fees. Eligible individuals will voluntarily participate
in the ODPP by authorizing payroll deductions or, in the case of
directors, deductions from retainer fees for the purpose of
purchasing Avanex shares. Elections to participate in the ODPP
may only be made during open trading windows under the
Companys insider trading policy when the participant does
not otherwise possess material non-public information concerning
the Company. The Board of Directors has authorized
133,333 shares to be made available for purchase by
officers and directors under this ODPP which commenced in May
2008.
A total of 132,851 shares of the Companys common
stock have been reserved for future issuance under the Officer
and Director Share Purchase Plan as of June 30, 2008.
In connection with our ODPP, the following shares were issued
during the year ended June 30, 2008:
|
|
|
|
|
|
|
Year Ended
|
|
|
June 30, 2008
|
|
Number of shares issued
|
|
|
482
|
|
Weighted-average purchase price
|
|
$
|
16.56
|
|
The Company provides for income taxes using an asset and
liability approach, under which deferred income taxes are
provided based upon enacted laws and rates applicable to periods
in which the taxes become payable.
The domestic and foreign components of income (loss) before
income taxes were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Domestic
|
|
$
|
(5,138
|
)
|
|
$
|
(22,206
|
)
|
|
$
|
(46,680
|
)
|
Foreign
|
|
|
10,785
|
|
|
|
(7,935
|
)
|
|
|
(8,012
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,647
|
|
|
$
|
(30,141
|
)
|
|
$
|
(54,692
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-95
AVANEX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The reconciliation of income tax expense (benefit) at the
statutory federal income tax rate of 34% to net income tax
provision included in the statement of operations for the years
ended June 30, 2008, 2007 and 2006 are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
U.S. Fed taxes (benefit) at statutory rate
|
|
$
|
1,919
|
|
|
$
|
(10,272
|
)
|
|
$
|
(18,595
|
)
|
State income taxes, net of federal benefit
|
|
|
20
|
|
|
|
|
|
|
|
|
|
Foreign loss not benefited
|
|
|
729
|
|
|
|
2,544
|
|
|
|
2,712
|
|
FAS 123 (R) adoption
|
|
|
|
|
|
|
|
|
|
|
12,450
|
|
Expiring NOLs
|
|
|
|
|
|
|
215
|
|
|
|
|
|
Change in valuation allowance
|
|
|
(1,472
|
)
|
|
|
7,947
|
|
|
|
2,868
|
|
Credits
|
|
|
(591
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
322
|
|
|
|
30
|
|
|
|
565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
927
|
|
|
$
|
464
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets and liabilities reflect the net tax effects
of net operating loss and tax credit carryovers and the
temporary differences between the carrying amounts of assets and
liabilities for financial reporting and the amounts used for
income tax purposes. Significant components of the
Companys deferred tax assets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
NOLs
|
|
$
|
121,503
|
|
|
$
|
94,252
|
|
|
$
|
153,194
|
|
Tax credit carryforwards
|
|
|
6,939
|
|
|
|
5,646
|
|
|
|
5,076
|
|
Inventory reserves
|
|
|
5,556
|
|
|
|
10,515
|
|
|
|
9,993
|
|
Restructuring charges
|
|
|
2,912
|
|
|
|
4,029
|
|
|
|
4,845
|
|
Other
|
|
|
10,561
|
|
|
|
9,490
|
|
|
|
5,965
|
|
Intangibles
|
|
|
1,056
|
|
|
|
2,332
|
|
|
|
822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
148,527
|
|
|
|
126,264
|
|
|
|
179,895
|
|
Valuation allowance
|
|
|
(148,527
|
)
|
|
|
(126,264
|
)
|
|
|
(179,895
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Deferred Tax Assets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realization of deferred tax assets is dependent upon future
earnings, if any, the timing and amount of which are uncertain.
Accordingly, the net deferred tax assets have been fully offset
by a valuation allowance. The valuation allowance increased
(decreased) by $22.3 million and ($53.6) million
during June 30, 2008 and June 30, 2007, respectively.
As of June 30, 2008, the Company had net operating loss
carry forwards for federal income tax purposes of approximately
$305 million which expire in the years 2012 through 2028
and federal research and development tax credits of
approximately $5.9 million which expire in years 2013
through 2028. The Company also had state net operating loss
carry forwards of approximately $111.3 million which expire
in the years 2009 through 2028 and state research and
development tax credits of approximately $7.4 million which
have no expiration. The Company had net operating loss carry
forwards for foreign income tax purposes of approximately
$78.7 million.
F-96
AVANEX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of June 30, 2007, insufficient evidence was available to
recognize certain foreign net operating losses or loss carry
forwards, therefore a portion of the foreign net operating
losses was derecognized with a corresponding offset to the
valuation allowance. During fiscal 2008, the Company obtained
sufficient evidence to support the inclusion of the foreign net
operating losses. Thus, as of June 30, 2008, the Company
included a portion of the formerly derecognized NOLs in
its deferred tax asset schedule with a corresponding offset to
the valuation allowance.
Utilization of the net operating losses may be subject to
substantial annual limitation due to federal and state ownership
limitations. The utilization of net operating losses is subject
to Section 382 limitation resulting from changes in
ownership of the Company.
Effective July 1, 2007, we adopted Financial Accounting
Standards Interpretation, or FIN, No. 48, Accounting
for Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109. FIN No. 48
prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of uncertain
tax positions taken or expected to be taken in a companys
income tax return, and also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure, and transition. FIN No. 48
utilizes a two-step approach for evaluating uncertain tax
positions accounted for in accordance with
SFAS No. 109, Accounting for Income Taxes
or SFAS No. 109. The first step,
Recognition requires a company to determine if the
weight of available evidence indicates that a tax position is
more likely than not to be sustained upon audit, including
resolution of related appeals or litigation processes, if any.
The second step, Measurement is based on the largest
amount of benefit, which is more likely than not to be realized
on ultimate settlement. As the Company had recorded a full
valuation allowance against its deferred tax assets, there was
no cumulative effect of adopting FIN No. 48. Upon
adoption, the total amount of gross unrecognized tax benefits
was $6.3 million.
At June 30, 2008, we had approximately $6.4 million in
total unrecognized tax benefits. A reconciliation of the
beginning and ending amount of unrecognized tax benefits is as
follows (in thousands):
|
|
|
|
|
Balance at July 1, 2007
|
|
$
|
6,325
|
|
Additions based on tax positions related to the current year
|
|
|
28
|
|
Reductions based on tax positions related to prior years
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2008
|
|
$
|
6,353
|
|
|
|
|
|
|
At June 30, 2008, the total unrecognized tax benefits of
$6.4 million consist of approximately $6.4 million of
unrecognized tax benefits that have been netted against the
related deferred tax assets. None of the unrecognized tax
benefit will impact the rate in future years until the Company
releases its valuation allowance.
We recognize interest
and/or
penalties related to uncertain tax positions in income tax
expense. To the extent accrued interest and penalties do not
ultimately become payable, amounts accrued will be reduced and
reflected as a reduction of the overall income tax provision in
the period that such determination is made. There were no
interest and penalties accrued upon the adoption of
FIN No. 48 on July 1, 2007 nor at June 30,
2008.
We file income tax returns in the United States on a federal
basis, in California and various foreign jurisdictions. The tax
years 2001 to 2006 remain open to examination in the United
States and California which are the major taxing jurisdictions
in which we are subject to tax.
F-97
AVANEX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 14.
|
Market
Sales, Export Sales, Significant Customers, and Concentration of
Supply
|
SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, establishes standards
for the way public business enterprises report information about
operating segments in annual financial statements and requires
that those enterprises report selected information about
operating segments in interim financial reports.
SFAS No. 131 also establishes standards for related
disclosures about products and services, geographic areas and
major customers.
The Companys chief operating decision maker is considered
to be the Companys Chief Executive Officer
(CEO). The CEO reviews the Companys financial
information presented on a consolidated basis substantially
similar to the accompanying consolidated financial statements.
Therefore, the Company has concluded that it operates in one
segment, to manufacture and market photonic processors, and
accordingly has provided only the required enterprise wide
disclosures. The Company has adopted a matrix management
organizational structure, whereby management of worldwide
activities is on a functional basis.
Customers who represented 10% or more of our net revenue or
accounts receivable were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Net
|
|
|
|
|
|
|
Revenue for the Year
|
|
|
Percent of Accounts
|
|
|
|
Ended June 30,
|
|
|
Receivable at June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
Company A
|
|
|
25
|
%
|
|
|
29
|
%
|
|
|
27
|
%
|
|
|
21
|
%
|
|
|
24
|
%
|
Company B
|
|
|
21
|
%
|
|
|
17
|
%
|
|
|
|
*
|
|
|
17
|
%
|
|
|
10
|
%
|
Company C
|
|
|
|
*
|
|
|
|
*
|
|
|
11
|
%
|
|
|
|
*
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
%
|
|
|
46
|
%
|
|
|
38
|
%
|
|
|
38
|
%
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by geographical area were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Americas
|
|
$
|
93,304
|
|
|
$
|
95,189
|
|
|
$
|
75,889
|
|
Europe
|
|
|
68,946
|
|
|
|
84,126
|
|
|
|
67,151
|
|
Asia-Pac
|
|
|
45,844
|
|
|
|
33,440
|
|
|
|
19,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
208,094
|
|
|
$
|
212,755
|
|
|
$
|
162,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets by geographical area were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
U.S.
|
|
$
|
5,159
|
|
|
$
|
3,949
|
|
Non-U.S.
|
|
|
2,529
|
|
|
|
1,951
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,688
|
|
|
$
|
5,900
|
|
|
|
|
|
|
|
|
|
|
On July 2, 2007, the Company purchased certain assets from
Essex Corporation (Essex), a subsidiary of Northrop
Grumman Space and Mission Systems Corporation, for
$2.1 million in cash, including $0.2 million of direct
transaction costs incurred in connection with the acquisition.
The Company acquired the assets
F-98
AVANEX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
relating to the MSA 300-pin transponder and XFP transceiver
businesses of the Commercial Communication Products Division of
Essex.
The transaction was accounted for as a purchase of assets in
accordance with FASB Statement No. 141, Business
Combination; therefore, the tangible assets acquired were
recorded at fair value on the acquisition date.
In allocating the purchase price based on estimated fair values,
we recorded approximately $1.6 million and
$0.5 million of tangible and intangible assets acquired,
respectively. The tangible assets consist of $1.1 million
of fixed assets, $0.3 million of inventory, and
$0.2 million of prepaid rent, while the intangible assets
consist of $0.3 million for technology and
$0.2 million for a non-compete agreement. The allocation of
the purchase price was based upon assessments by management of
the fair value of the assets acquired.
|
|
Note 16.
|
Quarterly
Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jun. 30,
|
|
|
Mar. 31,
|
|
|
Dec. 31,
|
|
|
Sep. 30,
|
|
|
Jun. 30,
|
|
|
Mar. 31,
|
|
|
Dec. 31,
|
|
|
Sep. 30,
|
|
|
|
2008*
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
(In thousands except per share data)
|
|
|
|
(Unaudited)
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
51,822
|
|
|
$
|
49,556
|
|
|
$
|
52,007
|
|
|
$
|
54,709
|
|
|
$
|
51,098
|
|
|
$
|
55,143
|
|
|
$
|
55,623
|
|
|
$
|
50,891
|
|
Cost of revenue
|
|
|
35,643
|
|
|
|
33,461
|
|
|
|
35,888
|
|
|
|
39,517
|
|
|
|
38,999
|
|
|
|
44,845
|
|
|
|
45,127
|
|
|
|
45,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
16,179
|
|
|
|
16,095
|
|
|
|
16,119
|
|
|
|
15,192
|
|
|
|
12,099
|
|
|
|
10,298
|
|
|
|
10,496
|
|
|
|
5,312
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
6,935
|
|
|
|
7,012
|
|
|
|
7,604
|
|
|
|
6,774
|
|
|
|
7,511
|
|
|
|
6,263
|
|
|
|
5,832
|
|
|
|
5,625
|
|
Sales and marketing
|
|
|
4,211
|
|
|
|
4,407
|
|
|
|
4,202
|
|
|
|
3,915
|
|
|
|
3,779
|
|
|
|
4,043
|
|
|
|
3,891
|
|
|
|
3,548
|
|
General and administrative
|
|
|
4,162
|
|
|
|
4,621
|
|
|
|
4,980
|
|
|
|
4,475
|
|
|
|
3,469
|
|
|
|
5,083
|
|
|
|
9,075
|
|
|
|
5,651
|
|
Amortization of intangibles
|
|
|
56
|
|
|
|
55
|
|
|
|
101
|
|
|
|
559
|
|
|
|
664
|
|
|
|
531
|
|
|
|
656
|
|
|
|
852
|
|
Restructuring costs (recovery)
|
|
|
137
|
|
|
|
32
|
|
|
|
2
|
|
|
|
(335
|
)
|
|
|
(17
|
)
|
|
|
1,155
|
|
|
|
436
|
|
|
|
(63
|
)
|
(Gain) loss on disposal of property and equipment
|
|
|
(24
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
(484
|
)
|
|
|
5
|
|
|
|
(28
|
)
|
|
|
(20
|
)
|
(Gain) loss on sale of subsidiary
|
|
|
|
|
|
|
(1,996
|
)
|
|
|
|
|
|
|
|
|
|
|
3,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
15,477
|
|
|
|
14,132
|
|
|
|
16,889
|
|
|
|
15,388
|
|
|
|
18,138
|
|
|
|
17,080
|
|
|
|
19,862
|
|
|
|
15,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
702
|
|
|
|
1,963
|
|
|
|
(770
|
)
|
|
|
(196
|
)
|
|
|
(6,039
|
)
|
|
|
(6,782
|
)
|
|
|
(9,366
|
)
|
|
|
(10,281
|
)
|
Interest and other income, net
|
|
|
979
|
|
|
|
1,371
|
|
|
|
1,083
|
|
|
|
515
|
|
|
|
818
|
|
|
|
129
|
|
|
|
813
|
|
|
|
567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
1,681
|
|
|
|
3,334
|
|
|
|
313
|
|
|
|
319
|
|
|
|
(5,221
|
)
|
|
|
(6,653
|
)
|
|
|
(8,553
|
)
|
|
|
(9,714
|
)
|
Provision for income taxes
|
|
|
(428
|
)
|
|
|
2
|
|
|
|
(227
|
)
|
|
|
(274
|
)
|
|
|
(464
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,253
|
|
|
$
|
3,336
|
|
|
$
|
86
|
|
|
$
|
45
|
|
|
$
|
(5,685
|
)
|
|
$
|
(6,653
|
)
|
|
$
|
(8,553
|
)
|
|
$
|
(9,714
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share
|
|
$
|
0.08
|
|
|
$
|
0.22
|
|
|
$
|
0.01
|
|
|
$
|
0.00
|
|
|
$
|
(0.38
|
)
|
|
$
|
(0.47
|
)
|
|
$
|
(0.62
|
)
|
|
$
|
(0.71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per common share
|
|
$
|
0.08
|
|
|
$
|
0.22
|
|
|
$
|
0.01
|
|
|
$
|
0.00
|
|
|
$
|
(0.38
|
)
|
|
$
|
(0.47
|
)
|
|
$
|
(0.62
|
)
|
|
$
|
(0.71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares outstanding
|
|
|
15,321
|
|
|
|
15,294
|
|
|
|
15,235
|
|
|
|
15,116
|
|
|
|
15,044
|
|
|
|
14,268
|
|
|
|
13,791
|
|
|
|
13,692
|
|
Diluted shares outstanding
|
|
|
15,330
|
|
|
|
15,301
|
|
|
|
15,460
|
|
|
|
15,389
|
|
|
|
15,044
|
|
|
|
14,268
|
|
|
|
13,791
|
|
|
|
13,692
|
|
|
|
|
* |
|
For the three months ended June 30, 2008 the Company posted
certain adjustments after its earnings release on
August 21, 2008, which resulted in net income decreasing by
$39,000. Gross margin, however, decreased to 31%, as compared to
32% previously reported. |
F-99
AVANEX
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 17.
|
Subsequent
Events
|
During the six months ended December 31, 2008, the Company
incurred operating losses and negative cash flows from
operations, resulting in declines in total unrestricted cash,
cash equivalents and short-term investments, and limited
operating capital to fund future operations. The Company expects
the balances of its cash, cash equivalents, and investments to
continue to decline in future periods. These factors cast
substantial uncertainty on the Companys ability to
continue as an ongoing enterprise for a reasonable period of
time. The Companys ability to continue as an ongoing
enterprise is dependent on its improving operational cash flow
and securing additional funding or consummating the proposed
merger with Bookham, Inc. announced on January 27, 2009 (in
which Avanex stockholders will receive shares of Bookham, Inc.
common stock in exchange for their shares of Avanex common
stock). The Companys management is pursuing opportunities
to streamline development efforts, reduce inventory levels and
simplify its operating structure, while maintaining customer
satisfaction. The financial statements do not include any
adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of
liabilities that might be necessary should the Company be unable
to continue as an ongoing enterprise.
* * * *
F-100
AVANEX
CORPORATION
Condensed
Consolidated Balance Sheets (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2008
|
|
|
|
(In thousands, except share and par value data)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
13,897
|
|
|
$
|
14,839
|
|
Restricted cash
|
|
|
3,803
|
|
|
|
3,776
|
|
Short-term investments
|
|
|
19,550
|
|
|
|
40,590
|
|
Accounts receivable
|
|
|
30,197
|
|
|
|
39,032
|
|
Inventories
|
|
|
19,528
|
|
|
|
15,979
|
|
Due from related party
|
|
|
123
|
|
|
|
85
|
|
Other current assets
|
|
|
7,021
|
|
|
|
6,486
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
94,119
|
|
|
|
120,787
|
|
Property and equipment, net
|
|
|
8,906
|
|
|
|
7,688
|
|
Intangibles, net
|
|
|
|
|
|
|
314
|
|
Goodwill
|
|
|
|
|
|
|
9,408
|
|
Deposits and other assets
|
|
|
3,094
|
|
|
|
2,870
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
106,119
|
|
|
$
|
141,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
24,371
|
|
|
$
|
33,255
|
|
Accrued compensation
|
|
|
3,811
|
|
|
|
6,272
|
|
Accrued warranty
|
|
|
350
|
|
|
|
626
|
|
Due to related party
|
|
|
75
|
|
|
|
110
|
|
Other accrued expenses and deferred revenue
|
|
|
6,810
|
|
|
|
5,893
|
|
Current portion of long-term obligations
|
|
|
12
|
|
|
|
13
|
|
Current portion of accrued restructuring
|
|
|
3,068
|
|
|
|
2,940
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
38,497
|
|
|
|
49,109
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
Accrued restructuring
|
|
|
3,613
|
|
|
|
5,043
|
|
Other long-term obligations
|
|
|
1,364
|
|
|
|
1,520
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
43,474
|
|
|
|
55,672
|
|
|
|
|
|
|
|
|
|
|
Contingencies (Note 11)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 30,000,000 shares
authorized; 15,608,367 and 15,318,982 shares outstanding,
net of 10,555 treasury shares, at December 31, 2008 and
June 30, 2008, respectively
|
|
|
16
|
|
|
|
15
|
|
Additional paid-in capital
|
|
|
788,204
|
|
|
|
784,492
|
|
Accumulated other comprehensive income
|
|
|
1,269
|
|
|
|
1,277
|
|
Accumulated deficit
|
|
|
(726,844
|
)
|
|
|
(700,389
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
62,645
|
|
|
|
85,395
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
106,119
|
|
|
$
|
141,067
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-101
AVANEX
CORPORATION
Condensed
Consolidated Statements of Operations (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third parties
|
|
$
|
37,924
|
|
|
$
|
47,155
|
|
|
$
|
83,137
|
|
|
$
|
88,550
|
|
Related parties
|
|
|
77
|
|
|
|
4,852
|
|
|
|
138
|
|
|
|
18,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
|
38,001
|
|
|
|
52,007
|
|
|
|
83,275
|
|
|
|
106,716
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue except for purchases from related parties
|
|
|
31,864
|
|
|
|
35,567
|
|
|
|
68,904
|
|
|
|
75,083
|
|
Purchases from related parties
|
|
|
295
|
|
|
|
321
|
|
|
|
756
|
|
|
|
322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
32,159
|
|
|
|
35,888
|
|
|
|
69,660
|
|
|
|
75,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
5,842
|
|
|
|
16,119
|
|
|
|
13,615
|
|
|
|
31,311
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
6,037
|
|
|
|
7,604
|
|
|
|
12,722
|
|
|
|
14,378
|
|
Sales and marketing
|
|
|
2,827
|
|
|
|
4,202
|
|
|
|
6,879
|
|
|
|
8,117
|
|
General and administrative
|
|
|
3,777
|
|
|
|
4,980
|
|
|
|
8,665
|
|
|
|
9,455
|
|
Amortization of intangibles
|
|
|
53
|
|
|
|
101
|
|
|
|
107
|
|
|
|
660
|
|
Restructuring
|
|
|
157
|
|
|
|
2
|
|
|
|
2,476
|
|
|
|
(333
|
)
|
Impairment of goodwill and intangibles
|
|
|
9,615
|
|
|
|
|
|
|
|
9,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
22,466
|
|
|
|
16,889
|
|
|
|
40,464
|
|
|
|
32,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(16,624
|
)
|
|
|
(770
|
)
|
|
|
(26,849
|
)
|
|
|
(966
|
)
|
Interest and other income (expense), net
|
|
|
(179
|
)
|
|
|
1,083
|
|
|
|
(351
|
)
|
|
|
1,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(16,803
|
)
|
|
|
313
|
|
|
|
(27,200
|
)
|
|
|
632
|
|
Income tax benefit (provision)
|
|
|
(11
|
)
|
|
|
(227
|
)
|
|
|
745
|
|
|
|
(501
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(16,814
|
)
|
|
$
|
86
|
|
|
$
|
(26,455
|
)
|
|
$
|
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share
|
|
$
|
(1.08
|
)
|
|
$
|
0.01
|
|
|
$
|
(1.71
|
)
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per common share
|
|
$
|
(1.08
|
)
|
|
$
|
0.01
|
|
|
$
|
(1.71
|
)
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares used in computing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share
|
|
|
15,564
|
|
|
|
15,235
|
|
|
|
15,460
|
|
|
|
15,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per common share
|
|
|
15,564
|
|
|
|
15,460
|
|
|
|
15,460
|
|
|
|
15,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-102
AVANEX
CORPORATION
Condensed
Consolidated Statements of Cash Flows (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(26,455
|
)
|
|
$
|
131
|
|
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Loss on disposal of property and equipment
|
|
|
10
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,973
|
|
|
|
1,484
|
|
Amortization of intangibles
|
|
|
107
|
|
|
|
659
|
|
Stock-based compensation
|
|
|
2,867
|
|
|
|
3,637
|
|
Provision for doubtful accounts and sales returns
|
|
|
651
|
|
|
|
377
|
|
Non-cash pension expense
|
|
|
43
|
|
|
|
|
|
Write-off of excess and obsolete inventory
|
|
|
2,444
|
|
|
|
3,770
|
|
Impairment of goodwill and intangibles
|
|
|
9,615
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
8,131
|
|
|
|
8,512
|
|
Inventories
|
|
|
(7,748
|
)
|
|
|
(4,971
|
)
|
Other current assets
|
|
|
(905
|
)
|
|
|
(394
|
)
|
Other assets
|
|
|
(212
|
)
|
|
|
(161
|
)
|
Due to/from related party
|
|
|
(72
|
)
|
|
|
(2,552
|
)
|
Accounts payable
|
|
|
(8,689
|
)
|
|
|
(258
|
)
|
Accrued compensation
|
|
|
(1,544
|
)
|
|
|
490
|
|
Accrued restructuring
|
|
|
(1,302
|
)
|
|
|
(1,728
|
)
|
Accrued warranty
|
|
|
(276
|
)
|
|
|
(102
|
)
|
Other accrued expenses and deferred revenue
|
|
|
2,407
|
|
|
|
(914
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(18,955
|
)
|
|
|
7,980
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
Purchases of investments
|
|
|
(11,476
|
)
|
|
|
(87,694
|
)
|
Maturities of investments
|
|
|
32,643
|
|
|
|
79,802
|
|
Increase in restricted cash
|
|
|
(27
|
)
|
|
|
(2,864
|
)
|
Purchases of property and equipment
|
|
|
(3,269
|
)
|
|
|
(1,426
|
)
|
Net cash used in asset purchase
|
|
|
|
|
|
|
(2,139
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
17,871
|
|
|
|
(14,321
|
)
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
Payments on capital lease obligations
|
|
|
(6
|
)
|
|
|
(4
|
)
|
Proceeds from issuance of common stock
|
|
|
127
|
|
|
|
549
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
121
|
|
|
|
545
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
21
|
|
|
|
243
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(942
|
)
|
|
|
(5,553
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
14,839
|
|
|
|
14,837
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
13,897
|
|
|
$
|
9,284
|
|
|
|
|
|
|
|
|
|
|
Supplemental Information:
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Fixed asset purchases included in accounts payable
|
|
$
|
529
|
|
|
$
|
|
|
Pension liability recognized in accumulated other comprehensive
income
|
|
$
|
|
|
|
$
|
(16
|
)
|
Net issuance of restricted stock awards (restricted stock and
restricted stock units)
|
|
$
|
1,089
|
|
|
$
|
3,861
|
|
See accompanying notes.
F-103
AVANEX
CORPORATION
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
Avanex Corporation and its wholly owned subsidiaries (the
Company, we, us and
our) design, manufacture and market fiber
optic-based products which increase the performance of optical
networks. The Company sells products to telecommunications
system integrators and their network carrier customers. The
Company was incorporated in October 1997 in California and
reincorporated in Delaware in January 2000.
The accompanying unaudited condensed consolidated financial
statements as of December 31, 2008, and for the three and
six months ended December 31, 2008 and 2007 have been
prepared in accordance with accounting principles generally
accepted in the United States of America (GAAP) for
interim financial statements and pursuant to the rules and
regulations of the Securities and Exchange Commission
(SEC), and include the accounts of Avanex and its
subsidiaries. Certain information and footnote disclosures
normally included in annual financial statements prepared in
accordance with GAAP 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 only of normal recurring
adjustments) necessary for a fair presentation of the
consolidated financial position at December 31, 2008, the
consolidated operating results for the three and six months
ended December 31, 2008 and 2007, and the consolidated cash
flows for the three and six months ended December 31, 2008
and 2007. The consolidated results of operations for the three
and six months ended December 31, 2008 are not necessarily
indicative of results that may be expected for any other interim
period or for the full fiscal year ending June 30, 2009.
The condensed consolidated balance sheet at June 30, 2008
has been derived from the audited consolidated financial
statements at that date, but does not include all of the
information and footnotes required by GAAP for complete
financial statements. The accompanying unaudited condensed
consolidated financial statements should be read in conjunction
with the Companys audited consolidated financial
statements and notes for the year ended June 30, 2008,
contained in its Annual Report on
Form 10-K
filed with the SEC on September 5, 2008.
During the six months ended December 31, 2008, the Company
incurred a net loss of $26.5 million, and its balance of
unrestricted cash, cash equivalents and short-term investments
declined from $55.4 million at June 30, 2008 to
$33.4 million at December 31, 2008. The Company
expects these balances of cash, cash equivalents, and
investments to continue to decline in future periods. These
factors cast substantial uncertainty on the Companys
ability to continue as an ongoing enterprise for a reasonable
period of time. The Companys ability to continue as an
ongoing enterprise is dependent on its improving operational
cash flow and securing additional funding or consummating the
proposed merger with Bookham, Inc. announced on January 27,
2009 (see Note 13). The Companys management is
pursuing opportunities to streamline development efforts, reduce
inventory levels and simplify its operating structure, while
maintaining customer satisfaction. The financial statements do
not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the
Company be unable to continue as an ongoing enterprise.
Statement of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible Assets
(SFAS 142) prescribes a two-step process for impairment
testing of goodwill and indefinite life of intangible assets.
The first step screens for impairment, while the second step,
measures the impairment, if any. SFAS 142 requires
impairment testing based on reporting units.
The first step is a comparison of each reporting units
fair value to its carrying value. The Company estimates fair
value using the best information available, including market
information and discounted cash flow projections also referred
to as the income approach. If the carrying value of the
reporting unit is higher than its fair value, there is an
indication that impairment may exist and the second step must be
performed to measure the amount of impairment loss. The amount
of impairment is determined by comparing the implied fair value
of reporting unit goodwill to the carrying value of the goodwill
in the same manner as if the
F-104
AVANEX
CORPORATION
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
reporting unit was being acquired in a business combination. If
the implied fair value of goodwill is less than the recorded
goodwill, the Company would record an impairment charge for the
difference.
As of December 31, 2008, the Company continued to evaluate
goodwill due to indications of impairment including the current
economic environment, its operating results, a sustained decline
in its market capitalization, changes in management, and a
decline in its forecasted revenue for the remainder of fiscal
2009. The Company operates in one reporting unit. The Step 2
analysis concluded that there had been an impairment of the
recorded goodwill. This conclusion is supported by the fair
value implied by the proposed merger with Bookham, Inc.
announced on January 27, 2009. As such, the Company has
written off the book value of $9.4 million of goodwill as
of December 31, 2008.
In September 2006, the Financial Accounting Standards Board
(FASB) issued Statement No. 157, Fair
Value Measurements (Statement 157). Statement
157 defines fair value, establishes a framework for measuring
fair value and expands fair value measurement disclosures.
Statement 157 was effective for the Companys fiscal year
beginning July 1, 2008. The adoption of Statement 157 did
not have a material impact on the Companys consolidated
financial statements. Statement 157 establishes a three-tier
fair value hierarchy, which prioritizes the inputs used in
measuring fair value. These tiers include: Level 1,
defined as observable inputs such as quoted prices in active
markets for identical assets or liabilities;
Level 2, defined as inputs other than quoted prices
in active markets for similar assets or liabilities that are
either directly or indirectly observable; and
Level 3, defined as unobservable inputs in which
little or no market data exists, therefore requiring an entity
to develop its own assumptions. At December 31, 2008,
$4.6 million of the Companys cash equivalents,
$3.8 million of the restricted cash, and $19.6 million
of the short-term investments are valued as Level 1
investments.
In February 2007, the FASB issued Statement No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities, including an amendment of FASB Statement
No. 115 (Statement 159), which allows an
entity the irrevocable option to elect fair value for the
initial and subsequent measurement for certain financial assets
and liabilities under an
instrument-by-instrument
election. Subsequent changes in measurements for the financial
assets and liabilities an entity elects to fair value will be
recognized in earnings. Statement 159 also establishes
additional disclosure requirements. This Statement 159 was
effective for the Companys fiscal year beginning
July 1, 2008. The adoption of Statement 159 did not have a
material impact on the Companys consolidated financial
statements.
Following the close of market on August 12, 2008, the
Company effected a fifteen-for-one reverse stock split of its
common stock. Accordingly, each fifteen shares of issued and
outstanding Avanex common stock and equivalents as of the close
of market on August 12, 2008 was converted into one share
of common stock, and the reverse stock split was reflected in
the trading price of Avanexs common stock at the opening
of market on August 13, 2008. Unless indicated otherwise,
all share amounts and per share prices reflect the reverse stock
split for all periods presented.
|
|
2.
|
Stock-Based
Compensation
|
The Company accounts for stock-based compensation under FASB
Statement No. 123(R),Share-Based Payment
(SFAS 123(R)), which requires companies to
recognize in their statement of operations all share-based
payments, including grants of stock options to employees, based
on the grant date fair value of such share-based awards. The
application of SFAS No. 123(R) requires the
Companys management to make judgments in the determination
of inputs into the Black-Scholes option pricing model which the
Company uses to determine the grant date fair value of stock
options it grants. Inherent in this model are assumptions
related to expected stock price volatility, expected term,
risk-free interest rate and expected dividend yield. While the
risk free interest rate and dividend yield are less subjective
assumptions, typically based on factual data derived from public
sources, the expected stock-price volatility and option life
assumptions require a greater level of judgment which make them
critical accounting estimates.
F-105
AVANEX
CORPORATION
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Determining
Fair Value
Valuation and amortization method The Company
estimates the fair value of stock options granted using the
Black-Scholes option-pricing formula and a single-option award
approach. This fair value is then amortized on a straight-line
basis over the requisite service periods of the awards, which is
generally the vesting period.
Expected Term Through December 31, 2007,
the Companys expected term was based on the SEC Staff
Accounting Bulletin 107 simplified method. Beginning
January 1, 2008, the Company has estimated the
time-to-exercise based on historical exercise patterns of
employee and director populations.
Expected Volatility The Companys
volatility factor is estimated using the Companys stock
price history.
Expected Dividend The Black-Scholes valuation
model calls for a single expected dividend yield as an input.
The use of an expected dividend yield of zero is based on the
fact that the Company has never paid cash dividends and has no
present intention to pay cash dividends in the future.
Risk-Free Interest Rate The Company bases the
risk-free interest rate used in the Black-Scholes valuation
model on the implied yield currently available on
U.S. Treasury zero-coupon issues with an equivalent
remaining term. Where the expected term of the Companys
stock-based awards does not correspond with the term for which
interest rates are quoted, the Company performs a straight-line
interpolation to determine the rate from the available term
maturities.
Fair Value Fair value of the Companys
stock options granted to employees and directors for the three
and six months ended December 31, 2008 and 2007 was
estimated using the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Option Plan Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected term (in years)
|
|
|
4.50
|
|
|
|
6.25
|
|
|
|
4.50
|
|
|
|
6.25
|
|
Volatility
|
|
|
85.0
|
%
|
|
|
76.0
|
%
|
|
|
84.5
|
%
|
|
|
75.5
|
%
|
Expected dividend
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk-free interest rate
|
|
|
1.41
|
%
|
|
|
3.60
|
%
|
|
|
1.50
|
%
|
|
|
3.96
|
%
|
Weighted-average fair value
|
|
$
|
0.61
|
|
|
$
|
16.08
|
|
|
$
|
0.96
|
|
|
$
|
16.67
|
|
ESPP Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected term (in years)
|
|
|
1.00
|
|
|
|
1.00
|
|
|
|
1.00
|
|
|
|
1.00
|
|
Volatility
|
|
|
66.2
|
%
|
|
|
62.0
|
%
|
|
|
66.2
|
%
|
|
|
62.0
|
%
|
Expected dividend
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk-free interest rate
|
|
|
2.21
|
%
|
|
|
4.15
|
%
|
|
|
2.21
|
%
|
|
|
4.15
|
%
|
Weighted-average fair value
|
|
$
|
9.77
|
|
|
$
|
14.18
|
|
|
$
|
9.77
|
|
|
$
|
14.18
|
|
Fair value of the Companys restricted stock units granted
to employees for the three and six months ended
December 31, 2008 and 2007 was determined based on the
Companys stock price at the date of the grant.
F-106
AVANEX
CORPORATION
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Stock-Based
Compensation Expense
Under SFAS 123
®,
the Company recorded $0.8 million and $1.8 million of
stock compensation expense in its consolidated statements of
operations for the three months ended December 31, 2008 and
2007, and $2.2 million and $3.6 million for the six
months ended December 31, 2008 and 2007, respectively.
At December 31, 2008, the total stock-based compensation
expense related to unvested stock grants to employees under the
Companys stock plans but not yet recognized was
approximately $10.0 million, net of estimated forfeitures
of $5.3 million. This expense will be amortized on a
straight-line basis over a weighted-average period of
approximately 2.6 years and will be adjusted for subsequent
changes in estimated forfeitures.
Stock
Option Activity
The Company issues new shares of common stock upon exercise of
stock options. Stock option activity for the six months ended
December 31, 2008 is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Term in
|
|
|
Value, in
|
|
|
|
Shares
|
|
|
Price
|
|
|
Years
|
|
|
Thousands
|
|
|
Outstanding at July 1, 2008
|
|
|
909,126
|
|
|
$
|
57.02
|
|
|
|
5.1
|
|
|
$
|
269
|
|
Granted
|
|
|
450,937
|
|
|
$
|
1.57
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Forfeitures and cancellations
|
|
|
(378,596
|
)
|
|
$
|
50.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
981,467
|
|
|
$
|
34.19
|
|
|
|
7.6
|
|
|
$
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2008
|
|
|
780,804
|
|
|
$
|
41.86
|
|
|
|
7.1
|
|
|
$
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2008
|
|
|
420,533
|
|
|
$
|
71.97
|
|
|
|
5.0
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate intrinsic value is calculated as the difference
between the exercise price of the underlying awards and the
quoted price of the Companys common stock. During both the
three and six months ended December 31, 2008, there were no
options exercised under the Companys stock option plans.
During the three and six months ended December 31, 2007,
the aggregate intrinsic value of options exercised under the
Companys stock option plans was $0.1 and
$0.3 million, respectively. Intrinsic value was determined
as of the date of option exercise.
F-107
AVANEX
CORPORATION
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Restricted
Stock Unit Activity
The Company issues new shares of common stock upon the vesting
of restricted stock units. Restricted stock unit activity for
the six months ended December 31, 2008 is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
Grant
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Term in
|
|
|
Value, in
|
|
|
Date Fair
|
|
|
|
Shares
|
|
|
Price
|
|
|
Years
|
|
|
Thousands
|
|
|
Value
|
|
|
Outstanding at July 1, 2008
|
|
|
235,260
|
|
|
$
|
0.015
|
|
|
|
1.5
|
|
|
$
|
3,877
|
|
|
$
|
25.37
|
|
Awarded
|
|
|
603,782
|
|
|
$
|
0.001
|
|
|
|
|
|
|
|
|
|
|
$
|
10.49
|
|
Released
|
|
|
(253,154
|
)
|
|
$
|
0.001
|
|
|
|
|
|
|
|
|
|
|
$
|
4.30
|
|
Forfeited
|
|
|
(94,956
|
)
|
|
$
|
0.015
|
|
|
|
|
|
|
|
|
|
|
$
|
25.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
490,932
|
|
|
$
|
0.001
|
|
|
|
1.2
|
|
|
$
|
469
|
|
|
$
|
15.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2008
|
|
|
428,874
|
|
|
$
|
0.015
|
|
|
|
1.2
|
|
|
$
|
409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate intrinsic value is calculated as the difference
between the exercise price of the shares and the quoted price of
the Companys common stock. During the three months ended
December 31, 2008 and 2007, the aggregate intrinsic value
of restricted stock units vesting was $0.2 million and
$1.6 million, respectively. During the six months ended
December 31, 2008 and 2007, the aggregate intrinsic value
of restricted stock units vesting was $1.1 million and
$3.9 million, respectively. Intrinsic value was determined
as of the date the restricted stock unit vested.
Employee
Stock Purchase Plan (ESPP) Activity
During the three months ended December 31, 2008 and 2007,
no shares were issued in connection with the Companys
ESPP, and accordingly the aggregate intrinsic value of options
exercised under the Companys ESPP was $0 for both periods.
During the six months ended December 31, 2008 and 2007,
16,138 and 14,798 shares were issued at weighted-average
purchase prices of $9.77 and $14.18 per share, respectively, in
connection with the Companys ESPP, and the aggregate
intrinsic value of shares purchased under the Companys
ESPP was $28,000 and $152,000, respectively.
Officer
and Director Share Purchase Plan (ODPP)
Activity
The ODPP was adopted in April 2008. During the
three months ended December 31, 2008, 12,054 shares
were issued at a weighted-average purchase price of $1.40.
During the six months ended December 31, 2008,
13,648 shares were issued at a weighted-average purchase
price of $2.11.
|
|
3.
|
Consolidated
Balance Sheet Detail
|
Cash,
Cash Equivalents, and Short-term Investments
The Company generally invests its excess cash in debt
instruments of the U.S. Treasury, government agencies, and
corporations with strong credit ratings. Such investments are
made in accordance with the Companys investment policy,
which establishes guidelines relative to diversification and
maturities designed to maintain safety and liquidity. To date,
the Company has not experienced any significant losses on its
debt investments.
F-108
AVANEX
CORPORATION
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
The table below summarizes all of the Companys investments
with maturity dates of one year or less from the date of
purchase, the amortized cost, fair value and gross unrealized
gains and losses related to available-for-sale securities,
aggregated by security type.
Cash, cash equivalents, and short-term investments consist of
the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
9,293
|
|
|
|
|
|
|
|
|
|
|
$
|
9,293
|
|
Cash Equivalents Money Market Funds
|
|
|
4,604
|
|
|
|
|
|
|
|
|
|
|
|
4,604
|
|
Restricted cash Certificates of Deposit and United
States Government Agencies
|
|
|
3,803
|
|
|
|
|
|
|
|
|
|
|
|
3,803
|
|
Short-term Investments Commercial Paper
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States Government Agencies
|
|
|
19,467
|
|
|
$
|
83
|
|
|
$
|
|
|
|
|
19,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal, short-term investments
|
|
|
19,467
|
|
|
|
83
|
|
|
|
|
|
|
|
19,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and short-term investments
|
|
$
|
37,167
|
|
|
$
|
83
|
|
|
$
|
|
|
|
$
|
37,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
10,106
|
|
|
|
|
|
|
|
|
|
|
$
|
10,106
|
|
Cash Equivalents Money Market Funds
|
|
|
4,733
|
|
|
|
|
|
|
|
|
|
|
|
4,733
|
|
Restricted cash Certificates of Deposit and United
States Government Agencies
|
|
|
3,776
|
|
|
|
|
|
|
|
|
|
|
|
3,776
|
|
Short-term Investments Commercial Paper
|
|
|
7,981
|
|
|
$
|
1
|
|
|
$
|
|
|
|
|
7,982
|
|
United States Government Agencies
|
|
|
32,653
|
|
|
|
2
|
|
|
|
(47
|
)
|
|
|
32,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal, short-term investments
|
|
|
40,634
|
|
|
|
3
|
|
|
|
(47
|
)
|
|
|
40,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and short-term investments
|
|
$
|
59,249
|
|
|
$
|
3
|
|
|
$
|
(47
|
)
|
|
$
|
59,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
Inventories consist of raw materials,
work-in-process
and finished goods and are stated at the lower of cost or
market. Cost is computed on a standard basis, which approximates
actual costs on a
first-in,
first-out basis. Inventories consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2008
|
|
|
Raw materials
|
|
$
|
8,192
|
|
|
$
|
7,981
|
|
Work-in-process
|
|
|
105
|
|
|
|
360
|
|
Finished goods
|
|
|
11,231
|
|
|
|
7,638
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,528
|
|
|
$
|
15,979
|
|
|
|
|
|
|
|
|
|
|
In the three months ended December 31, 2008 and 2007, the
Company recorded charges to cost of revenue for the write-off of
excess and obsolete inventory of $1.3 million and
$2.4 million, respectively, and for the six months ended
December 31, 2008 and 2007, the Company recorded charges to
cost of revenue for the write-off of excess and obsolete
inventory of $2.4 million and $3.8 million,
respectively.
F-109
AVANEX
CORPORATION
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Warranties
In general, the Company provides a product warranty for one year
from the date of shipment. The Company accrues for the estimated
costs of product warranties during the period in which revenue
is recognized. The Company estimates the costs of its warranty
obligations based on its historical experience and expectation
of future conditions. The Company periodically assesses the
adequacy of its recorded warranty liabilities and adjusts the
amounts as necessary.
Changes in the Companys accrued product warranty liability
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Balance at beginning of period
|
|
$
|
476
|
|
|
$
|
842
|
|
|
$
|
626
|
|
|
$
|
873
|
|
Accrual for sales during the period
|
|
|
73
|
|
|
|
47
|
|
|
|
181
|
|
|
|
208
|
|
Cost of warranty repair
|
|
|
(71
|
)
|
|
|
(118
|
)
|
|
|
(113
|
)
|
|
|
(310
|
)
|
Adjustment to prior sales (including expirations and changes in
estimates)
|
|
|
(128
|
)
|
|
|
|
|
|
|
(344
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
350
|
|
|
$
|
771
|
|
|
$
|
350
|
|
|
$
|
771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three months ended September 30, 2008, the
Company implemented a workforce reduction of 47 employees
to reduce costs, streamline operations, and improve its cost
structure. In the second quarter of fiscal 2009, the Company
closed its Melbourne, Florida facility and transferred the
respective product lines, inventory, and fixed assets to either
its France, China, or Thailand offices. The costs associated
with this restructuring consisted of one-time termination
benefits of approximately $2.1 million and
facilities-related costs of approximately $0.3 million. The
$2.1 million of one-time termination benefits includes
$0.7 million of stock compensation charges due to
accelerated vesting of restricted stock units.
A summary of the Companys accrued restructuring expense
and accrued restructuring liability is as follows (in thousands):
Three months ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
Accrued
|
|
|
Paid
|
|
|
Recovered
|
|
|
2008
|
|
|
Workforce Reduction, fiscal 2009
|
|
$
|
45
|
|
|
$
|
1,613
|
|
|
$
|
45
|
|
|
$
|
(1,613
|
)
|
|
$
|
|
|
|
$
|
45
|
|
Abandonment of excess facilities
|
|
|
112
|
|
|
|
7,456
|
|
|
|
114
|
|
|
|
(932
|
)
|
|
|
(2
|
)
|
|
|
6,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Restructuring
|
|
$
|
157
|
|
|
$
|
9,069
|
|
|
$
|
159
|
|
|
$
|
(2,545
|
)
|
|
$
|
(2
|
)
|
|
$
|
6,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-110
AVANEX
CORPORATION
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Six months ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
Accrued
|
|
|
Paid
|
|
|
Recovered
|
|
|
2008
|
|
|
Workforce Reduction, fiscal 2009
|
|
$
|
2,148
|
|
|
$
|
|
|
|
$
|
2,148
|
|
|
$
|
(2,103
|
)
|
|
$
|
|
|
|
$
|
45
|
|
Abandonment of excess facilities
|
|
|
328
|
|
|
|
7,983
|
|
|
|
581
|
|
|
|
(1,675
|
)
|
|
|
(253
|
)
|
|
|
6,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Restructuring
|
|
$
|
2,476
|
|
|
$
|
7,983
|
|
|
$
|
2,729
|
|
|
$
|
(3,778
|
)
|
|
$
|
(253
|
)
|
|
$
|
6,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The liability related to abandoned facilities will be paid out
through fiscal 2011, of which $3.0 million will be
disbursed in the next 12 months.
On July 2, 2007, the Company purchased certain assets from
Essex Corporation (Essex), a subsidiary of Northrop
Grumman Space and Mission Systems Corporation, for
$2.1 million in cash, including $0.2 million of direct
transaction costs incurred in connection with the acquisition.
The Company acquired the assets relating to the MSA 300-pin
transponder and XFP transceiver businesses of the Commercial
Communication Products Division of Essex.
The transaction was accounted for as a purchase of assets in
accordance with FASB Statement No. 141, Business
Combination; therefore, the tangible assets acquired were
recorded at fair value on the acquisition date. In allocating
the purchase price based on estimated fair values, we recorded
approximately $1.6 million and $0.5 million of
tangible and intangible assets acquired, respectively. The
tangible assets consist of $1.1 million of fixed assets,
$0.3 million of inventory, and $0.2 million of prepaid
rent, while the intangible assets consist of $0.3 million
for technology and $0.2 million for a non-compete
agreement. The allocation of the purchase price was based upon
assessments by management of the fair value of the assets
acquired. As part of the Companys impairment assessment
during the quarter ended December 31, 2008, the unamortized
value of intangible assets of $0.2 million was written off.
As of December 31, 2008, the Companys deferred tax
assets are fully offset by a valuation allowance. FASB Statement
No. 109, Accounting for Income Taxes, provides
for the recognition of deferred tax assets if realization of
such assets is more likely than not. Based upon the weight of
available evidence, which includes Avanexs historical
operating performance and reported cumulative net losses since
inception, the Company provided a full valuation allowance
against its net deferred tax assets. The Company reassesses the
need for its valuation allowance on a quarterly basis. If it is
later determined that a portion of the valuation allowance
should be reversed it will be a benefit to the income tax
provision.
The Company has tax benefits receivable of $1.2 million. Of
the $1.2 million tax benefits receivable, the current tax
benefits receivable is $0.5 million and the non-current tax
benefits receivable is $0.7 million.
The Company recorded an income tax provision of $11,000 for the
three months ended December 31, 2008. The Company had a tax
benefit of $0.7 million for the six months ended
December 31, 2008 which consists of a benefit of
$1.1 million related to federal and foreign research tax
credits, offset by $0.4 million related to state and
foreign income taxes. Of the $0.4 million state and foreign
income taxes, there was a one-time discrete provision of
$0.2 million related to withholding taxes in the prior
year. Of the $1.1 million federal and foreign tax benefits,
there was a one-time discrete benefit of $0.8 million in
foreign tax credits related to research conducted in the prior
year. The Companys tax provision for the three and six
months
F-111
AVANEX
CORPORATION
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
ended December 31, 2007 was approximately $0.2 million
and $0.5 million, respectively, consisting primarily of
foreign income taxes.
|
|
7.
|
Net
Income (Loss) per Share and Comprehensive Income
(Loss)
|
The following table presents the calculation of basic and
diluted net income (loss) per share, and comprehensive income
(loss) (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Net income (loss)
|
|
$
|
(16,814
|
)
|
|
$
|
86
|
|
|
$
|
(26,455
|
)
|
|
$
|
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute basic net income (loss) per share
|
|
|
15,564
|
|
|
|
15,235
|
|
|
|
15,460
|
|
|
|
15,176
|
|
Potentially dilutive shares used to compute net income per share
on a diluted basis
|
|
|
|
|
|
|
225
|
|
|
|
|
|
|
|
248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute diluted net income (loss) per share
|
|
|
15,564
|
|
|
|
15,460
|
|
|
|
15,460
|
|
|
|
15,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.08
|
)
|
|
$
|
0.01
|
|
|
$
|
(1.71
|
)
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(1.08
|
)
|
|
$
|
0.01
|
|
|
$
|
(1.71
|
)
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(16,814
|
)
|
|
$
|
86
|
|
|
$
|
(26,455
|
)
|
|
$
|
131
|
|
Unrealized gain (loss) on investments
|
|
|
135
|
|
|
|
3
|
|
|
|
127
|
|
|
|
11
|
|
Amortization of net actuarial loss
|
|
|
(9
|
)
|
|
|
(8
|
)
|
|
|
(46
|
)
|
|
|
(16
|
)
|
Cumulative translation adjustment
|
|
|
69
|
|
|
|
66
|
|
|
|
(89
|
)
|
|
|
155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
(16,619
|
)
|
|
$
|
147
|
|
|
$
|
(26,463
|
)
|
|
$
|
281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008, the Company had securities
outstanding that could potentially dilute basic earnings per
share in the future, but were excluded from the computation of
diluted net loss per share, as their effect would have been
anti-dilutive. At December 31, 2007, the Company had
securities outstanding that had exercise prices above the
average fair market value of common stock for the three months
ended December 31, 2007 that were excluded from the
computation of diluted net income (loss) per share as this
effect was anti-dilutive. The anti-dilutive securities are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Employee stock options
|
|
|
981,467
|
|
|
|
769,765
|
|
Warrants attached to 8% convertible notes
|
|
|
|
|
|
|
345,663
|
|
Warrants granted to landlord
|
|
|
4,000
|
|
|
|
4,000
|
|
Warrants attached to March 2006 equity securities offering
|
|
|
489,315
|
|
|
|
489,315
|
|
Warrants attached to March 2007 equity securities offering
|
|
|
179,917
|
|
|
|
179,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,654,699
|
|
|
|
1,788,660
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
|
Related
Party Transactions
|
On July 31, 2003, Alcatel (now known as Alcatel-Lucent) was
issued 28% of the Companys common stock in connection with
the acquisitions of certain businesses of Alcatel. On
October 29, 2007, the Pirelli Group acquired all the shares
of the Companys common stock then held by Alcatel-Lucent.
As of
F-112
AVANEX
CORPORATION
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
December 31, 2008, the Pirelli Group and Alcatel-Lucent
owned 12% and zero percent, respectively, of the outstanding
shares of Avanex common stock. The Company sells products to and
purchases raw materials and components from the Pirelli Group
and Alcatel-Lucent in the regular course of business.
Amounts sold to and purchased from related parties were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008*
|
|
|
2007*
|
|
|
2008*
|
|
|
2007*
|
|
|
Related party transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to related parties
|
|
$
|
77
|
|
|
$
|
4,852
|
|
|
$
|
138
|
|
|
$
|
18,166
|
|
Purchases from related parties in cost of revenue
|
|
|
295
|
|
|
|
321
|
|
|
|
756
|
|
|
|
322
|
|
|
|
|
* |
|
On October 29, 2007, the Pirelli Group acquired all the
shares of the Companys common stock held by
Alcatel-Lucent. Thus, related party transactions for the three
and six months ended December 31, 2008 are for the Pirelli
Group, while the three and six months ended December 31,
2007 include Alcatel-Lucent from October 1, 2007 to
October 29, 2007, and the Pirelli Group from
October 30, 2007 to December 31, 2007. |
Amounts due from and due to related parties (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
June 30,
|
|
|
2008
|
|
2008
|
|
Due from related parties
|
|
$
|
123
|
|
|
$
|
85
|
|
Due to related parties
|
|
|
75
|
|
|
|
110
|
|
|
|
9.
|
Disclosures
about Segments of an Enterprise
|
FASB Statement No. 131, Disclosures about Segments of
an Enterprise and Related Information, establishes
standards for the way public business enterprises report
information about operating segments in annual financial
statements and requires that those enterprises report selected
information about operating segments in interim financial
reports. FASB Statement No. 131 also establishes standards
for related disclosures about products and services, geographic
areas and major customers.
The Companys chief operating decision maker is considered
to be the Companys Chief Executive Officer
(CEO). The CEO reviews the Companys financial
information presented on a consolidated basis substantially
similar to the accompanying consolidated financial statements.
Therefore, the Company has concluded that it operates in one
segment and accordingly has provided enterprise-wide disclosures.
Customers who represented 10% or more of the Companys net
revenue or accounts receivable were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Net Revenue
|
|
|
Percent of Accounts
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
Receivable at
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Dec. 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
Company A
|
|
|
33
|
%
|
|
|
23
|
%
|
|
|
34
|
%
|
|
|
24
|
%
|
|
|
26
|
%
|
|
|
21
|
%
|
Company B
|
|
|
12
|
%
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
Company C
|
|
|
*
|
|
|
|
22
|
%
|
|
|
*
|
|
|
|
19
|
%
|
|
|
*
|
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
%
|
|
|
45
|
%
|
|
|
34
|
%
|
|
|
43
|
%
|
|
|
26
|
%
|
|
|
38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-113
AVANEX
CORPORATION
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
Revenues by geographical area were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
United States
|
|
$
|
10,071
|
|
|
$
|
19,620
|
|
|
$
|
23,343
|
|
|
$
|
37,138
|
|
Europe:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Italy
|
|
|
12,027
|
|
|
|
11,222
|
|
|
|
27,069
|
|
|
|
23,866
|
|
Other
|
|
|
3,287
|
|
|
|
5,140
|
|
|
|
7,014
|
|
|
|
9,283
|
|
Asia:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China
|
|
|
5,194
|
|
|
|
5,053
|
|
|
|
10,099
|
|
|
|
8,137
|
|
Other
|
|
|
4,574
|
|
|
|
6,971
|
|
|
|
9,322
|
|
|
|
16,378
|
|
Rest of world
|
|
|
2,848
|
|
|
|
4,001
|
|
|
|
6,428
|
|
|
|
11,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
38,001
|
|
|
$
|
52,007
|
|
|
$
|
83,275
|
|
|
$
|
106,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In April 2007, the Company sold ninety percent (90%) of the
share capital and voting rights of its wholly owned subsidiary,
Avanex France, which operated the Companys semiconductor
fabs and associated product lines located in Nozay, France to 3S
Photonics. The sale resulted in a loss to the Company of
approximately $3.2 million.
In July 2007, the Company and 3S Photonics entered into a Cash
Settlement Agreement that finalized the cash payments between
the two parties under the share purchase agreement entered into
in February 2007. As part of the Cash Settlement Agreement, the
Company placed in an escrow account the amount of
2 million to provide for payment of certain vendor
liabilities claimed by 3S Photonics. In March 2008, the parties
finalized the liabilities and the remaining escrow funds of
1,512,506 were returned to the Company and recognized as a
gain on the subsidiary sale.
In July 2007, the Company and 3S Photonics entered into an
Amendment Agreement to the Global Distributor Agreement whereby
the Company distributed products manufactured by 3S Photonics.
The Amendment Agreement provided that the Global Distributor
Agreement between the Company and 3S Photonics terminated in
April 2008. This Amendment was granted in exchange for a cash
payment by 3S Photonics to Avanex. 3S Photonics agreed to
provide Avanex with free product or cash under the Global
Distributor Agreement in the amount of 415,806 per quarter
for six quarters. As a result of the Global Distributor
Agreement and legal settlement in June 2008, the Company reduced
cost of goods sold for this product credit by approximately
$3.7 million in fiscal 2008.
On December 27, 2007, the Company filed an arbitration
claim against 3S Photonics in New York regarding disputes
primarily involving the early termination of the Global
Distributor Agreement by 3S Photonics and other payment
obligations the Company believed 3S Photonics owes to it. 3S
Photonics filed a response and counter-claim to the arbitration
in which it denied the Companys claim and alleged among
other matters that the Company had breached certain contractual
agreements resulting in damages to 3S Photonics. In March 2008,
3S Photonics instituted legal proceedings against the Company in
the Commercial Court of Evry in France. 3S Photonics alleged
that the Company disparaged 3S Photonics by, among other things,
issuing a press release announcing that the Company had
initiated arbitration proceedings against 3S Photonics relating
to the early termination of the Global Distributor Agreement. 3S
Photonics alleged damages in excess of 21 million.
In June, 2008, the Company and 3S Photonics settled their
dispute. While neither side admitted liability, the two parties
agreed to a settlement that included payables, receivables and
lost profits under the parties
F-114
AVANEX
CORPORATION
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
terminated Global Distributor Agreement, and a release by both
parties of all claims asserted against each other. With this
resolution, there is no remaining litigation between Avanex and
3S Photonics.
From time to time, the Company is subject to various legal
proceedings that arise from the normal course of business
activities. In addition, from time to time, third parties assert
patent or trademark infringement claims against the Company in
the form of letters and other forms of communication. The
Company does not believe that any of these legal proceedings or
claims is likely to have a material adverse effect on its
consolidated results of operations, financial condition, or cash
flows. However, it is possible that an unfavorable resolution of
one or more such proceedings could in the future materially
affect the Companys future results of operations, cash
flows, or financial position in a particular period.
IPO
Class Action Lawsuit
On August 6, 2001, Avanex, certain of its officers and
directors, and various underwriters in its initial public
offering (IPO) were named as defendants in a class
action filed in the United States District Court for the
Southern District of New York, captioned Beveridge v.
Avanex Corporation et al., Civil Action
No. 01-CV-7256.
This action and other subsequently filed substantially similar
class actions have been consolidated into In re Avanex Corp.
Initial Public Offering Securities Litigation, Civil Action
No. 01 Civ. 6890. The consolidated amended complaint in the
action generally alleges that various investment bank
underwriters engaged in improper and undisclosed activities
related to the allocation of shares in Avanexs IPO.
Plaintiffs have brought claims for violation of several
provisions of the federal securities laws against those
underwriters, and also against Avanex and certain of its
directors and officers, seeking unspecified damages on behalf of
a purported class of purchasers of Avanexs common stock
between February 3, 2000 and December 6, 2000. Various
plaintiffs have filed similar actions asserting virtually
identical allegations against more than 40 investment banks and
250 other companies. All of these IPO allocation
securities class actions currently pending in the Southern
District of New York have been assigned to Judge Shira A.
Scheindlin for coordinated pretrial proceedings as In re Initial
Public Offering Securities Litigation, 21 MC 92. On
October 9, 2002, the claims against Avanexs directors
and officers were dismissed without prejudice pursuant to a
tolling agreement. The issuer defendants filed a coordinated
motion to dismiss all common pleading issues, which the Court
granted in part and denied in part in an order dated
February 19, 2003. The Courts order did not dismiss
the Section 10(b) or Section 11 claims against Avanex.
In June 2004, a stipulation of settlement and release of claims
against the issuer defendants, including Avanex, was submitted
to the Court for approval. In August 2005, the Court
preliminarily approved the settlement. In December 2006, the
appellate court overturned the certification of classes in the
six test cases that were selected by the underwriter defendants
and plaintiffs in the coordinated proceedings. The case
involving Avanex is not one of the six test cases. Because class
certification was a condition of the settlement, it was unlikely
that the settlement would receive final Court approval. On
June 25, 2007, the Court entered an order terminating the
proposed settlement based upon a stipulation among the parties
to the settlement. Plaintiffs filed amended master allegations
and amended complaints in the six focus cases. On March 26,
2008, the Court largely denied the defendants motion to
dismiss the amended complaints. The parties have reached a
global settlement of the litigation and have so advised the
Court. Under the settlement, which remains subject to Court
approval, the insurers would pay the full amount of settlement
share allocated to Avanex, and Avanex would bear no financial
liability. Avanex, as well as the officer and director
defendants who were previously dismissed from the action
pursuant to tolling agreements, would receive complete
dismissals from the case. It is uncertain whether the settlement
will receive final Court approval. If the settlement does not
receive final Court approval, and litigation against Avanex
continues, Avanex believes it has meritorious defenses and
intends to defend the action vigorously. Nevertheless, an
unfavorable result in
F-115
AVANEX
CORPORATION
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
litigation may result in substantial costs and may divert
managements attention and resources, which could harm the
Companys business, financial condition, results of
operations or cash flow in a particular period.
Section 16(b)
Demand
On October 3, 2007, a purported Avanex shareholder filed a
complaint for violation of Section 16(b) of the Securities
Exchange Act of 1934, which prohibits short-swing trading,
against the Companys IPO underwriters. The complaint,
Vanessa Simmonds v. Morgan Stanley, et al., Case
No. C07-01568,
filed in District Court for the Western District of Washington,
seeks the recovery of short-swing profits. The Company is named
as a nominal defendant. No recovery is sought from the Company.
On March 12, 2009, the district court entered its order and
judgment dismissing with prejudice the claims against the
underwriter defendants. An appeal may be filed within
30 days after the judgment was entered.
Merger
Purported Class Action Lawsuit
On February 3, 2009, a purported class action complaint was
filed against Avanex and its directors, Bookham, Inc., and
Ultraviolet Acquisition Sub, Inc. in the Superior Court of
California, Alameda County by two individuals who purport to be
shareholders of Avanex. Plaintiffs purport to bring this action
on behalf of all shareholders of Avanex. On March 3, 2009
these individuals filed an amended complaint. The amended
complaint alleges that the defendants breached their fiduciary
duties by failing to maximize shareholder value in connection
with the contemplated merger of Avanex and Bookham, and that the
joint proxy statement/prospectus fails to provide stockholders
with material information or contains materially misleading
information thereby rendering the stockholders unable to cast an
informed vote on the proposed merger. The complaint also alleges
that Avanex, Bookham, and Ultraviolet Acquisition Sub aided and
abetted the individual defendants alleged breach of
fiduciary duties. Plaintiffs seek to permanently enjoin the
merger with Bookham, monetary damages in an unspecified amount
attributable to the alleged breach of duties, and legal fees and
expenses. Avanex and the individual defendants intend to defend
against the complaint vigorously. If the Company failed to
prevail in these legal matters or if these matters were resolved
against the Company, the operating results of a particular
reporting period could be materially adversely affected or the
merger with Bookham could be halted.
Other
Litigation
On February 13, 2009, after the date that Avanex filed its
quarterly report on
Form 10-Q
for the three months ended December 31, 2008, a lawsuit was
filed against Avanex, its chief executive and chief financial
officers, and one of its secretaries in the Superior Court of
California, Los Angeles County, by an individual claiming to be
a former stockholder of Avanex. Plaintiff claims that defendants
made false statements to him about the reasons for the departure
of the prior chief executive officer of Avanex and about
Avanexs business and prospects, which allegedly caused him
to purchase and hold Avanex stock. Plaintiff asserts claims for
intentional misrepresentation, negligent misrepresentation,
deceit (concealment), and breach of fiduciary duty. Plaintiff
seeks compensatory damages of $5 million, punitive damages,
interest, and costs of suit. Avanex and the individual
defendants intend to defend themselves vigorously. If the
Company failed to prevail in this legal matter or if this matter
was resolved against the Company, the operating results of a
particular reporting period could be materially adversely
affected.
|
|
12.
|
Recent
Accounting Pronouncements
|
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(SFAS 141R). SFAS 141R establishes the
principles and requirements for how an acquirer
(i) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree; (ii) recognizes
and measures the goodwill acquired in the business combination
or a gain from a bargain purchase; and (iii) determines
what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the
business combination.
F-116
AVANEX
CORPORATION
Notes to
Condensed Consolidated Financial Statements
(Unaudited) (Continued)
SFAS 141R makes significant changes to existing accounting
practices for acquisitions, including the requirement to expense
transaction costs and to reflect the fair value of contingent
purchase price adjustments at the date of acquisition.
SFAS 141R is to be applied prospectively to business
combinations consummated on or after the beginning of the first
annual reporting period on or after December 15, 2008. The
Company will implement the new standard effective in fiscal 2010.
In April 2008, the FASB issued Staff Position
No. FAS 142-3,
Determination of the Useful Life of Intangible Assets (FSP
FAS 142-3).
FSP
FAS 142-3
amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under
SFAS No. 142, Goodwill and Other Intangible Assets
(SFAS 142). The intent of FSP
FAS 142-3
is to improve the consistency between the useful life of a
recognized intangible asset under SFAS 142 and the period
of expected cash flows used to measure the fair value of the
asset under SFAS 141R and other applicable accounting
literature. FSP
FAS 142-3
is effective for fiscal years beginning after December 15,
2008. As of December 31, 2008, the Company has written off
the remaining book value of $9.6 million of goodwill and
intangible assets in the three months ended December 31,
2008.
On January 27, 2009, the Company announced that it had
reached a definitive agreement to merge with Bookham, Inc. in an
all-stock transaction, in which Avanex stockholders will receive
5.426 shares of Bookham common stock for every share of
Avanex common stock and will own approximately 46.75% of the
combined company following the closing of the merger. At the
closing, each outstanding option to purchase Avanex common stock
will be converted into an option to purchase 5.426 shares
of Bookham common stock, each outstanding Restricted Stock Unit
(RSU) payable for Avanex common stock will be converted into an
RSU payable for 5.426 shares of Bookham common stock, and
certain outstanding warrants to purchase Avanex common stock
will be converted into warrants to purchase 5.426 Bookham common
stock.
The merger is intended to qualify as a tax-free reorganization
under Section 368(a) of the Internal Revenue Code of 1986,
as amended.
The merger is subject to customary closing conditions including
shareholder approval by both companies. Both companies will
continue to operate their businesses independently until the
close of the merger. The merger is expected to be completed
within three to six months.
F-117
Annex A
AGREEMENT
AND PLAN OF MERGER AND REORGANIZATION
among:
Bookham, Inc.,
a
Delaware corporation;
Ultraviolet Acquisition
Sub, Inc.,
a
Delaware corporation; and
Avanex Corporation,
a
Delaware corporation
Dated as of January 27, 2009
Table
Of Contents
Annex A-i
EXECUTION
VERSION
AGREEMENT
AND PLAN OF MERGER AND REORGANIZATION
This Agreement and Plan of Merger and Reorganization
(Agreement) is made and entered into as of
January 27, 2009, by and among: Bookham, Inc., a
Delaware corporation
(Parent);
Ultraviolet Acquisition Sub, Inc., a Delaware
corporation and a wholly-owned subsidiary of Parent
(Merger Sub); and Avanex,
Corporation, a Delaware corporation (the
Company). Certain capitalized terms used in
this Agreement are defined in Exhibit A.
Recitals
A. Parent, Merger Sub and the Company intend to effect a
merger of Merger Sub into the Company in accordance with this
Agreement and the DGCL (the Merger). Upon
consummation of the Merger, Merger Sub will cease to exist, and
the Company will become a wholly-owned subsidiary of Parent.
B. It is intended that the Merger qualify as a
reorganization within the meaning of Section 368(a) of the
Code.
C. The respective boards of directors of Parent, Merger Sub
and the Company have approved this Agreement and the Merger.
D. In order to induce Parent to enter into this Agreement
and cause the Merger to be consummated, certain stockholders of
the Company are executing voting agreements in favor of Parent
concurrently with the execution of this Agreement (the
Company Stockholder Voting Agreements).
E. In order to induce the Company to enter into this
Agreement and consummate the Merger, certain stockholders of
Parent are executing voting agreements in favor of the Company
concurrently with the execution of this Agreement (the
Parent Stockholder Voting Agreements).
Agreement
The parties to this Agreement, intending to be legally bound,
agree as follows:
Section 1. Description
of Transaction
1.1 Merger of Merger Sub into the
Company. Upon the terms and subject to the
conditions set forth in this Agreement, at the Effective Time
(as defined in Section 1.3), Merger Sub shall be merged
with and into the Company. By virtue of the Merger, at the
Effective Time, the separate existence of Merger Sub shall cease
and the Company shall continue as the surviving corporation in
the Merger (the
Surviving Corporation).
1.2 Effects of the
Merger. The Merger shall have the effects set
forth in this Agreement and in the applicable provisions of the
DGCL.
1.3 Closing; Effective
Time. The consummation of the Merger (the
Closing) shall take place at the offices of
Cooley Godward Kronish
llp, 3175 Hanover
Street, Palo Alto, California, on a date to be designated
jointly by Parent and the Company, which shall be no later than
the second business day after the satisfaction or waiver of the
last to be satisfied or waived of the conditions set forth in
Sections 6 and 7 (other than the conditions, which by their
nature are to be satisfied at the Closing, but subject to the
satisfaction or waiver of each of such conditions). The date on
which the Closing actually takes place is referred to as the
Closing Date.
Subject to the
provisions of this Agreement, a certificate of merger satisfying
the applicable requirements of the DGCL shall be duly executed
by the Company and concurrently with or as soon as practicable
following the Closing shall be filed with the Secretary of State
of the State of Delaware. The Merger shall become effective at
the time of the filing of such certificate of merger with the
Secretary of State of the State of Delaware or at such later
time as may be designated jointly by Parent and the Company and
specified in such certificate of merger (the time as of which
the Merger becomes effective being referred to as the
Effective Time).
Annex A-1
1.4 Certificate of Incorporation and Bylaws;
Directors and Officers.
(a) The Certificate of Incorporation of the Surviving
Corporation shall be amended and restated immediately after the
Effective Time to read as set forth in Exhibit B.
(b) The Bylaws of the Surviving Corporation shall be
amended and restated as of the Effective Time to read as set
forth in Exhibit C.
(c) The directors and officer of the Surviving Corporation
immediately after the Effective Time shall be the respective
individuals who are directors and officers of Merger Sub
immediately prior to the Effective Time.
1.5 Conversion of Shares.
(a) Subject to the terms and conditions of this Agreement,
at the Effective Time, by virtue of the Merger and without any
further action on the part of Parent, Merger Sub, the Company or
any stockholder of the Company:
(i) any shares of Company Common Stock held by any
Subsidiary of the Company immediately prior to the Effective
Time (or held in the Companys treasury) (together with any
associated Rights, as defined in Section 2.3) shall be
canceled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor;
(ii) any shares of Company Common Stock held by Parent,
Merger Sub or any other Subsidiary of Parent immediately prior
to the Effective Time (together with any associated Rights)
shall be canceled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor;
(iii) except as provided in clauses (i) and
(ii) above and subject to Sections 1.5(b),
1.5(c) and 1.5(d), each share of Company Common Stock
outstanding immediately prior to the Effective Time (together
with any associated Rights) shall be converted into the right to
receive 5.426 of a share of Parent Common Stock (such number as
may be adjusted in accordance with Section 1.5(b), the
Exchange Ratio); and
(iv) each share of the Common Stock, $.01 par value
per share, of Merger Sub outstanding immediately prior to the
Effective Time shall be converted into one share of common stock
of the Surviving Corporation.
(b) If, during the period from the date of this Agreement
through the Effective Time, the outstanding shares of Company
Common Stock or Parent Common Stock are changed into a different
number or class of shares by reason of any stock split, division
or subdivision of shares, stock dividend, reverse stock split,
consolidation of shares, reorganization, reclassification,
recapitalization or other similar transaction, or a record date
with respect to any such event shall occur during such period,
then the Exchange Ratio shall be adjusted to the extent
appropriate to provide the same economic effect as contemplated
by this Agreement prior to such action.
(c) If any shares of Company Common Stock outstanding
immediately prior to the Effective Time are unvested or are
subject to a repurchase option, risk of forfeiture or other
condition under any applicable restricted stock purchase
agreement or other Contract with the Company or under which the
Company has any rights, then (except to the extent provided in
any binding agreement between the Company and the holder
thereof): (i) the shares of Parent Common Stock issued in
exchange for such shares of Company Common Stock will also be
unvested and subject to the same repurchase option, risk of
forfeiture or other condition; and (ii) the certificates
representing such shares of Parent Common Stock may accordingly
be marked with appropriate legends. Prior to the Effective Time,
the Company shall use commercially reasonable efforts to ensure
that, from and after the Effective Time, Parent is entitled to
exercise any such repurchase option or other right set forth in
any such restricted stock purchase agreement or other Contract.
(d) No fractional shares of Parent Common Stock shall be
issued in connection with the Merger, and no certificates or
scrip for any such fractional shares shall be issued. Any holder
of Company Common Stock who would otherwise be entitled to
receive a fraction of a share of Parent Common Stock (after
aggregating
Annex A-2
all fractional shares of Parent Common Stock issuable to such
holder) shall, in lieu of such fraction of a share and upon
surrender of such holders Company Stock Certificate(s) (as
defined in Section 1.6) or non-certificated shares of
Company Common Stock represented by book entry (Book
Entry Shares), be paid in cash the dollar amount
(rounded to the nearest whole cent), without interest,
determined by multiplying such fraction by the average closing
price of a share of Parent Common Stock on the NASDAQ Global
Market for the 10 most recent trading days that Parent Common
Stock has traded ending on the trading day one day prior to the
date the Merger becomes effective.
1.6 Closing of the Companys Transfer
Books. At the Effective Time: (a) all
shares of Company Common Stock outstanding immediately prior to
the Effective Time shall automatically be canceled and retired
and shall cease to exist, and all holders of Book Entry Shares
or of certificates representing shares of Company Common Stock
that were outstanding immediately prior to the Effective Time
shall cease to have any rights as stockholders of the Company,
except the right to receive shares of Parent Common Stock as
contemplated by Section 1.5, cash in lieu of any fractional
share of Parent Common Stock pursuant to Section 1.5(e) and
any dividends or other distributions pursuant to
Section 1.7(c); and (b) the stock transfer books of
the Company shall be closed with respect to all shares of
Company Common Stock outstanding immediately prior to the
Effective Time. No further transfer of any such shares of
Company Common Stock shall be made on such stock transfer books
after the Effective Time. If, after the Effective Time, a valid
certificate previously representing any shares of Company Common
Stock outstanding immediately prior to the Effective Time (a
Company Stock Certificate) or a Book Entry
Share is presented to the Exchange Agent (as defined in
Section 1.7) or to the Surviving Corporation or Parent,
such Company Stock Certificate or Book Entry Share shall be
canceled and shall be exchanged as provided in Section 1.7.
1.7 Exchange of Certificates.
(a) Prior to the Closing Date, Parent shall select The Bank
of New York, Parents transfer agent or another bank or
trust company reasonably satisfactory to the Company to act as
exchange agent in the Merger (the Exchange
Agent). Promptly after the Effective Time, Parent
shall cause to be deposited with the Exchange Agent:
(i) certificates representing the shares of Parent Common
Stock issuable pursuant to Section 1.5; and (ii) cash
sufficient to make payments in lieu of fractional shares in
accordance with Section 1.5(d). The shares of Parent Common
Stock and cash amounts so deposited with the Exchange Agent,
together with any dividends or distributions received by the
Exchange Agent with respect to such shares of Parent Common
Stock, are referred to collectively as the Exchange
Fund.
(b) Promptly after the Effective Time, Parent shall cause
the Exchange Agent to mail to the Persons who were record
holders of Company Stock Certificates or Book Entry Shares
immediately prior to the Effective Time: (i) a letter of
transmittal in customary form and containing such provisions as
Parent may reasonably specify and the Company shall reasonably
approve prior to the Effective Time (including a provision
confirming that delivery of Company Stock Certificates or Book
Entry Shares shall be effected, and risk of loss and title to
Company Stock Certificates or Book Entry Shares shall pass, only
upon delivery of such Company Stock Certificates or Book Entry
Shares to the Exchange Agent); and (ii) instructions for
use in effecting the surrender of Company Stock Certificates or
Book Entry Shares in exchange for certificates representing
Parent Common Stock, cash in lieu of any fractional shares
pursuant to Section 1.5(e) and any dividends or other
distributions pursuant to Section 1.7(c). Upon surrender of
a Company Stock Certificate or Book Entry Shares to the Exchange
Agent for exchange, together with a duly executed letter of
transmittal and such other documents as may be reasonably
required by the Exchange Agent or Parent: (A) the holder of
such Company Stock Certificate or Book Entry Shares shall be
entitled to receive in exchange therefor a certificate
representing the number of whole shares of Parent Common Stock
that such holder has the right to receive pursuant to the
provisions of Section 1.5 (and cash in lieu of any
fractional share of Parent Common Stock pursuant to
Section 1.5(e) and any dividends or other distributions
pursuant to Section 1.7(c)); and (B) the Company Stock
Certificate or Book Entry Shares so surrendered shall be
canceled. Until surrendered as contemplated by this
Section 1.7(b), each Company Stock Certificate or Book
Entry Shares shall be deemed, from and after the Effective Time,
to represent only the right to receive shares of Parent Common
Stock (and cash in lieu of any fractional share of Parent Common
Stock pursuant to Section 1.5(e) and any dividends or other
distributions pursuant to Section 1.7(c)) as contemplated
by Section 1.5. If any Company
Annex A-3
Stock Certificate shall have been lost, stolen or destroyed,
Parent may, in its reasonable discretion and as a condition to
the issuance of any certificate representing Parent Common
Stock, require the owner of such lost, stolen or destroyed
Company Stock Certificate to provide an appropriate affidavit
and to deliver a bond (in such sum as Parent may reasonably
direct) as indemnity against any claim that may be made against
the Exchange Agent, Parent or the Surviving Corporation with
respect to such Company Stock Certificate.
(c) No dividends or other distributions declared or made
with respect to Parent Common Stock with a record date after the
Effective Time shall be paid or otherwise delivered to the
holder of any unsurrendered Company Stock Certificate or Book
Entry Shares with respect to the shares of Parent Common Stock
that such holder has the right to receive in the Merger until
such holder surrenders such Company Stock Certificate or Book
Entry Shares in accordance with this Section 1.7 (at which
time such holder shall be entitled, subject to the effect of
applicable abandoned property, escheat or similar laws, to
receive all such dividends and distributions, without interest).
(d) Any portion of the Exchange Fund that remains
undistributed to holders of Company Stock Certificates or Book
Entry Shares as of the date that is one (1) year after the
date on which the Merger becomes effective shall be delivered to
Parent upon demand, and any holders of Company Stock
Certificates or Book Entry Shares who have not theretofore
surrendered their Company Stock Certificates or Book Entry
Shares in accordance with this Section 1.7 shall thereafter
look only to Parent for, and be entitled to receive from Parent,
satisfaction of their claims for Parent Common Stock, cash in
lieu of fractional shares of Parent Common Stock and any
dividends or distributions with respect to shares of Parent
Common Stock.
(e) Each of the Exchange Agent, Parent and the Surviving
Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this
Agreement to any holder or former holder of Company Common Stock
such amounts as may be required to be deducted or withheld from
such consideration under the Code or any provision of state,
local or foreign Tax law or under any other applicable Legal
Requirement. To the extent such amounts are so deducted or
withheld and timely paid over to the appropriate Governmental
Body, (i) such amounts shall be treated for all purposes
under this Agreement as having been paid to the Person to whom
such amounts would otherwise have been paid, and
(ii) Parent, the Exchange Agent or the Surviving
Corporation, as the case may be, shall promptly deliver the
amounts so deducted or withheld to the applicable taxing or
other authority.
(f) Neither Parent nor the Surviving Corporation shall be
liable to any holder or former holder of Company Common Stock or
to any other Person with respect to any shares of Parent Common
Stock (or dividends or distributions with respect thereto), or
for any cash amounts, delivered to any public official pursuant
to any applicable abandoned property law, escheat law or other
similar Legal Requirement.
1.8 Tax
Consequences. For U.S. federal income
tax purposes, the Merger is intended to constitute a
reorganization within the meaning of Section 368(a) of the
Code. The parties to this Agreement adopt this Agreement as a
plan of reorganization within the meaning of
Sections 1.368-2(g)
and 1.368-3(a) of the United States Treasury Regulations.
1.9 Further
Action. If, at any time after the Effective
Time, any further action is determined by Parent or the
Surviving Corporation to be necessary or desirable to carry out
the purposes of this Agreement or to vest the Surviving
Corporation with full right, title and possession of and to all
rights and property of Merger Sub and the Company, the officers
and directors of the Surviving Corporation and Parent shall be
fully authorized (in the name of Merger Sub, in the name of the
Company and otherwise) to take such action.
Section 2. Representations
and Warranties of the Company
The Company represents and warrants to Parent and Merger Sub as
follows (it being understood that each representation and
warranty contained in this Section 2 is subject to:
(a) the exceptions and disclosures set forth in the part or
subpart of the Company Disclosure Schedule corresponding to the
particular Section or subsection in this Section 2 in which
such representation and warranty appears; and (b) any
exception or disclosure set forth in any other part or subpart
of the Company Disclosure Schedule to the extent it is
Annex A-4
reasonably apparent from the wording of such exception or
disclosure that such exception or disclosure applies to such
representation and warranty):
2.1 Subsidiaries; Due Organization; Etc.
(a) Part 2.1(a) of the Company Disclosure Schedule
identifies each Subsidiary of the Company and indicates its
jurisdiction of organization. Neither the Company nor any of the
Entities identified in Part 2.1(a) of the Company
Disclosure Schedule owns any capital stock of, or any equity
interest of any nature in, any other Entity, other than the
Entities identified in Part 2.1(a) of the Company
Disclosure Schedule. No Subsidiary of the Company has agreed or
is obligated to make, or is bound by any Contract under which it
may become obligated to make, any future investment in or
capital contribution to any other Entity.
(b) Each of the Avanex Corporations is a corporation duly
organized, validly existing and in good standing (to the extent
that the laws of the jurisdiction of its formation recognize the
concept of good standing) under the laws of the jurisdiction of
its incorporation and has all necessary power and authority:
(i) to conduct its business in the manner in which its
business is currently being conducted; (ii) to own and use
its assets in the manner in which its assets are currently owned
and used; and (iii) to perform its obligations under all
Contracts by which it is bound, except, in the case of
clauses (i) through (iii) of this sentence, as would
not have and would not reasonably be expected to have or result
in a Company Material Adverse Effect.
(c) Each of the Avanex Corporations (in jurisdictions that
recognize the following concepts) is qualified to do business as
a foreign corporation, and is in good standing, under the laws
of all jurisdictions where the nature of its business requires
such qualification, except for jurisdictions in which the
failure to be so qualified, individually or in the aggregate,
would not have a Company Material Adverse Effect.
2.2 Certificate of Incorporation and
Bylaws. The Company has Made Available to
Parent accurate and complete copies of: (a) the certificate
of incorporation and bylaws of the Company, including all
amendments thereto; and (b) the memorandum of association
and articles of association or equivalent governing documents of
each Significant Subsidiary of any of the Avanex Corporations.
The Company has delivered or Made Available to Parent accurate
and complete copies of: (i) the charters of all committees
of the Company Board; and (ii) any code of conduct,
investment policy, whistleblower policy, disclosure committee
policy or similar policy adopted by any of the Avanex
Corporations or by the board of directors, or any committee of
the board of directors, of any of the Avanex Corporations.
2.3 Capitalization, Etc.
(a) As of the date of this Agreement, the authorized
capital stock of the Company consists of:
(i) 30,000,000 shares of Company Common Stock, of
which 15,589,951 shares have been issued and are
outstanding; and (ii) 2,000,000 shares of Company
Preferred Stock, of which no shares have been issued or are
outstanding. The Company holds 10,555 shares of its capital
stock in its treasury as of the date of this Agreement. All of
the outstanding shares of Company Common Stock have been duly
authorized and validly issued, and are fully paid and
nonassessable. None of the Avanex Corporations (other than the
Company) holds any shares of Company Common Stock or any rights
to acquire shares of Company Common Stock.
(b) Except as set forth in Part 2.3(b) of the Company
Disclosure Schedule: (i) none of the outstanding shares of
Company Common Stock is entitled or subject to any preemptive
right, right of repurchase or forfeiture, right of
participation, right of maintenance or any similar right;
(ii) none of the outstanding shares of Company Common Stock
is subject to any right of first refusal in favor of the
Company; and (iii) there is no Company Contract relating to
the voting or registration of, or restricting any Person from
purchasing, selling, pledging or otherwise disposing of (or from
granting any option or similar right with respect to), any
shares of Company Common Stock. None of the Avanex Corporations
is under any obligation, or is bound by any Contract pursuant to
which it may become obligated, to repurchase, redeem or
otherwise acquire any outstanding shares of Company Common Stock
or other securities, except for the Companys right to
repurchase or reacquire restricted shares of Company Common
Stock held by an employee of the Company upon termination of
such employees employment.
Annex A-5
(c) As of the date of this Agreement, 300,000 shares
of Company Preferred Stock, designated as Series A
Participating Preferred Stock, are reserved for future issuance
upon exercise of the rights (the Rights)
issued pursuant to the Preferred Stock Rights Agreement, dated
as of July 26, 2001, between the Company and EquiServe
Trust Company, N.A., as Rights Agent, as amended on
March 18, 2002, May 12, 2003, May 16, 2005,
March 6, 2006 and January 27, 2009 (the
Company Rights Agreement).
(d) As of the date of this Agreement:
(i) 988,567 shares of Company Common Stock are subject
to issuance pursuant to Company Options;
(ii) 116,889 shares of Company Common Stock are
reserved for future issuance pursuant to the Officer and
Director Share Purchase Plan (the Company Officer and
Director SPP); (iii) 160,318 shares of
Company Common Stock are reserved for future issuance pursuant
to the 1999 Employee Stock Purchase Plan (the Company
ESPP); (iv) 494,667 shares of Company Common
Stock are reserved for future issuance pursuant to Company RSUs;
and (v) 838,390 shares of Company Common Stock are
reserved for future issuance pursuant to equity awards not yet
granted under the Company Option Plans.
(e) The Company has made available to Parent a complete and
accurate list that sets forth with respect to each Company
Equity Award outstanding as of the date of this Agreement the
following information: (i) the particular plan (if any)
pursuant to which such Company Equity Award was granted;
(ii) the name of the holder of such Company Equity Award;
(iii) the number of shares of Company Common Stock subject
to such Company Equity Award; (iv) the per share exercise
price (if any) of such Company Equity Award; (v) the
applicable vesting schedule, and the extent to which such
Company Equity Award is vested and exercisable, if applicable;
(vi) the date on which such Company Equity Award was
granted; (vii) the date on which such Company Equity Award
expires; (viii) if such Company Equity Award is a Company
Option, whether such Company Option is an incentive stock
option (as defined in the Code) or a non-qualified stock
option; and (ix) if such Company Equity Award is in the
form of Company RSU, the dates on which shares of Company Common
Stock are scheduled to be delivered, if different from the
applicable vesting schedule. The Company has Made Available to
Parent accurate and complete copies of all equity plans pursuant
to which any outstanding Company Equity Awards were granted by
the Company, and the forms of all Company Equity Award
agreements evidencing such Company Equity Awards. The exercise
price of each Company Option is not less than the fair market
value of a share of Company Common Stock as determined on the
date of grant of such Company Option pursuant to the equity plan
pursuant to which such Company Option was granted. All grants of
Company Equity Awards were recorded on the Companys
financial statements (including, any related notes thereto)
contained in the Company SEC Documents (as defined in
Section 2.4(a)) in accordance with GAAP and, to the
Knowledge of the Company, no such grants involved any back
dating or similar practices with respect to the effective
date of grant (whether intentionally or otherwise). There are no
outstanding or authorized stock appreciation, phantom stock,
profit participation or similar rights or equity-based awards
with respect to any of the Avanex Corporations.
(f) Part 2.3(f) of the Company Disclosure Schedule
accurately sets forth, with respect to each Company Warrant that
is outstanding as of the date of this Agreement: (i) the
name of the holder of such Company Warrant; (ii) the total
number of shares of Company Common Stock that are subject to
such Company Warrant; (iii) the date on which such Company
Warrant was issued and the term of such Company Warrant;
(iv) the vesting schedule for such Company Warrant; and
(v) the exercise price per share of Company Common Stock
purchasable under such Company Warrant. The Company has Made
Available to Parent accurate and complete copies of each
Contract pursuant to which any Company Warrant is outstanding.
(g) Except as set forth in Sections 2.3(a), 2.3(c),
2.3(d) and 2.3(f) or in Part 2.3(f) of the Company
Disclosure Schedule, as of the date of this Agreement, there is
no: (i) outstanding subscription, option, call, warrant or
right (whether or not currently exercisable) to acquire any
shares of the capital stock or other securities of any of the
Avanex Corporations; (ii) outstanding security, instrument
or obligation that is or may become convertible into or
exchangeable for any shares of the capital stock or other
securities of any of the Avanex Corporations; or
(iii) stockholder rights plan (or similar plan commonly
referred to as a poison pill) or Contract under
which any of the Avanex Corporations is or may become obligated
to sell or otherwise issue any shares of its capital stock or
any other securities.
Annex A-6
(h) All outstanding shares of Company Common Stock, and all
options and other securities of the Avanex Corporations, have
been issued and granted in compliance in all material respects
with: (i) all applicable securities laws and other
applicable Legal Requirements; and (ii) all requirements
set forth in applicable Contracts.
(i) All of the outstanding shares of capital stock of each
of the Companys Subsidiaries have been duly authorized and
validly issued, are fully paid and nonassessable and free of
preemptive rights, and are owned beneficially and of record by
the Company, (except with respect to those Company Subsidiaries
organized under the laws of foreign jurisdictions where shares
of capital stock are required under applicable Legal
Requirements to be held by one or more directors, employees or
agents of such Subsidiary, in each case as disclosed in
Part 2.3(i) of the Company Disclosure Schedule), free and
clear of any Encumbrances (other than restrictions on transfer
imposed by applicable securities laws).
2.4 SEC Filings; Financial Statements.
(a) The Company has delivered or Made Available (or made
available on the SEC website) to Parent accurate and complete
copies of all registration statements, proxy statements, Company
Certifications (as defined below) and other statements, reports,
schedules, forms and other documents filed by the Company with
the SEC since July 1, 2006, including all amendments
thereto (collectively, the Company SEC
Documents). All statements, reports, schedules, forms
and other documents required to have been filed by the Company
or its officers with the SEC have been so filed on a timely
basis. None of the Companys Subsidiaries is required to
file any documents with the SEC. As of the time it was filed
with the SEC (or, if amended or superseded by a filing prior to
the date of this Agreement, then on the date of such filing):
(i) each of the Company SEC Documents complied as to form
in all material respects with the applicable requirements of the
Securities Act or the Exchange Act (as the case may be); and
(ii) none of the Company SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under
which they were made, not misleading, except to the extent
corrected: (A) in the case of Company SEC Documents filed
or furnished on or prior to the date of this Agreement that were
amended or superseded on or prior to the date of this Agreement,
by the filing or furnishing of the applicable amending or
superseding Company SEC Document; and (B) in the case of
Company SEC Documents filed or furnished after the date of this
Agreement that are amended or superseded prior to the Effective
Time, by the filing or furnishing of the applicable amending or
superseding Company SEC Document. The certifications and
statements relating to the Company SEC Documents required by:
(A) Rule 13a-14
or
Rule 15d-14
under the Exchange Act; (B) 18 U.S.C. §1350
(Section 906 of the Sarbanes-Oxley Act); or (C) any
other rule or regulation promulgated by the SEC or applicable to
the Company SEC Documents (collectively, the Company
Certifications) are accurate and complete, and comply
as to form and content with all applicable Legal Requirements.
As used in Sections 2.4, the term file
and variations thereof shall be broadly construed to include any
manner in which a document or information is filed, furnished,
submitted, supplied or otherwise made available to the SEC or
any member of its staff.
(b) The Company maintains disclosure controls and
procedures required by
Rule 13a-15
or 15d-15
under the Exchange Act. Such disclosure controls and procedures
are designed to ensure that all material information concerning
the Avanex Corporations required to be disclosed by the Company
in the reports that it is required to file, submit or furnish
under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SECs
rules and forms. The Company has delivered or Made Available to
Parent accurate and complete copies of all written descriptions
of, and all policies, manuals and other documents promulgating,
such disclosure controls and procedures. As of the date of this
Agreement, the Company is in compliance in all material respects
with the applicable listing requirements of the NASDAQ Global
Market, and has not since January 1, 2007 received any
written (or, to the Knowledge of the Company, written or verbal)
notice asserting any non-compliance with the listing
requirements of the NASDAQ Global Market.
(c) The financial statements (including any related notes)
contained or incorporated by reference in the Company SEC
Documents: (i) complied as to form in all material respects
with the published rules and regulations of the SEC applicable
thereto; (ii) were prepared in accordance with GAAP applied
on a consistent
Annex A-7
basis throughout the periods covered (except as may be indicated
in the notes to such financial statements or, in the case of
unaudited financial statements, as permitted by
Form 10-Q,
Form 8-K
or any successor form under the Exchange Act, and except that
the unaudited financial statements may not contain footnotes and
are subject to normal and recurring year-end adjustments); and
(iii) fairly present the consolidated financial position of
the Company and its consolidated Subsidiaries as of the
respective dates thereof and the consolidated results of
operations and cash flows of the Company and its consolidated
Subsidiaries for the periods covered thereby. No financial
statements of any Person other than the Avanex Corporations are
required by GAAP to be included in the consolidated financial
statements of the Company contained or incorporated by reference
in the Company SEC Documents.
(d) The Companys auditor has at all times since the
date of enactment of the Sarbanes-Oxley Act been, to the
Knowledge of the Company: (i) a registered public
accounting firm (as defined in Section 2(a)(12) of the
Sarbanes-Oxley Act); (ii) independent with
respect to the Company within the meaning of
Regulation S-X
under the Exchange Act; and (iii) in compliance with
subsections (g) through (l) of Section 10A of the
Exchange Act and the rules and regulations promulgated by the
SEC and the Public Company Accounting Oversight Board
thereunder. To the Knowledge of the Company, all non-audit
services performed by the Companys auditors for the Avanex
Corporations that were required to be approved in accordance
with Section 202 of the Sarbanes-Oxley Act were so approved.
(e) The Company maintains a system of internal controls
over financial reporting (as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) which is designed to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in
accordance with GAAP, and includes those policies and procedures
that: (i) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the transactions
and dispositions of the assets of the Avanex Corporations;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in conformity with GAAP and that receipts and
expenditures are being made only in accordance with
authorizations of management and directors of the Company; and
(iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition
of the assets of the Avanex Corporations that could have a
material effect on the financial statements. The Company has
delivered or Made Available to Parent accurate and complete
copies of all written descriptions of, and all policies, manuals
and other documents promulgating, such internal accounting
controls. The Companys management has completed an
assessment of the effectiveness of the Companys system of
internal controls over financial reporting in compliance with
the requirements of Section 404 of the Sarbanes-Oxley Act
for the fiscal year ended June 30, 2008, and, except as set
forth in Part 2.4(e) of the Company Disclosure Schedule,
such assessment concluded that such controls were effective and
the Companys independent registered accountant has issued
(and not subsequently withdrawn or qualified) an attestation
report concluding that the Company maintained effective internal
control over financial reporting as of June 30, 2008. To
the Knowledge of the Company, except as set forth in
Part 2.4(e) of the Company Disclosure Schedule, since
June 30, 2008, neither the Company nor any of its
Subsidiaries nor the Companys independent registered
accountant has identified or been made aware of: (A) any
significant deficiency or material weakness in the design or
operation of internal control over financial reporting utilized
by the Avanex Corporations; (B) any illegal act or fraud,
whether or not material, that involves the Companys
management or other employees; or (C) any claim or
allegation regarding any of the foregoing.
(f) Part 2.4(f) of the Company Disclosure Schedule
lists, and the Company has delivered or Made Available to Parent
accurate and complete copies of the documentation creating or
governing, all securitization transactions and off-balance
sheet arrangements (as defined in Item 303(c) of
Regulation S-K
under the Exchange Act) currently in effect or effected by any
of the Avanex Corporations since July 1, 2006. None of the
Avanex Corporations has any obligation or other commitment to
become a party to any such off-balance sheet
arrangements in the future.
Annex A-8
2.5 Absence of
Changes. Except as set forth in Part 2.5
of the Company Disclosure Schedule, between September 30,
2008 and the date of this Agreement:
(a) there has not been any Company Material Adverse Effect,
and no event has occurred or circumstance has arisen that, in
combination with any other events or circumstances, would
reasonably be expected to have or result in a Company Material
Adverse Effect;
(b) there has not been any material loss, damage or
destruction to, or any material interruption in the use of, any
of the material assets of any of the Avanex Corporations
(whether or not covered by insurance);
(c) none of the Avanex Corporations has: (i) declared,
accrued, set aside or paid any dividend or made any other
distribution in respect of any shares of capital stock; or
(ii) repurchased, redeemed or otherwise reacquired any
shares of capital stock or other securities (other than
repurchase of restricted Company Common Stock in connection with
termination of employment of the previous holder of such Company
Common Stock that were made in the ordinary course of business
and consistent with past practices);
(d) none of the Avanex Corporations has sold, issued or
granted, or authorized the issuance of: (i) any capital
stock or other security (except for Company Common Stock issued
upon the valid exercise of outstanding Company Options, upon the
vesting of outstanding Company RSUs and pursuant to the Company
Officer and Director SPP and the Company ESPP); (ii) any
option, warrant or right to acquire any capital stock or any
other security (except for Company Options and Company RSUs
identified in Part 2.3(e) of the Company Disclosure
Schedule); or (iii) any instrument convertible into or
exchangeable for any capital stock or other security;
(e) the Company has not amended or waived any of its rights
under, or permitted the acceleration of vesting under:
(i) any provision of any of the Company Option Plans;
(ii) any provision of any Contract evidencing any
outstanding Company Option; (iii) any restricted stock unit
agreement; or (iv) any other Contract evidencing or
relating to any equity award (whether payable in cash or stock);
(f) there has been no amendment to the certificate of
incorporation or bylaws of the Company, and none of the Avanex
Corporations has effected or been a party to any merger,
consolidation, share exchange, business combination,
recapitalization, reclassification of shares, stock split,
reverse stock split or similar transaction;
(g) the Avanex Corporations have not made any capital
expenditures that in the aggregate exceed $2,000,000;
(h) none of the Avanex Corporations has written off as
uncollectible, or established any extraordinary reserve with
respect to, any material account receivable or other material
indebtedness;
(i) none of the Avanex Corporations has: (i) lent any
money to any Person (other than extensions of credit to trade
creditors, intercompany indebtedness, short-term advances made
to non-executive officer employees which have subsequently been
repaid and routine travel and business expense advances made to
employees, in each case in the ordinary course of business); or
(ii) incurred or guaranteed any indebtedness for borrowed
money, other than to trade creditors in the ordinary course of
business;
(j) none of the Avanex Corporations has: (i) adopted,
established or entered into any Company Employee Plan or Company
Employee Agreement; (ii) caused or permitted any Company
Employee Plan to be amended in any material respect; or
(iii) materially increased the amount of the wages, salary,
commissions, fringe benefits or other compensation or
remuneration payable to any of its directors, officers or other
employees;
(k) none of the Avanex Corporations has changed any of its
methods of accounting or accounting practices in any material
respect except as required by concurrent changes in GAAP or SEC
rules and regulations;
(l) none of the Avanex Corporations has made any material
Tax election;
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(m) none of the Avanex Corporations has commenced or
settled any material Legal Proceeding;
(n) none of the Avanex Corporations has entered into any
material transaction or taken any other material action outside
the ordinary course of business or inconsistent with past
practices; and
(o) none of the Avanex Corporations has agreed or committed
to take any of the actions referred to in clauses
(c) through (n) above.
2.6 Title to
Assets. The Avanex Corporations own, and have
good and valid title to, all assets purported to be owned by
them, including: (a) all assets reflected on the Company
Unaudited Balance Sheet (except for inventory sold or otherwise
disposed of in the ordinary course of business since the date of
the Company Unaudited Balance Sheet); and (b) all other
assets reflected in the books and records of the Avanex
Corporations as being owned by the Avanex Corporations. All of
said assets are owned by the Avanex Corporations free and clear
of any Encumbrances, except for: (i) any lien for current
taxes not yet due and payable, or being contested in good faith
by appropriate proceeding and for which reserves have been
established in accordance with GAAP; (ii) minor liens that
do not (in any case or in the aggregate) materially detract from
the value of the assets subject thereto or materially impair the
operations of any of the Avanex Corporations; (iii) liens
described in Part 2.6 of the Company Disclosure Schedule.
The Avanex Corporations are the lessees of, and hold valid
leasehold interests in, all assets purported to have been leased
by them, including: (A) all assets reflected as leased on
the Company Unaudited Balance Sheet; and (B) all other
assets reflected in the books and records of the Avanex
Corporations as being leased to the Avanex Corporations, and the
Avanex Corporations enjoy undisturbed possession of such leased
assets.
2.7 Loans; Customers.
(a) Part 2.7(a) of the Company Disclosure Schedule
contains an accurate and complete list as of the date of this
Agreement of all outstanding loans and advances made by any of
the Avanex Corporations to any Company Associate, other than
routine travel and business expense advances made to directors
or officers or other employees in the ordinary course of
business.
(b) Part 2.7(b) of the Company Disclosure Schedule
accurately identifies Avanex Corporations top 16 customers
in each of the fiscal years ended in June 30, 2007 and
June 30, 2008 based on the revenues received by Avanex
Corporations in these years, and provides an accurate and
complete breakdown of the revenues received from each such
customer in each of such fiscal years. The Company has not
received any written notice (or, to the Knowledge of the
Company, any other communication, whether written or otherwise
with or to a Person at the level of Vice President or above,
other than ordinary course negotiations) indicating that any
customer or other Person identified or required to be identified
in Part 2.7(b) of the Company Disclosure Schedule may cease
dealing with or materially reduce its orders from any of the
Avanex Corporations.
2.8 Equipment; Real Property; Leasehold.
(a) All material items of equipment and other tangible
assets owned by or leased to and necessary for the operation of
the Avanex Corporations are adequate for the uses to which they
are being put, are in good and safe condition and repair
(ordinary wear and tear excepted) and are adequate for the
conduct of the businesses of the Avanex Corporations in the
manner in which such businesses are currently being conducted.
(b) No Avanex Corporation owns any real property.
(c) Part 2.8(c) of the Company Disclosure Schedule
sets forth an accurate and complete list of each lease pursuant
to which any of the Avanex Corporations leases real property
from any other Person for annual rent payments in excess of
$200,000. (All real property leased to the Avanex Corporations
pursuant to the real property leases identified or required to
be identified in Part 2.8(c) of the Company Disclosure
Schedule, including all buildings, structures, fixtures and
other improvements leased to the Avanex Corporations, is
referred to as the Avanex Leased Real
Property.) To the Knowledge of the Company,
there is no existing plan or study by any Governmental Authority
or by any other Person that challenges or otherwise adversely
affects the continuation of the use or operation of any Avanex
Leased Real Property. Part 2.8(c) of the Company Disclosure
Schedule contains an accurate and complete list of all
subleases, occupancy agreements and other Company Contracts
granting to any Person (other than any Avanex Corporation) a
right of use or
Annex A-10
occupancy of any of the Avanex Leased Real Property. Except as
set forth in the leases or subleases identified in
Part 2.8(c) of the Company Disclosure Schedule, there is no
Person in possession of any Avanex Leased Real Property other
than an Avanex Corporation. Since January 1, 2007, none of
the Avanex Corporations has received any written notice (or, to
the Knowledge of the Company, any other communication, whether
written or otherwise) of a default, alleged failure to perform,
or any offset or counterclaim with respect to any occupancy
agreement with respect to any Avanex Leased Real Property which
has not been fully remedied and withdrawn.
2.9 Intellectual Property.
(a) Part 2.9(a) of the Company Disclosure Schedule
accurately identifies:
(i) in Part 2.9(a)(i) of the Company Disclosure
Schedule: (A) each material item of Registered IP in which
any of the Avanex Corporations has or purports to have an
ownership interest of any nature (whether exclusively, jointly
with another Person or otherwise) and that is either:
(1) bundled, included, used in, licensed or distributed
with any Company Product or Company Product Software or part of
any Company Product or Company Product Software; or
(2) used to manufacture, develop, support, maintain or test
any Company Product or Company Product Software (the
Avanex Material Registered IP); (B) the
jurisdiction in which such Avanex Material Registered IP has
been registered or filed and the applicable registration or
serial number; and (C) any other Person that has an
ownership interest in such item of Avanex Material Registered IP
and the nature of such ownership interest; and
(ii) in Part 2.9(a)(ii) of the Company Disclosure
Schedule: (A) each Contract pursuant to which any material
Intellectual Property Rights or material Intellectual Property
is licensed to any Avanex Corporation (other than software
license agreements for any third-party non-customized software
that is generally available to the public at a cost of less than
$100,000 per year); and (B) whether these licenses are
exclusive or nonexclusive (for purposes of this Agreement, a
covenant not to sue or not to assert infringement claims shall
be deemed to be equivalent to a license).
(b) The Company has delivered or Made Available to Parent
an accurate and complete copy of each standard form of the
following documents and Contracts used by any Avanex Corporation
at any time since January 1, 2005: (i) terms and
conditions with respect to the sale, lease, license or
provisioning of any Company Product or Company Product Software;
(ii) employee agreement containing any assignment or
license to any Avanex Corporation of Intellectual Property or
Intellectual Property Rights or any confidentiality provision;
or (iii) consulting or independent contractor agreement
containing any assignment or license to any Avanex Corporation
of Intellectual Property or Intellectual Property Rights or any
confidentiality provision. Part 2.9(b) of the Company
Disclosure Schedule accurately identifies each Company Contract
that uses the standard form referred to above as the basis of
such Company Contract and that is material to any Avanex
Corporation and deviates in any material respect from the
corresponding standard form described above.
(c) The Avanex Corporations exclusively own all right,
title and interest to and in the Company IP (other than
Intellectual Property Rights or Intellectual Property licensed
to the Company, as identified in Part 2.9(a)(ii) of the
Company Disclosure Schedule or pursuant to license agreements
for non-customized third-party software that is generally
available to the public) free and clear of any Encumbrances
(other than non-exclusive licenses granted by any Avanex
Corporation in connection with the sale or license of Company
Products in the ordinary course of business). Without limiting
the generality of the foregoing:
(i) all documents and instruments necessary to perfect the
rights of the Avanex Corporations in the material Registered IP
have been executed, delivered and filed in a timely manner with
the appropriate Governmental Body, other than registrations,
filings and applications with respect to Registered IP that the
Company has allowed to lapse in its reasonable business judgment;
(ii) no Company Associate has any claim, right (whether or
not currently exercisable) or interest to or in any Company IP;
Annex A-11
(iii) no funding, facilities or personnel of any
Governmental Body or any university, college, research institute
or other educational institution have been or are being used to
develop or create, in whole or in part, any Company IP that is
owned or purported to be owned by the Company;
(iv) each Avanex Corporation has taken all reasonable steps
to maintain the confidentiality of and otherwise protect and
enforce its rights in all proprietary information held by any of
the Avanex Corporations, or purported to be held by any of the
Avanex Corporations, as a trade secret;
(v) none of the Avanex Corporations is now or has ever been
a member or promoter of, or a contributor to, any industry
standards body or any similar organization that could reasonably
be expected to require or obligate any of the Avanex
Corporations to grant or offer to any other Person any license
or right to any Company IP that is owned or purported to be
owned by any of the Avanex Corporations; and
(vi) to the Knowledge of the Company, the Avanex
Corporations own or otherwise have, and after the Closing the
Surviving Corporation will continue to have, all Intellectual
Property Rights needed to conduct the business of the Avanex
Corporations as currently conducted.
(d) All Avanex Material Registered IP is, to the Knowledge
of the Company, valid, subsisting and enforceable.
(e) Neither the execution, delivery or performance of this
Agreement nor the consummation of any of the Contemplated
Transactions will, or could reasonably be expected to, with or
without notice or the lapse of time, result in or give any other
Person the right or option to cause, create, impose or declare:
(i) a loss of, or Encumbrance on, any Company IP; or
(ii) the grant, assignment or transfer to any other Person
of any license or other right or interest under, to or in any of
the Company IP.
(f) Part 2.9(f) of the Company Disclosure Schedule:
(i) accurately identifies (and the Company has provided to
Parent an accurate and complete copy of) each letter or other
written or electronic communication or correspondence that has
been sent or otherwise delivered by or to any of the Avanex
Corporations or any Representative of any of the Avanex
Corporations between January 1, 2004 and the date of this
Agreement regarding any actual, alleged or suspected
infringement or misappropriation of any Company IP; and
(ii) provides a brief description of the current status of
the matter referred to in such letter, communication or
correspondence.
(g) Except as set forth in Part 2.9(g) of the Company
Disclosure Schedule, none of the Avanex Corporations and none of
the Company IP, Company Products or Company Product Software has
ever infringed (directly, contributorily, by inducement or
otherwise), misappropriated or otherwise violated any
Intellectual Property Right of any other Person.
(h) No infringement, misappropriation or similar claim or
Legal Proceeding is or, since January 1, 2004, has been
pending or, to the Knowledge of the Company, threatened against
any Avanex Corporation or against any other Person who is, or
has asserted or could reasonably be expected to assert that it
is, entitled to be indemnified, defended, held harmless or
reimbursed by any Avanex Corporation with respect to such claim
or Legal Proceeding (including any claim or Legal Proceeding
that has been settled, dismissed or otherwise concluded).
(i) Except as set forth in Part 2.9(i) of the Company
Disclosure Schedule, since January 1, 2004, none of the
Avanex Corporations has received any written notice (or, to the
Knowledge of the Company, any other communication, whether
written or otherwise) relating to any actual, alleged or
suspected infringement, misappropriation or violation of any
Intellectual Property Right of another Person by any of the
Avanex Corporations, the Company Products or the Company Product
Software.
(j) To the Knowledge of the Company, none of the Company
Product Software: (i) contains any bug, defect or error
(including any bug, defect or error relating to or resulting
from the display, manipulation, processing, storage,
transmission or use of date data) that materially and adversely
affects the use, functionality or performance of such Company
Product Software or any Company Product containing or used in
conjunction with such Company Product Software; or
(ii) fails to comply in any material respect with any
applicable warranty or other contractual commitment made by any
Avanex Corporation relating to the use, functionality
Annex A-12
or performance of such software or any Company Product
containing or used in conjunction with such Company Product
Software.
(k) To the Knowledge of the Company, except for trial or
demonstration versions, none of the Company Product Software
contains any back door, drop dead
device, time bomb, Trojan horse,
virus or worm (as such terms are
commonly understood in the software industry) or any other code
designed or intended to have, or capable of performing, any of
the following functions: (i) disrupting, disabling, harming
or otherwise impeding in any manner the operation of, or
providing unauthorized access to, a computer system or network
or other device on which such code is stored or installed; or
(ii) damaging or destroying any data or file without the
users consent.
(l) To the Knowledge of the Company, none of the Company
Product Software is subject to any copyleft or other
obligation or condition (including any obligation or condition
under any open source license such as the GNU Public
License, Lesser GNU Public License or Mozilla Public License)
that: (i) requires or could reasonably be expected to
require, or conditions or could reasonably be expected to
condition, the use or distribution of such Company Product
Software on, the disclosure, licensing or distribution of any
Company Source Code for any portion of such Company Product
Software; or (ii) otherwise imposes or could reasonably be
expected to impose any material limitation, restriction or
condition on the right or ability of the Company to use or
distribute any Company Product Software.
2.10 Contracts.
(a) Part 2.10(a) of the Company Disclosure Schedule
identifies each Company Contract that constitutes a Company
Material Contract. For purposes of this Agreement, each of the
following Company Contracts shall be deemed to constitute a
Company Material Contract:
(i) any Contract: (A) constituting a Company
Employment Agreement; (B) pursuant to which any of the
Avanex Corporations is or may become obligated to make any
severance, termination or similar payment to any Company
Associate or any spouse, heir or Representative of any Company
Associate except for severance, termination or similar payments
required by applicable Legal Requirements or in an amount less
than $50,000; (C) pursuant to which any of the Avanex
Corporations is or may become obligated to make any bonus or
similar payment (other than payments constituting base salary or
commissions paid in the ordinary course of business) in excess
of $50,000 to any Company Associate; or (D) pursuant to
which any of the Avanex Corporations is or may become obligated
to grant or accelerate the vesting of, or otherwise modify, any
stock option, restricted stock, stock appreciation right or
other equity interest in any of the Avanex Corporations;
(ii) any Contract identified or required to be identified
in Part 2.9 of the Company Disclosure Schedule;
(iii) any Contract with any distributor and any contract
with any other reseller or sales representative, in each case
that provides exclusivity rights to such distributor, reseller
or sales representative;
(iv) any Contract with sole-source or single-source
suppliers to any Avanex Corporation of products or services that
are material to any Avanex Corporation;
(v) any Contract that provides for: (A) reimbursement
of any Company Associate for, or advancement to any Company
Associate of, legal fees or other expenses associated with any
Legal Proceeding or the defense thereof; or
(B) indemnification of any Company Associate;
(vi) any Contract imposing any restriction on the right or
ability of any Avanex Corporation: (A) to compete with any
other Person; (B) to acquire any product or other asset or
any services from any other Person; (C) to solicit, hire or
retain any Person as a director, an officer or other employee, a
consultant or an independent contractor; (D) to develop,
sell, supply, distribute, offer, support or service any product
or any technology or other asset to or for any other Person;
(E) to perform services for any other Person; or
(F) to transact business with any other Person, in each
case which restriction would or would reasonably be expected to
materially and adversely affect: (x) the conduct of the
business of the Avanex Corporations as currently conducted or as
currently proposed by the Avanex Corporations to be conducted;
or (y) the
Annex A-13
design, development, manufacturing, reproduction, marketing,
licensing, sale, offer for sale, importation, distribution,
performance, display, creation of derivative works by any Avanex
Corporation with respect to
and/or use
of the Company Product;
(vii) any Contract relating to any currency hedging;
(viii) any Contract incorporating or relating to any
guaranty, any warranty, any sharing of liabilities or any
indemnity (including any indemnity with respect to Intellectual
Property or Intellectual Property Rights) or similar obligation,
other than Contracts entered into in the ordinary course of
business or that do not deviate in any material respect from the
standard forms of end-user licenses previously delivered or Made
Available by the Company to Parent;
(ix) any Contract requiring that any of the Avanex
Corporations give any written notice or provide any information
to any Person prior to responding to or prior to accepting any
Acquisition Proposal or similar proposal, or prior to entering
into any discussions, agreement, arrangement or understanding
relating to any Acquisition Transaction;
(x) any Contract relating to the lease or sublease of
Avanex Leased Real Property;
(xi) any Contract that: (A) involved the payment or
delivery of cash or other consideration in an amount or having a
value in excess of $500,000 in the fiscal year ended
June 30, 2008; (B) requires by its terms the payment
or delivery of cash or other consideration in an amount or
having a value in excess of $500,000 in the fiscal year ending
June 30, 2009; (C) involved the performance of
services having a value in excess of $250,000 in the fiscal year
ended June 30, 2008; or (D) requires by its terms the
performance of services having a value in excess of $250,000 in
the fiscal year ending June 30, 2009;
(xii) Any Contract requiring that any Avanex Corporation:
(A) give more than 180 days notice prior to
discontinuing any Company Product; (B) continue to deliver
any Company Product
and/or spare
parts for any Company Product more than 180 days following
any notice of discontinuance of such Company Product or spare
part; (C) continue to deliver any Company Product
and/or spare
parts for any Company Product more than five years following the
termination or expiration of the Contract; and (D) continue
to deliver warranty service or out-of-warranty service more than
three years following the termination or expiration of the
Contract; and
(xiii) any Contract, the termination of which would
reasonably be expected to have a Company Material Adverse Effect.
The Company has delivered or Made Available to Parent an
accurate and complete copy of each Company Contract that
constitutes a Company Material Contract.
(b) Each Company Contract that constitutes a Company
Material Contract is valid and in full force and effect, and is
enforceable in accordance with its terms, subject to:
(i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors; and (ii) rules of law
governing specific performance, injunctive relief and other
equitable remedies.
(c) Except as set forth in Part 2.10(c) of the Company
Disclosure Schedule: (i) none of the Avanex Corporations
has violated or breached in any material respect, or committed
any default in any material respect under, any Company Contract;
(ii) to the Knowledge of the Company, no other Person has
violated or breached in any material respect, or committed any
default in any material respect under, any Company Contract;
(iii) to the Knowledge of the Company, no event has
occurred, and no circumstance or condition exists, that (with or
without notice or lapse of time) could reasonably be expected
to: (A) result in a violation or breach in any material
respect of any of the provisions of any Company Contract;
(B) give any Person the right to declare a default in any
material respect under any Company Contract; (C) give any
Person the right to receive or require a rebate, chargeback,
penalty or change in delivery schedule under any Company
Contract; (D) give any Person the right to accelerate the
maturity or performance of any Company Contract that constitutes
a Company Material Contract; (E) result in the disclosure,
release or delivery of any Company Source Code; or (F) give
any Person the right to cancel, terminate or modify any Company
Contract that constitutes a Company Material Contract; and
(iv) since January 1, 2007, none of the Avanex
Corporations has
Annex A-14
received any written notice (or, to the Knowledge of the
Company, any other communication, whether written or otherwise)
regarding any actual or possible violation or breach of, or
default under, any Company Material Contract.
2.11 Liabilities. None
of the Avanex Corporations has any material accrued, contingent
or other liabilities of any nature, either matured or unmatured,
except for: (a) liabilities identified as such, or
specifically reserved against, in the Company Unaudited Balance
Sheet; (b) liabilities that have been incurred by the
Avanex Corporations since the date of the Company Unaudited
Balance Sheet in the ordinary course of business and consistent
with past practices; (c) liabilities for performance of
obligations of the Avanex Corporations pursuant to the express
terms of Company Contracts; (d) liabilities under this
Agreement or incurred in connection with the Contemplated
Transactions; and (e) liabilities described in
Part 2.11 of the Company Disclosure Schedule.
2.12 Compliance with Legal
Requirements. Each of the Avanex Corporations
is, and has at all times since January 1, 2007 been, in
compliance in all material respects with all applicable Legal
Requirements, including Environmental Laws (as defined in
Section 2.17(e)) and Legal Requirements relating to
employment, privacy law matters, exportation of goods and
services, securities law matters and Taxes. Since
January 1, 2007, none of the Avanex Corporations has
received any written notice (or, to the Knowledge of the
Company, any other communication, whether written or otherwise)
from any Governmental Body or other Person regarding any actual
or possible violation in any material respect of, or failure to
comply in any material respect with, any Legal Requirement.
2.13 Certain Business
Practices. None of the Avanex Corporations,
and (to the Knowledge of the Company) no Representative of any
of the Avanex Corporations with respect to any matter relating
to any of the Avanex Corporations, has: (a) used any funds
for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity; (b) made
any unlawful payment to foreign or domestic government officials
or employees or to foreign or domestic political parties or
campaigns or violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended; or (c) made any other
unlawful payment.
2.14 Governmental Authorizations.
(a) The Avanex Corporations hold all material Governmental
Authorizations necessary to enable the Avanex Corporations to
conduct their respective businesses in the manner in which such
businesses are currently being conducted, including all
Governmental Authorizations required under Environmental Laws.
All such Governmental Authorizations are valid and in full force
and effect. Each Avanex Corporation is, and at all times since
January 1, 2007 has been, in compliance in all material
respects with the terms and requirements of such Governmental
Authorizations. Since January 1, 2007, none of the Avanex
Corporations has received any written notice (or, to the
Knowledge of the Company, any other communication, whether
written or otherwise) from any Governmental Body regarding:
(i) any actual or possible material violation of or failure
to comply in any material respect with any term or requirement
of any material Governmental Authorization; or (ii) any
actual or possible revocation, withdrawal, suspension,
cancellation, termination or modification of any material
Governmental Authorization.
(b) Part 2.14(b) of the Company Disclosure Schedule
describes the terms of each grant, incentive or subsidy provided
or made available to or for the benefit of any of the Avanex
Corporations by any U.S. federal, state or local
Governmental Body or any foreign Governmental Body or otherwise.
Each of the Avanex Corporations is in compliance in all material
respects with all material terms and requirements of each grant,
incentive and subsidy identified or required to be identified in
Part 2.14(b) of the Company Disclosure Schedule. Neither
the execution or delivery of this Agreement, nor the
consummation of the Merger or any of the other Contemplated
Transactions, does, will or would reasonably be expected to
(with or without notice or lapse of time) give any Person the
right to revoke, withdraw, suspend, cancel, terminate or modify
any grant, incentive or subsidy identified or required to be
identified in Part 2.14(b) of the Company Disclosure
Schedule.
Annex A-15
2.15 Tax Matters.
(a) Each of the material Tax Returns required to be filed
by or on behalf of the respective Avanex Corporations with any
Governmental Body (the Avanex Corporation
Returns): (i) has been filed on or before the
applicable due date (including any extensions of such due date);
and (ii) has been prepared in all material respects in
compliance with all applicable Legal Requirements. All amounts
shown on the Avanex Corporation Returns to be due have been
timely paid.
(b) The Company Unaudited Balance Sheet accrues all
liabilities for Taxes with respect to all periods through the
date of the Company Unaudited Balance Sheet in accordance with
GAAP, and none of the Avanex Corporations has incurred any
liabilities for Taxes since the date of the Company Unaudited
Balance Sheet other than in the operation of the business of the
Avanex Corporations in the ordinary course.
(c) No Avanex Corporation and no Avanex Corporation Return
is currently under (or since January 1, 2007 has been
under) audit by any Governmental Body. No extension or waiver of
the limitation period applicable to any material Avanex
Corporation Returns has been granted (by the Company or any
other Person), and no such extension or waiver has been
requested from any Avanex Corporation.
(d) No claim or Legal Proceeding is pending or, to the
Knowledge of the Company, has been threatened against or with
respect to any Avanex Corporation in respect of any material
Tax. There are no unsatisfied liabilities for material Taxes
with respect to any notice of deficiency or similar document
received by any Avanex Corporation with respect to any material
Tax (other than liabilities for Taxes asserted under any such
notice of deficiency or similar document which are being
contested in good faith by the Avanex Corporations and with
respect to which reserves for payment have been established on
the Company Unaudited Balance Sheet in accordance with GAAP).
There are no liens for material Taxes upon any of the assets of
any of the Avanex Corporations except liens for current Taxes
not yet due and payable or being contested in good faith by
appropriate proceedings and for which reserves have been
established in accordance with GAAP. None of the Avanex
Corporations has been, and none of the Avanex Corporations will
be, required to include any adjustment in taxable income for any
tax period (or portion thereof) pursuant to Section 481 or
263A of the Code (or any comparable provision of state or
foreign Tax laws) as a result of transactions or events
occurring, or accounting methods employed, prior to the Closing.
(e) No claim which has resulted or could reasonably be
expected to result in an obligation to pay material Taxes has
ever been made by any Governmental Body in a jurisdiction where
an Avanex Corporation does not file a Tax Return that it is or
may be subject to taxation by that jurisdiction.
(f) There are no Contracts relating to allocating or
sharing of Taxes to which any Avanex Corporation is a party.
None of the Avanex Corporations is liable for Taxes of any other
Person (other than another Avanex Corporation), or is currently
under any contractual obligation to indemnify any Person with
respect to any amounts of such Persons Taxes (except for
customary agreements not primarily related to Taxes) or is a
party to any Contract providing for payments by an Avanex
Corporation with respect to any amount of Taxes of any other
Person.
(g) No Avanex Corporation has constituted either a
distributing corporation or a controlled
corporation within the meaning of
Section 355(a)(1)(A) of the Code. No Avanex Corporation is
or has been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code.
(h) No Avanex Corporation has been a member of an
affiliated group of corporations within the meaning of
Section 1504 of the Code or within the meaning of any
similar Legal Requirement to which an Avanex Corporation may be
subject, other than the affiliated group of which the Company is
the common parent.
(i) The Company has delivered or Made Available to Parent
accurate and complete copies of all federal and California
income Tax Returns of the Avanex Corporations for all Tax years
that remain open or are otherwise subject to audit (other than
years that remain open solely because of the carry forward of
net operating losses or other Tax attributes), and all other
material Tax Returns of the Avanex Corporations filed since
December 31, 2004.
Annex A-16
(j) The Company has disclosed on its federal income Tax
Returns all positions that could give rise to a material
understatement penalty within the meaning of Section 6662
of the Code or any similar Legal Requirement.
(k) No Avanex Corporation has participated in, or is
currently participating in, a Listed Transaction or
a Reportable Transaction within the meaning of
Treasury
Regulation Section 1.6011-4(b)(2)
or similar transaction under any corresponding or similar Legal
Requirement.
2.16 Employee and Labor Matters; Benefit Plans.
(a) Except as set forth in Part 2.16(a) of the Company
Disclosure Schedule or as required by applicable Legal
Requirements, the employment of each of the Avanex
Corporations employees is terminable by the applicable
Avanex Corporation at will.
(b) Except as set forth in Part 2.16(b) of the Company
Disclosure Schedule, none of the Avanex Corporations is a party
to, or has a duty to bargain for, any collective bargaining
agreement or other Contract with a labor organization or works
council representing any of its employees and there are no labor
organizations or works councils representing, purporting to
represent or, to the Knowledge of the Company, seeking to
represent any employees of any of the Avanex Corporations. Since
January 1, 2007, there has not been any strike, slowdown,
work stoppage, lockout, job action, picketing, labor dispute,
question concerning representation, union organizing activity,
or any threat thereof, or any similar activity or dispute,
affecting any of the Avanex Corporations or any of their
employees. There is not now pending, and no Person has
threatened to commence, any such strike, slowdown, work
stoppage, lockout, job action, picketing, labor dispute,
question regarding representation or union organizing activity
or any similar activity or dispute. There is no claim or
grievance pending or, to the Knowledge of the Company,
threatened relating to any employment Contract, wages and hours,
leave of absence, plant closing notification, employment statute
or regulation, privacy right, labor dispute, workers
compensation policy or long-term disability policy, safety,
retaliation, immigration or discrimination matters involving any
Company Associate, including charges of unfair labor practices
or harassment complaints.
(c) The Company has delivered or Made Available to Parent
an accurate and complete list, by country and as of the date
hereof, of each Company Employee Plan and each Company Employee
Agreement. None of the Avanex Corporations intends, and none of
the Avanex Corporations has committed, to establish or enter
into any new Company Employee Plan or Company Employee
Agreement, or to modify any Company Employee Plan or Company
Employee Agreement (except to conform any such Company Employee
Plan or Company Employee Agreement to the requirements of any
applicable Legal Requirements, in each case as previously
disclosed to Parent in writing or as required by this Agreement).
(d) The Company has delivered or Made Available to Parent
accurate and complete copies of: (i) all documents setting
forth the terms of each Company Employee Plan and each Company
Employee Agreement, including all amendments thereto and all
related trust documents; (ii) the three most recent annual
reports (Form Series 5500 and all schedules and
financial statements attached thereto), if any, required under
applicable Legal Requirements in connection with each Company
Employee Plan; (iii) if the Company Employee Plan is
subject to the minimum funding standards of Section 302 of
ERISA, the most recent annual and periodic accounting of Company
Employee Plan assets, if any; (iv) the most recent summary
plan description together with the summaries of material
modifications thereto, if any, required under ERISA or any
similar Legal Requirement with respect to each Company Employee
Plan; (v) all material written Contracts relating to each
Company Employee Plan, including administrative service
agreements and group insurance contracts; (vi) all
discrimination tests required under the Code for each Company
Employee Plan intended to be qualified under Section 401(a)
of the Code for the three most recent plan years; and
(vii) the most recent IRS determination or opinion letter
issued with respect to each Company Employee Plan intended to be
qualified under Section 401(a) of the Code.
(e) Each of the Avanex Corporations and Company Affiliates
has performed in all material respects all obligations required
to be performed by it under each Company Employee Plan, and each
Company Employee Plan has been established and maintained in all
material respects in accordance with its terms. Any Company
Annex A-17
Employee Plan intended to be qualified under Section 401(a)
of the Code has obtained a favorable determination letter (or
opinion letter, if applicable) as to its qualified status under
the Code. All Company Pension Plans required to have been
approved by any foreign Governmental Body have been so approved,
no such approval has been revoked (or, to the Knowledge of the
Company, has revocation been threatened) and no event has
occurred to the Knowledge of the Company since the date of the
most recent approval or application therefor relating to any
such Company Pension Plan that would reasonably be expected to
materially affect any such approval relating thereto or
materially increase the costs relating thereto. Each Company
Employee Plan intended to be tax qualified under applicable
Legal Requirements is so tax qualified, and no event has
occurred and no circumstance or condition exists that could
reasonably be expected to result in the disqualification of any
such Company Employee Plan. No prohibited
transaction, within the meaning of Section 4975 of
the Code or Sections 406 and 407 of ERISA, and not
otherwise exempt under Section 408 of ERISA, has occurred
with respect to any Company Employee Plan. Each Company Employee
Plan (other than any Company Employee Plan to be terminated
prior to the Effective Time in accordance with this Agreement)
can be amended, terminated or otherwise discontinued after the
Closing in accordance with its terms, without liability to
Parent, any of the Avanex Corporations or any Company Affiliate
(other than any liability for ordinary administration expenses).
There are no audits or inquiries pending or, to the Knowledge of
the Company, threatened by the IRS, the DOL or any other
Governmental Body with respect to any Company Employee Plan.
None of the Avanex Corporations, and no Company Affiliate, has
ever incurred: (i) any material penalty or tax with respect
to any Company Employee Plan under Section 502(i) of ERISA
or Sections 4975 through 4980 of the Code; or (ii) any
material penalty or Tax under applicable Legal Requirements.
Each of the Avanex Corporations and Company Affiliates has made
all contributions and other payments required by and due under
the terms of each Company Employee Plan. Neither the terms nor
the performance of any Company Employee Agreement or Company
Employee Plan could reasonably be expected to result in gross
income inclusion after the Effective Time pursuant to
Section 409A(a)(1)(A) of the Code.
(f) None of the Avanex Corporations, and no Company
Affiliate, has ever maintained, established, sponsored,
participated in or contributed to any: (i) Company Pension
Plan subject to Title IV of ERISA;
(ii) multiemployer plan within the meaning of
Section (3)(37) of ERISA; or (iii) plan described in
Section 413 of the Code. No Company Employee Plan is or has
been funded by, associated with or related to a voluntary
employees beneficiary association within the meaning
of Section 501(c)(9) of the Code. None of the Avanex
Corporations, and no Company Affiliate, has ever maintained,
established, sponsored, participated in or contributed to any
Company Pension Plan in which stock of any of the Avanex
Corporations or any Company Affiliate is or was held as a plan
asset. The fair market value of the assets of each funded
Company Foreign Plan, the liability of each insurer for any
Company Foreign Plan funded through insurance, or the book
reserve established for any Company Foreign Plan, together with
any accrued contributions, is sufficient to procure or provide
in full for the accrued benefit obligations, with respect to all
current and former participants in such Company Foreign Plan
according to the reasonable actuarial assumptions and valuations
most recently used to determine employer contributions to and
obligations under such Company Foreign Plan, and no Contemplated
Transaction will cause any such assets or insurance obligations
to be less than such benefit obligations. There are no
liabilities of the Avanex Corporations with respect to any
Company Employee Plan that are not properly accrued and
reflected in the financial statements of the Company in
accordance with GAAP.
(g) None of the Avanex Corporations, and no Company
Affiliate, maintains, sponsors or contributes to any Company
Employee Plan that is an employee welfare benefit plan (as such
term is defined in Section 3(1) of ERISA) and that is, in
whole or in part, self-funded or self-insured. No Company
Employee Plan provides (except at no cost to the Avanex
Corporations or any Company Affiliate), or reflects or
represents any liability of any of the Avanex Corporations or
any Company Affiliate to provide, post-termination or retiree
life insurance, post-termination or retiree health benefits or
other post-termination or retiree employee welfare benefits to
any Person for any reason, except as may be required by COBRA or
other applicable Legal Requirements. Other than commitments made
that involve no future costs to any of the Avanex Corporations
or any Company Affiliate, none of the Avanex Corporations nor
any Company Affiliate has ever represented, promised or
contracted (whether in oral or written form) to any Company
Associate (either individually or to Company Associates as a
group) or any other Person that such Company Associate(s) or
other Person would
Annex A-18
be provided with post-termination or retiree life insurance,
post-termination or retiree health benefit or other
post-termination or retiree employee welfare benefits, except to
the extent required by applicable Legal Requirements.
(h) Except as set forth in Part 2.16(h) of the Company
Disclosure Schedule, and except as expressly required or
provided by this Agreement, neither the execution of this
Agreement nor the consummation of the Contemplated Transactions
will or could reasonably be expected to (either alone or upon
the occurrence of termination of employment) constitute an event
under any Company Employee Plan, Company Employee Agreement,
trust or loan that will or may result (either alone or in
connection with any other circumstance or event) in any payment
(whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any
Company Associate.
(i) Except as set forth in Part 2.16(i) of the Company
Disclosure Schedule, each of the Avanex Corporations and Company
Affiliates: (i) is, and at all times has been, in
compliance in all material respects with any Order or
arbitration award of any court, arbitrator or any Governmental
Body respecting employment, employment practices, terms and
conditions of employment, wages, hours or other labor related
matters; (ii) has withheld and reported all amounts
required by applicable Legal Requirements or by Contract to be
withheld and reported with respect to wages, salaries and other
payments to Company Associates; (iii) is not liable for any
arrears of wages or any taxes or any interest or penalty for
failure to comply with the Legal Requirements applicable of the
foregoing; and (iv) is not liable for any payment to any
trust or other fund governed by or maintained by or on behalf of
any Governmental Body with respect to unemployment compensation
benefits, social security, social charges or other benefits or
obligations for Company Associates (other than routine payments
to be made in the normal course of business and consistent with
past practice).
(j) There is no agreement, plan, arrangement or other
Contract covering any Company Associate, and no payments have
been made or will be made to any Company Associate, that,
considered individually or considered collectively with any
other such Contracts or payments, will, or could reasonably be
expected to, be characterized as a parachute payment
within the meaning of Section 280G(b)(2) of the Code or
give rise directly or indirectly to the payment of any amount
that would not be deductible pursuant to Section 162(m) of
the Code (or any comparable provision under state or foreign Tax
laws). No Avanex Corporation is a party to or has any obligation
under any Contract to compensate any Person for excise taxes
payable pursuant to Section 4999 of the Code or for
additional taxes payable pursuant to Section 409A of the
Code.
(k) Since July 1, 2007, none of the Avanex
Corporations has effectuated a plant closing,
partial plant closing, relocation,
mass layoff or termination (as defined
in the Worker Adjustment and Retraining Notification Act (the
WARN Act) or any similar Legal Requirement)
affecting any site of employment or one or more facilities or
operating units within any site of employment or facility of any
of the Avanex Corporations.
2.17 Environmental Matters.
(a) Since January 1, 2007, none of the Avanex
Corporations has received any written notice (or, to the
Knowledge of the Company, any other communication, whether
written or otherwise), whether from a Governmental Body,
citizens group, Company Associate or otherwise, that alleges
that any of the Avanex Corporations is not or might not be in
compliance in any material respect with any Environmental Law
(as defined in Section 2.17(e)), which non-compliance has
not been cured or for which there is any remaining material
liability.
(b) To the Knowledge of the Company: (i) all Avanex
Leased Real Property and any other property that is or was
leased to or controlled or used by any of the Avanex
Corporations, and all surface water, groundwater and soil
associated with or adjacent to such property, is free of any
Materials of Environmental Concern (as defined in
Section 2.17(e)) or material environmental contamination
except as would not reasonably be expected to require any
corrective action or other remedial obligations under
Environmental Laws; (ii) none of the Avanex Leased Real
Property or any other property that is or was leased to or
controlled or used by any of the Avanex Corporations contains
any underground storage tanks, asbestos, equipment using
Annex A-19
PCBs or underground injection wells; and (iii) none of the
Avanex Leased Real Property or any other property that is or was
leased to or controlled or used by any of the Avanex
Corporations contains any septic tanks in which process
wastewater or any Materials of Environmental Concern have been
Released (as defined in Section 2.17(e)).
(c) To the Knowledge of the Company, no Avanex Corporation
has ever sent or transported, or arranged to send or transport,
any Materials of Environmental Concern to a site that, pursuant
to any applicable Environmental Law: (i) has been placed on
the National Priorities List of hazardous waste
sites or any similar state list; (ii) is otherwise
designated or identified as a potential site for remediation,
cleanup, closure or other environmental remedial activity; or
(iii) is subject to a Legal Requirement to take
removal or remedial action as detailed
in any applicable Environmental Law or to make payment for the
cost of cleaning up any site.
(d) None of the Avanex Corporations has entered into any
Company Contract that may require any of them to guarantee,
reimburse, defend, hold harmless or indemnify any other party
with respect to liabilities arising out of Environmental Laws,
or the activities of the Avanex Corporations or any other Person
relating to Materials of Environmental Concern.
(e) For purposes of this Agreement:
(i) Environmental Law means any federal,
state, local or foreign Legal Requirement relating to pollution,
worker safety, exposure of any individual to Materials of
Environmental Concern or protection of human health or the
environment (including ambient air, surface water, ground water,
land surface or subsurface strata), including any Legal
Requirement relating to emissions, discharges, releases or
threatened releases of Materials of Environmental Concern, or
otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern, including any
required labeling, payment of waste fees or charges (including
so-called
e-waste
fees) and compliance with any product take-back or product
content requirements such as European Directive 2002/96/EC on
waste electrical and electronic equipment or European Directive
2002/95/EC on the restriction of the use of certain hazardous
substances in electrical and electronic equipment and other
similar Legal Requirements; (ii) Materials of
Environmental Concern include chemicals, pollutants,
contaminants, wastes, toxic substances, petroleum and petroleum
products and any other substance that is now or hereafter
regulated by any Environmental Law or that is otherwise a danger
to health, reproduction or the environment; and
(iii) Release means any spilling,
leaking, emitting, discharging, depositing, escaping, leaching,
dumping or other releasing into the environment, whether
intentional or unintentional.
2.18 Insurance. Each
material insurance policy and self-insurance program and
arrangement relating to the business, assets and operations of
the Avanex Corporations is in full force and effect. Since
January 1, 2007, none of the Avanex Corporations has
received any written notice (or, to the Knowledge of the
Company, any other communication, whether written or otherwise)
regarding any actual or possible: (a) cancellation or
invalidation of any material insurance policy; (b) refusal
of any coverage or rejection of any material claim under any
material insurance policy; or (c) material adjustment in
the amount of the premiums payable with respect to any material
insurance policy. There is no pending workers compensation
or other claim under or based upon any material insurance policy
of any of the Avanex Corporations involving an amount in excess
of $100,000 in any individual case or $500,000 in the aggregate.
2.19 Transactions with
Affiliates. Except as set forth in the
Company SEC Documents filed prior to the date of this Agreement,
during the period commencing on the date of the Companys
last proxy statement filed with the SEC through the date of this
Agreement, no event has occurred that would be required to be
reported by the Company pursuant to Item 404 of
Regulation S-K
promulgated by the SEC.
2.20 Legal Proceedings; Orders.
(a) Except as set forth in Part 2.20(a) of the Company
Disclosure Schedule, there is no pending Legal Proceeding, and
(to the Knowledge of the Company) no Person has threatened to
commence any material Legal Proceeding: (i) that involves
any of the Avanex Corporations, or any business of any of the
Avanex Corporations, any of the assets owned, leased or used by
any of the Avanex Corporations; or (ii) that
Annex A-20
challenges, or that may have the effect of preventing, delaying,
making illegal or otherwise interfering with, the Merger or any
of the other Contemplated Transactions.
(b) There is no Order to which any of the Avanex
Corporations, or any of the assets owned or used by any of the
Avanex Corporations, is subject. To the Knowledge of the
Company, no officer or other key employee of any of the Avanex
Corporations is subject to any Order that prohibits such officer
or other employee from engaging in or continuing any conduct,
activity or practice relating to the business of any of the
Avanex Corporations.
2.21 Authority; Binding Nature of
Agreement. The Company has the corporate
right, power and authority to enter into and, subject to
obtaining the Required Company Stockholder Vote (as defined in
Section 2.23), to perform its obligations under this
Agreement. The Company Board (at a meeting duly called and held)
has: (a) unanimously determined that the Merger is
advisable and fair to, and in the best interests of, the Company
and its stockholders; (b) unanimously authorized and
approved the execution, delivery and performance of this
Agreement by the Company and unanimously approved the Merger;
(c) unanimously recommended the adoption of this Agreement
by the holders of Company Common Stock and directed that this
Agreement and the Merger be submitted for consideration by the
Companys stockholders at the Company Stockholders
Meeting (as defined in Section 5.2); and
(d) unanimously authorized and approved the execution and
delivery of the Rights Agreement Amendment (as defined in
Section 2.27). Assuming the due authorization, execution
and delivery of this Agreement by Parent and Merger Sub, this
Agreement constitutes the legal, valid and binding obligation of
the Company, enforceable against the Company in accordance with
its terms, subject to: (i) laws of general application
relating to bankruptcy, insolvency, the relief of debtors and
creditors rights generally; and (ii) rules of law
governing specific performance, injunctive relief and other
equitable remedies.
2.22 Inapplicability of
Section 203 of the DGCL and other Anti-takeover
Statutes. The Company Board has taken all
actions necessary to ensure that the restrictions applicable to
business combinations contained in Section 203 of the DGCL
are not, and will not be, applicable to the execution, delivery
or performance of this Agreement, the Company Stockholder Voting
Agreements or the Rights Agreement Amendment or to the
consummation of the Merger or any of the other Contemplated
Transactions. To the Knowledge of the Company, except for
Section 203 of the DGCL, no state takeover statute or
similar Legal Requirement applies or purports to apply to the
Merger, the Rights Agreement Amendment, this Agreement or any of
the Contemplated Transactions.
2.23 Vote
Required. The affirmative vote of the holders
of a majority of the voting power of the shares of Company
Common Stock outstanding on the record date for the Company
Stockholders Meeting (the
Required Company
Stockholder Vote) is the only vote of the holders of
any class or series of the Companys capital stock
necessary to adopt this Agreement.
2.24 Non-Contravention;
Consents. Assuming compliance with the
applicable provisions of the DGCL, the HSR Act, if applicable,
any foreign antitrust Legal Requirements and the listing
requirements of the NASDAQ Global Market, except as set forth in
Part 2.24 of the Company Disclosure Schedule, neither
(1) the execution and delivery of this Agreement by the
Company, nor (2) the consummation of the Merger or any of
the other Contemplated Transactions, would reasonably be
expected to, directly or indirectly (with or without notice or
lapse of time):
(a) contravene, conflict with or result in a violation of:
(i) any of the provisions of the certificate of
incorporation, bylaws or other charter or organizational
documents of any of the Avanex Corporations; or (ii) any
resolution adopted by the stockholders, the board of directors
or any committee of the board of directors of any of the Avanex
Corporations;
(b) contravene, conflict with or result in a violation of,
any Legal Requirement or any Order to which any of the Avanex
Corporations, or any of the assets owned or used by any of the
Avanex Corporations, is subject;
(c) contravene, conflict with or result in a violation of
any of the terms or requirements of, or give any Governmental
Body the right to revoke, withdraw, suspend, cancel, terminate
or modify, any
Annex A-21
Governmental Authorization that is held by any of the Avanex
Corporations or that otherwise relates to the business of any of
the Avanex Corporations or to any of the assets owned or used by
any of the Avanex Corporations;
(d) contravene, conflict with or result in a violation or
breach of, or result in a default under, any provision of any
Company Material Contract, or give any Person the right to:
(i) declare a default or exercise any remedy under any such
Company Material Contract; (ii) a rebate, chargeback,
penalty or change in delivery schedule under any such Company
Material Contract; (iii) accelerate the maturity or
performance of any such Company Material Contract; or
(iv) cancel, terminate or modify any right, benefit,
obligation or other term of such Company Material Contract;
(e) result in the imposition or creation of any Encumbrance
upon or with respect to any tangible asset owned or used by any
of the Avanex Corporations (except for minor liens that will
not, in any case or in the aggregate, materially detract from
the value of the assets subject thereto or materially impair the
operations of any of the Avanex Corporations); or
(f) result in the disclosure or delivery to any
escrowholder or other Person of any Company IP (including
Company Source Code), or the transfer of any material asset of
any of the Avanex Corporations to any Person.
Except as may be required by the Exchange Act, the DGCL, the HSR
Act, any foreign antitrust Legal Requirement and the listing
requirements of the NASDAQ Global Market (as they relate to the
Joint Proxy Statement/Prospectus), none of the Avanex
Corporations was, is or will be required to make any filing with
or give any notice to, or to obtain any Consent from, any Person
in connection with: (x) the execution, delivery or
performance of this Agreement; or (y) the consummation of
the Merger or any of the other Contemplated Transactions.
2.25 Opinion of Financial
Advisor. The Company Board has received the
opinion of Banc of America Securities LLC
(Banc of
America Securities), financial advisor to the Company,
dated January 27, 2009, to the effect that, as of such
date, the Exchange Ratio is fair, from a financial point of
view, to the holders of the Company Common Stock. The Company
will furnish, for informational purposes only, an accurate and
complete copy of said opinion to Parent after receipt thereof by
the Company.
2.26 Financial
Advisor. Except for Banc of America
Securities, no broker, finder or investment banker is entitled
to any brokerage, finders or other fee or commission in
connection with the Merger or any of the other Contemplated
Transactions based upon arrangements made by or on behalf of any
of the Avanex Corporations. The Company has furnished to Parent
accurate and complete copies of all agreements related to the
engagement of Banc of America Securities under which any Avanex
Corporation has or may have any right or obligation.
2.27 Company Rights
Agreement. The Company has amended the
Company Rights Agreement to provide that (a) neither Parent
nor Merger Sub, nor any affiliate or associate of Parent or
Merger Sub, shall be deemed to be an Acquiring Person (as
defined in the Company Rights Agreement), (b) neither a
Share Acquisition Date (as defined in the Company Rights
Agreement) nor a Distribution Date (as defined in the Company
Rights Agreement) shall be deemed to occur and that the Rights
will not separate from the Company Common Stock as a result of
(i) the execution, delivery or performance of this
Agreement or the Company Stockholder Voting Agreements or
(ii) the consummation of the Merger or any of the other
Contemplated Transactions pursuant to this Agreement, and
(c) that none of the Company, Parent, Merger Sub or the
Surviving Corporation, nor any of their respective affiliates,
shall have any obligations under the Company Rights Agreement to
any holder (or former holder) of Rights as of or following the
Effective Time (such amendment to the Company Rights Agreement
being referred to as the
Rights Agreement
Amendment).
2.28 Disclosure. None
of the information to be supplied by or on behalf of the Company
for inclusion or incorporation by reference in the
Form S-4
Registration Statement will, at the time the
Form S-4
Registration Statement is filed with the SEC or at the time it
becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under
which they are
Annex A-22
made, not misleading. None of the information supplied or to be
supplied by or on behalf of the Company for inclusion or
incorporation by reference in the Joint Proxy
Statement/Prospectus will, at the time the Joint Proxy
Statement/Prospectus is mailed to the stockholders of the
Company or the stockholders of Parent or at the time of the
Company Stockholders Meeting (or any adjournment or
postponement thereof) or the Parent Stockholders Meeting
(or any adjournment or postponement thereof), contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under
which they are made, not misleading. The Joint Proxy
Statement/Prospectus will comply as to form in all material
respects with the provisions of the Exchange Act and the rules
and regulations promulgated by the SEC thereunder. No
representation or warranty is made by the Company with respect
to statements made or incorporated by reference in the
Form S-4
Registration Statement or the Joint Proxy Statement/Prospectus
based on information supplied by any party other than any Avanex
Corporation for inclusion or incorporation by reference in the
Form S-4
Registration Statement or the Joint Proxy Statement/Prospectus.
Section 3. Representations
and Warranties of Parent and Merger Sub
Parent and Merger Sub represent and warrant to the Company as
follows (it being understood that each statement contained in
this Section 3 is subject to: (a) the exceptions and
disclosures set forth in the part or subpart of the Parent
Disclosure Schedule corresponding to the particular Section or
subsection in this Section 3 in which such representation
and warranty appears; and (b) any exception or disclosure
set forth in any other part or subpart of the Parent Disclosure
Schedule to the extent it is reasonably apparent from the
wording of such exception that such exception or disclosure
applies to such representation and warranty):
3.1 Subsidiaries; Due Organization; Etc.
(a) Part 3.1(a) of the Parent Disclosure Schedule
identifies each Subsidiary of the Parent and indicates its
jurisdiction of organization. Neither Parent nor any of the
Entities identified in Part 3.1(a) of the Parent Disclosure
Schedule owns any capital stock of, or any equity interest of
any nature in, any other Entity, other than the Entities
identified in Part 3.1(a) of the Parent Disclosure
Schedule. No Subsidiary of Parent has agreed or is obligated to
make, or is bound by any Contract under which it may become
obligated to make, any future investment in or capital
contribution to any other Entity.
(b) Each of the Bookham Corporations is a corporation duly
organized, validly existing and in good standing (to the extent
that the laws of the jurisdiction of its formation recognize the
concept of good standing) under the laws of the jurisdiction of
its incorporation and has all necessary power and authority:
(i) to conduct its business in the manner in which its
business is currently being conducted; (ii) to own and use
its assets in the manner in which its assets are currently owned
and used; and (iii) to perform its obligations under all
Contracts by which it is bound, except, in the case of
clauses (i) through (iii) of this sentence, as would
not have and would not reasonably be expected to have or result
in a Parent Material Adverse Effect.
(c) Each of the Bookham Corporations (in jurisdictions that
recognize the following concepts) is qualified to do business as
a foreign corporation, and is in good standing, under the laws
of all jurisdictions where the nature of its business requires
such qualification, except for jurisdictions in which the
failure to be so qualified, individually or in the aggregate,
would not have a Parent Material Adverse Effect.
3.2 Certificate of Incorporation and
Bylaws. Parent has Made Available to the
Company accurate and complete copies of: (a) the
certificate of incorporation and bylaws of Parent, including all
amendments thereto; and (b) the memorandum of association
and articles of association or equivalent governing documents of
each Significant Subsidiary of any of the Bookham Corporations.
Parent has delivered or Made Available to the Company accurate
and complete copies of: (i) the charters of all committees
of the Parent Board; and (ii) any code of conduct,
investment policy, whistleblower policy, disclosure committee
policy or similar policy adopted by any of the Bookham
Corporations or by the board of directors, or any committee of
the board of directors, of any of the Bookham Corporations.
Annex A-23
3.3 Capitalization, Etc.
(a) As of the date of this Agreement, the authorized
capital stock of Parent consists of:
(i) 175,000,000 shares of Parent Common Stock, of
which 100,867,920 shares have been issued and are
outstanding; and (ii) 5,000,000 shares of Parent
Preferred Stock, of which no shares have been issued or are
outstanding. Parent does not hold any shares of its capital
stock in its treasury as of the date of this Agreement. All of
the outstanding shares of Parent Common Stock have been duly
authorized and validly issued, and are fully paid and
nonassessable. None of the Bookham Corporations (other than
Parent) holds any shares of Parent Common Stock or any rights to
acquire shares of Parent Common Stock.
(b) Except as set forth in Part 3.3(b) of the Parent
Disclosure Schedule and except for 508,237 restricted shares of
Parent Common Stock (that are subject to vesting and right of
repurchase in favor of Parent under certain circumstances):
(i) none of the outstanding shares of Parent Common Stock
is entitled or subject to any preemptive right, right of
repurchase or forfeiture, right of participation, right of
maintenance or any similar right; (ii) none of the
outstanding shares of Parent Common Stock is subject to any
right of first refusal in favor of Parent; and (iii) there
is no Parent Contract relating to the voting or registration of,
or restricting any Person from purchasing, selling, pledging or
otherwise disposing of (or from granting any option or similar
right with respect to), any shares of Parent Common Stock. None
of the Bookham Corporations is under any obligation, or is bound
by any Contract pursuant to which it may become obligated, to
repurchase, redeem or otherwise acquire any outstanding shares
of Parent Common Stock or other securities, except for
Parents right to repurchase or reacquire restricted shares
of Parent Common Stock held by an employee of Parent upon
termination of such employees employment.
(c) As of the date of this Agreement:
(i) 8,673,676 shares of Parent Common Stock are
subject to issuance pursuant to Parent Options;
(ii) 500,000 shares of Parent Common Stock are
reserved for future issuance pursuant to the 2004 Stock Purchase
Plan (the Parent ESPP);
(iii) 35,000 shares of Parent Common Stock are
reserved for future issuance pursuant to Parent RSUs; and
(iv) 7,910,477 shares of Parent Common Stock are
reserved for future issuance pursuant to equity awards not yet
granted under the Parent Option Plans.
(d) Parent has made available to the Company a complete and
accurate list that sets forth with respect to each Parent Equity
Award outstanding as of the date of this Agreement the following
information: (i) the particular plan (if any) pursuant to
which such Parent Equity Award was granted; (ii) the name
of the holder of such Parent Equity Award; (iii) the number
of shares of Parent Common Stock subject to such Parent Equity
Award; (iv) the per share exercise price (if any) of such
Parent Equity Award; (v) the applicable vesting schedule,
and the extent to which such Parent Equity Award is vested and
exercisable, if applicable; (vi) the date on which such
Parent Equity Award was granted; (vii) the date on which
such Parent Equity Award expires; (viii) if such Parent
Equity Award is a Parent Option, whether such Parent Option is
an incentive stock option (as defined in the Code)
or a non-qualified stock option; and (ix) if such Parent
Equity Award is in the form of Parent RSU, the dates on which
shares of Parent Common Stock are scheduled to be delivered, if
different from the applicable vesting schedule. Parent has Made
Available to the Company accurate and complete copies of all
equity plans pursuant to which any outstanding Parent Equity
Awards were granted by Parent, and the forms of all Parent
Equity Award agreements evidencing such Parent Equity Awards.
The exercise price of each Parent Option is not less than the
fair market value of a share of Parent Common Stock as
determined on the date of grant of such Parent Option pursuant
to the equity plan pursuant to which such Parent Option was
granted. All grants of Parent Equity Awards were recorded on
Parents financial statements (including, any related notes
thereto) contained in the Parent SEC Documents (as defined in
Section 3.4(a)) in accordance with GAAP and, to the
Knowledge of Parent, no such grants involved any back
dating or similar practices with respect to the effective
date of grant (whether intentionally or otherwise). There are no
outstanding or authorized stock appreciation, phantom stock,
profit participation or similar rights or equity-based awards
with respect to any of the Bookham Corporations.
(e) Part 3.3(e) of the Parent Disclosure Schedule
accurately sets forth, with respect to each Parent Warrant that
is outstanding as of the date of this Agreement: (i) the
name of the holder of such Parent Warrant; (ii) the total
number of shares of Parent Common Stock that are subject to such
Parent Warrant;
Annex A-24
(iii) the date on which such Parent Warrant was issued and
the term of such Parent Warrant; (iv) the vesting schedule
for such Parent Warrant; and (v) the exercise price per
share of Parent Common Stock purchasable under such Parent
Warrant. The Parent has Made Available to Parent accurate and
complete copies of each Contract pursuant to which any Parent
Warrant is outstanding.
(f) Except as set forth in Sections 3.3(a), 3.3(c),
3.3(e) and 3.3(g) or in Part 3.3(f) of the Parent
Disclosure Schedule, as of the date of this Agreement, there is
no: (i) outstanding subscription, option, call, warrant or
right (whether or not currently exercisable) to acquire any
shares of the capital stock or other securities of any of the
Bookham Corporations; (ii) outstanding security, instrument
or obligation that is or may become convertible into or
exchangeable for any shares of the capital stock or other
securities of any of the Bookham Corporations; or
(iii) stockholder rights plan (or similar plan commonly
referred to as a poison pill) or Contract under
which any of the Bookham Corporations is or may become obligated
to sell or otherwise issue any shares of its capital stock or
any other securities.
(g) All outstanding shares of Parent Common Stock, and all
options and other securities of the Bookham Corporations, have
been issued and granted in compliance in all material respects
with: (i) all applicable securities laws and other
applicable Legal Requirements; and (ii) all requirements
set forth in applicable Contracts.
(h) All of the outstanding shares of capital stock of each
of the Parents Subsidiaries have been duly authorized and
validly issued, are fully paid and nonassessable and free of
preemptive rights, and are owned beneficially and of record by
the Parent, (except with respect to those Parent Subsidiaries
organized under the laws of foreign jurisdictions where shares
of capital stock are required under applicable Legal
Requirements to be held by one or more directors, employees or
agents of such Subsidiary, in each case as disclosed in
Part 3.3(h) of the Parent Disclosure Schedule), free and
clear of any Encumbrances (other than restrictions on transfer
imposed by applicable securities laws).
3.4 SEC Filings; Financial Statements.
(a) Parent has delivered or Made Available (or made
available on the SEC website) to the Company accurate and
complete copies of all registration statements, proxy
statements, Parent Certifications (as defined below) and other
statements, reports, schedules, forms and other documents filed
by Parent with the SEC since July 1, 2006, including all
amendments thereto (collectively, the Parent SEC
Documents). All statements, reports, schedules, forms
and other documents required to have been filed by Parent or its
officers with the SEC have been so filed on a timely basis. None
of Parents Subsidiaries is required to file any documents
with the SEC. As of the time it was filed with the SEC (or, if
amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing): (i) each of
the Parent SEC Documents complied as to form in all material
respects with the applicable requirements of the Securities Act
or the Exchange Act (as the case may be); and (ii) none of
the Parent SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were
made, not misleading, except to the extent corrected:
(A) in the case of Parent SEC Documents filed or furnished
on or prior to the date of this Agreement that were amended or
superseded on or prior to the date of this Agreement, by the
filing or furnishing of the applicable amending or superseding
Parent SEC Document; and (B) in the case of Parent SEC
Documents filed or furnished after the date of this Agreement
that are amended or superseded prior to the Effective Time, by
the filing or furnishing of the applicable amending or
superseding Parent SEC Document. The certifications and
statements relating to the Parent SEC Documents required by:
(A) Rule 13a-14
or
Rule 15d-14
under the Exchange Act; (B) 18 U.S.C. §1350
(Section 906 of the Sarbanes-Oxley Act); or (C) any
other rule or regulation promulgated by the SEC or applicable to
the Parent SEC Documents (collectively, the Parent
Certifications) are accurate and complete, and comply
as to form and content with all applicable Legal Requirements.
As used in Sections 3.4, the term file
and variations thereof shall be broadly construed to include any
manner in which a document or information is filed, furnished,
submitted, supplied or otherwise made available to the SEC or
any member of its staff.
(b) Parent maintains disclosure controls and procedures
required by
Rule 13a-15
or 15d-15
under the Exchange Act. Such disclosure controls and procedures
are designed to ensure that all material information
Annex A-25
concerning the Bookham Corporations required to be disclosed by
Parent in the reports that it is required to file, submit or
furnish under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
SECs rules and forms. Parent has delivered or Made
Available to the Company accurate and complete copies of all
written descriptions of, and all policies, manuals and other
documents promulgating, such disclosure controls and procedures.
As of the date of this Agreement, Parent is in compliance in all
material respects with the applicable listing requirements of
the NASDAQ Global Market, and has not since January 1, 2007
received any written (or, to the Knowledge of Parent, written or
verbal) notice asserting any non-compliance with the listing
requirements of the NASDAQ Global Market.
(c) The financial statements (including any related notes)
contained or incorporated by reference in the Parent SEC
Documents: (i) complied as to form in all material respects
with the published rules and regulations of the SEC applicable
thereto; (ii) were prepared in accordance with GAAP applied
on a consistent basis throughout the periods covered (except as
may be indicated in the notes to such financial statements or,
in the case of unaudited financial statements, as permitted by
Form 10-Q,
Form 8-K
or any successor form under the Exchange Act, and except that
the unaudited financial statements may not contain footnotes and
are subject to normal and recurring year-end adjustments); and
(iii) fairly present the consolidated financial position of
Parent and its consolidated Subsidiaries as of the respective
dates thereof and the consolidated results of operations and
cash flows of Parent and its consolidated Subsidiaries for the
periods covered thereby. No financial statements of any Person
other than the Bookham Corporations are required by GAAP to be
included in the consolidated financial statements of Parent
contained or incorporated by reference in Parent SEC Documents.
(d) Parents auditor has at all times since the date
of enactment of the Sarbanes-Oxley Act been, to the Knowledge of
Parent: (i) a registered public accounting firm (as defined
in Section 2(a)(12) of the Sarbanes-Oxley Act);
(ii) independent with respect to Parent within
the meaning of
Regulation S-X
under the Exchange Act; and (iii) in compliance with
subsections (g) through (l) of Section 10A of the
Exchange Act and the rules and regulations promulgated by the
SEC and the Public Company Accounting Oversight Board
thereunder. To the Knowledge of Parent, all non-audit services
performed by Parents auditors for the Bookham Corporations
that were required to be approved in accordance with
Section 202 of the Sarbanes-Oxley Act were so approved.
(e) Parent maintains a system of internal controls over
financial reporting (as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) which is designed to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in
accordance with GAAP, and includes those policies and procedures
that: (i) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the transactions
and dispositions of the assets of the Bookham Corporations;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in conformity with GAAP and that receipts and
expenditures are being made only in accordance with
authorizations of management and directors of Parent; and
(iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition
of the assets of the Bookham Corporations that could have a
material effect on the financial statements. Parent has
delivered or Made Available to the Company accurate and complete
copies of all written descriptions of, and all policies, manuals
and other documents promulgating, such internal accounting
controls. Parents management has completed an assessment
of the effectiveness of Parents system of internal
controls over financial reporting in compliance with the
requirements of Section 404 of the Sarbanes-Oxley Act for
the fiscal year ended June 28, 2008, and, except as set
forth in Part 3.4(e) of Parent Disclosure Schedule, such
assessment concluded that such controls were effective and
Parents independent registered accountant has issued (and
not subsequently withdrawn or qualified) an attestation report
concluding that Parent maintained effective internal control
over financial reporting as of June 28, 2008. To the
Knowledge of Parent, except as set forth in Part 3.4(e) of
Parent Disclosure Schedule, since June 28, 2008, neither
Parent nor any of its Subsidiaries nor Parents independent
registered accountant has identified or been made aware of:
(A) any significant deficiency or material weakness in the
design or operation of internal control over financial reporting
utilized by the Bookham Corporations; (B) any illegal act
or fraud, whether or not material, that involves Parents
management or other employees; or (C) any claim or
allegation regarding any of the foregoing.
Annex A-26
(f) Part 3.4(f) of the Parent Disclosure Schedule
lists, and Parent has delivered or Made Available to the Company
accurate and complete copies of the documentation creating or
governing, all securitization transactions and off-balance
sheet arrangements (as defined in Item 303(c) of
Regulation S-K
under the Exchange Act) currently in effect or effected by any
of the Bookham Corporations since July 1, 2006. None of the
Bookham Corporations has any obligation or other commitment to
become a party to any such off-balance sheet
arrangements in the future.
3.5 Absence of
Changes. Except as set forth in Part 3.5
of the Parent Disclosure Schedule, between September 30,
2008 and the date of this Agreement:
(a) there has not been any Parent Material Adverse Effect,
and no event has occurred or circumstance has arisen that, in
combination with any other events or circumstances, would
reasonably be expected to have or result in a Parent Material
Adverse Effect;
(b) there has not been any material loss, damage or
destruction to, or any material interruption in the use of, any
of the material assets of any of the Bookham Corporations
(whether or not covered by insurance);
(c) none of the Bookham Corporations has:
(i) declared, accrued, set aside or paid any dividend or
made any other distribution in respect of any shares of capital
stock; or (ii) repurchased, redeemed or otherwise
reacquired any shares of capital stock or other securities
(other than repurchase of restricted Parent Common Stock in
connection with termination of employment of the previous holder
of such Parent Common Stock that were made in the ordinary
course of business and consistent with past practices);
(d) none of the Bookham Corporations has sold, issued or
granted, or authorized the issuance of: (i) any capital
stock or other security (except for Parent Common Stock issued
upon the valid exercise of outstanding Parent Options, upon the
vesting of outstanding Parent RSUs and pursuant to the Parent
ESPP and Parent restricted stock awards in the ordinary course
of business); (ii) any option, warrant or right to acquire
any capital stock or any other security (except for Parent
Options and Parent RSUs identified in Part 3.3(e) of the
Parent Disclosure Schedule); or (iii) any instrument
convertible into or exchangeable for any capital stock or other
security;
(e) Parent has not amended or waived any of its rights
under, or permitted the acceleration of vesting under:
(i) any provision of any of Parent Option Plans;
(ii) any provision of any Contract evidencing any
outstanding Parent Option; (iii) any restricted stock unit
agreement; or (iv) any other Contract evidencing or
relating to any equity award (whether payable in cash or stock);
(f) there has been no amendment to the certificate of
incorporation or bylaws of Parent, and none of the Bookham
Corporations has effected or been a party to any merger,
consolidation, share exchange, business combination,
recapitalization, reclassification of shares, stock split,
reverse stock split or similar transaction;
(g) the Bookham Corporations have not made any capital
expenditures that in the aggregate exceed $6,000,000;
(h) none of the Bookham Corporations has written off as
uncollectible, or established any extraordinary reserve with
respect to, any material account receivable or other material
indebtedness;
(i) none of the Bookham Corporations has: (i) lent any
money to any Person (other than extensions of credit to trade
creditors, intercompany indebtedness, short-term advances made
to non-executive officer employees which have subsequently been
repaid and routine travel and business expense advances made to
employees, in each case in the ordinary course of business); or
(ii) incurred or guaranteed any indebtedness for borrowed
money, other than to trade creditors in the ordinary course of
business;
(j) none of the Bookham Corporations has: (i) adopted,
established or entered into any Parent Employee Plan or Parent
Employee Agreement; (ii) caused or permitted any Parent
Employee Plan to be amended in any material respect; or
(iii) materially increased the amount of the wages, salary,
Annex A-27
commissions, fringe benefits or other compensation or
remuneration payable to any of its directors, officers or other
employees;
(k) none of the Bookham Corporations has changed any of its
methods of accounting or accounting practices in any material
respect except as required by concurrent changes in GAAP or SEC
rules and regulations;
(l) none of the Bookham Corporations has made any material
Tax election;
(m) none of the Bookham Corporations has commenced or
settled any material Legal Proceeding;
(n) none of the Bookham Corporations has entered into any
material transaction or taken any other material action outside
the ordinary course of business or inconsistent with past
practices; and
(o) none of the Bookham Corporations has agreed or
committed to take any of the actions referred to in
clauses 3.5(c) through (n) above.
3.6 Title to
Assets. The Bookham Corporations own, and
have good and valid title to, all assets purported to be owned
by them, including: (a) all assets reflected on the Parent
Unaudited Balance Sheet (except for inventory sold or otherwise
disposed of in the ordinary course of business since the date of
the Parent Unaudited Balance Sheet); and (b) all other
assets reflected in the books and records of the Bookham
Corporations as being owned by the Bookham Corporations. All of
said assets are owned by the Bookham Corporations free and clear
of any Encumbrances, except for: (i) any lien for current
taxes not yet due and payable, or being contested in good faith
by appropriate proceeding and for which reserves have been
established in accordance with GAAP; (ii) minor liens that
do not (in any case or in the aggregate) materially detract from
the value of the assets subject thereto or materially impair the
operations of any of the Bookham Corporations; (iii) liens
described in Part 3.6 of the Parent Disclosure Schedule.
The Bookham Corporations are the lessees of, and hold valid
leasehold interests in, all assets purported to have been leased
by them, including: (A) all assets reflected as leased on
the Parent Unaudited Balance Sheet; and (B) all other
assets reflected in the books and records of the Bookham
Corporations as being leased to the Bookham Corporations, and
the Bookham Corporations enjoy undisturbed possession of such
leased assets.
3.7 Loans; Customers.
(a) Part 3.7(a) of the Parent Disclosure Schedule
contains an accurate and complete list as of the date of this
Agreement of all outstanding loans and advances made by any of
the Bookham Corporations to any Parent Associate, other than
routine travel and business expense advances made to directors
or officers or other employees in the ordinary course of
business.
(b) Part 3.7(b) of the Parent Disclosure Schedule
accurately identifies Bookham Corporations top 16
customers in each of the fiscal years ended in June 30,
2007 and June 28, 2008 based on the revenues received by
Bookham Corporations in these years, and provides an accurate
and complete breakdown of the revenues received from each such
customer in each of such fiscal years. Parent has not received
any written notice (or, to the Knowledge of Parent, any other
communication, whether written or otherwise with or to a Person
at the level of Vice President or above, other than ordinary
course negotiations) indicating that any customer or other
Person identified or required to be identified in
Part 3.7(b) of the Parent Disclosure Schedule may cease
dealing with or materially reduce its orders from any of the
Bookham Corporations.
3.8 Equipment; Real Property; Leasehold.
(a) All material items of equipment and other tangible
assets owned by or leased to and necessary for the operation of
the Bookham Corporations are adequate for the uses to which they
are being put, are in good and safe condition and repair
(ordinary wear and tear excepted) and are adequate for the
conduct of the businesses of the Bookham Corporations in the
manner in which such businesses are currently being conducted.
(b) No Bookham Corporation owns any real property.
(c) Part 3.8(c) of the Parent Disclosure Schedule sets
forth an accurate and complete list of each lease pursuant to
which any of the Bookham Corporations leases real property from
any other Person for annual rent
Annex A-28
payments in excess of $200,000. (All real property leased to the
Bookham Corporations pursuant to the real property leases
identified or required to be identified in Part 3.8(c) of
the Parent Disclosure Schedule, including all buildings,
structures, fixtures and other improvements leased to the
Bookham Corporations, is referred to as the Bookham
Leased Real Property.) To the Knowledge of
Parent, there is no existing plan or study by any Governmental
Authority or by any other Person that challenges or otherwise
adversely affects the continuation of the use or operation of
any Bookham Leased Real Property. Part 3.8(c) of the Parent
Disclosure Schedule contains an accurate and complete list of
all subleases, occupancy agreements and other Parent Contracts
granting to any Person (other than any Bookham Corporation) a
right of use or occupancy of any of the Bookham Leased Real
Property. Except as set forth in the leases or subleases
identified in Part 3.8(c) of the Parent Disclosure
Schedule, there is no Person in possession of any Bookham Leased
Real Property other than an Bookham Corporation. Since
January 1, 2007, none of the Bookham Corporations has
received any written notice (or, to the Knowledge of Parent, any
other communication, whether written or otherwise) of a default,
alleged failure to perform, or any offset or counterclaim with
respect to any occupancy agreement with respect to any Bookham
Leased Real Property which has not been fully remedied and
withdrawn.
3.9 Intellectual Property.
(a) Part 3.9(a) of the Parent Disclosure Schedule
accurately identifies:
(i) in Part 3.9(a)(i) of the Parent Disclosure
Schedule: (A) each material item of Registered IP in which
any of the Bookham Corporations has or purports to have an
ownership interest of any nature (whether exclusively, jointly
with another Person or otherwise) and that is either:
(1) bundled, included, used in, licensed or distributed
with any Parent Product or Parent Product Software or part of
any Parent Product or Parent Product Software; or (2) used
to manufacture, develop, support, maintain or test any Parent
Product or Parent Product Software (the Bookham
Material Registered IP); (B) the jurisdiction in
which such Bookham Material Registered IP has been registered or
filed and the applicable registration or serial number; and
(C) any other Person that has an ownership interest in such
item of Bookham Material Registered IP and the nature of such
ownership interest; and
(ii) in Part 3.9(a)(ii) of the Parent Disclosure
Schedule: (A) each Contract pursuant to which any material
Intellectual Property Rights or material Intellectual Property
is licensed to any Bookham Corporation (other than software
license agreements for any third-party non-customized software
that is generally available to the public at a cost of less than
$100,000 per year); and (B) whether these licenses are
exclusive or nonexclusive (for purposes of this Agreement, a
covenant not to sue or not to assert infringement claims shall
be deemed to be equivalent to a license).
(b) Parent has delivered or Made Available to the Company
an accurate and complete copy of each standard form of the
following documents and Contracts used by any Bookham
Corporation at any time since January 1, 2005:
(i) terms and conditions with respect to the sale, lease,
license or provisioning of any Parent Product or Parent Product
Software; (ii) employee agreement containing any assignment
or license to any Bookham Corporation of Intellectual Property
or Intellectual Property Rights or any confidentiality
provision; or (iii) consulting or independent contractor
agreement containing any assignment or license to any Bookham
Corporation of Intellectual Property or Intellectual Property
Rights or any confidentiality provision. Part 3.9(b) of the
Parent Disclosure Schedule accurately identifies each Parent
Contract that uses the standard form referred to above as the
basis of such Parent Contract and that is material to any
Bookham Corporation and deviates in any material respect from
the corresponding standard form described above.
(c) The Bookham Corporations exclusively own all right,
title and interest to and in the Parent IP (other than
Intellectual Property Rights or Intellectual Property licensed
to the Parent, as identified in Part 3.9(a)(ii) of the
Parent Disclosure Schedule or pursuant to license agreements for
non-customized third-party software that is generally available
to the public) free and clear of any Encumbrances (other than
non-exclusive licenses
Annex A-29
granted by any Bookham Corporation in connection with the sale
or license of Parent Products in the ordinary course of
business). Without limiting the generality of the foregoing:
(i) all documents and instruments necessary to perfect the
rights of the Bookham Corporations in the material Registered IP
have been executed, delivered and filed in a timely manner with
the appropriate Governmental Body, other than registrations,
filings and applications with respect to Registered IP that the
Parent has allowed to lapse in its reasonable business judgment;
(ii) no Parent Associate has any claim, right (whether or
not currently exercisable) or interest to or in any Parent IP;
(iii) no funding, facilities or personnel of any
Governmental Body or any university, college, research institute
or other educational institution have been or are being used to
develop or create, in whole or in part, any Parent IP that is
owned or purported to be owned by the Parent;
(iv) each Bookham Corporation has taken all reasonable
steps to maintain the confidentiality of and otherwise protect
and enforce its rights in all proprietary information held by
any of the Bookham Corporations, or purported to be held by any
of the Bookham Corporations, as a trade secret;
(v) none of the Bookham Corporations is now or has ever
been a member or promoter of, or a contributor to, any industry
standards body or any similar organization that could reasonably
be expected to require or obligate any of the Bookham
Corporations to grant or offer to any other Person any license
or right to any Parent IP that is owned or purported to be owned
by any of the Bookham Corporations; and
(vi) to the Knowledge of the Parent, the Bookham
Corporations own or otherwise have, and after the Closing will
continue to have, all Intellectual Property Rights needed to
conduct the business of the Bookham Corporations as currently
conducted.
(d) All Bookham Material Registered IP is, to the Knowledge
of the Parent, valid, subsisting and enforceable.
(e) Neither the execution, delivery or performance of this
Agreement nor the consummation of any of the Contemplated
Transactions will, or could reasonably be expected to, with or
without notice or the lapse of time, result in or give any other
Person the right or option to cause, create, impose or declare:
(i) a loss of, or Encumbrance on, any Parent IP; or
(ii) the grant, assignment or transfer to any other Person
of any license or other right or interest under, to or in any of
the Parent IP.
(f) Part 3.9(f) of the Parent Disclosure Schedule:
(i) accurately identifies (and the Parent has provided to
Parent an accurate and complete copy of) each letter or other
written or electronic communication or correspondence that has
been sent or otherwise delivered by or to any of the Bookham
Corporations or any Representative of any of the Bookham
Corporations between January 1, 2004 and the date of this
Agreement regarding any actual, alleged or suspected
infringement or misappropriation of any Parent IP; and
(ii) provides a brief description of the current status of
the matter referred to in such letter, communication or
correspondence.
(g) Except as set forth in Part 3.9(g) of the Parent
Disclosure Schedule, none of the Bookham Corporations and none
of the Parent IP, Parent Products or Parent Product Software has
ever infringed (directly, contributorily, by inducement or
otherwise), misappropriated or otherwise violated any
Intellectual Property Right of any other Person.
(h) No infringement, misappropriation or similar claim or
Legal Proceeding is or, since January 1, 2004, has been
pending or, to the Knowledge of the Parent, threatened against
any Bookham Corporation or against any other Person who is, or
has asserted or could reasonably be expected to assert that it
is, entitled to be indemnified, defended, held harmless or
reimbursed by any Bookham Corporation with respect to such claim
or Legal Proceeding (including any claim or Legal Proceeding
that has been settled, dismissed or otherwise concluded).
Annex A-30
(i) Except as set forth in Part 3.9(i) of the Parent
Disclosure Schedule, since January 1, 2004, none of the
Bookham Corporations has received any written notice (or, to the
Knowledge of the Parent, any other communication, whether
written or otherwise) relating to any actual, alleged or
suspected infringement, misappropriation or violation of any
Intellectual Property Right of another Person by any of the
Bookham Corporations, the Parent Products or the Parent Product
Software.
(j) To the Knowledge of Parent, none of the Parent Product
Software: (i) contains any bug, defect or error (including
any bug, defect or error relating to or resulting from the
display, manipulation, processing, storage, transmission or use
of date data) that materially and adversely affects the use,
functionality or performance of such Parent Product Software or
any Parent Product containing or used in conjunction with such
Parent Product Software; or (ii) fails to comply in any
material respect with any applicable warranty or other
contractual commitment made by any Bookham Corporation relating
to the use, functionality or performance of such software or any
Parent Product containing or used in conjunction with such
Parent Product Software.
(k) To the Knowledge of Parent, except for trial or
demonstration versions, none of the Parent Product Software
contains any back door, drop dead
device, time bomb, Trojan horse,
virus or worm (as such terms are
commonly understood in the software industry) or any other code
designed or intended to have, or capable of performing, any of
the following functions: (i) disrupting, disabling, harming
or otherwise impeding in any manner the operation of, or
providing unauthorized access to, a computer system or network
or other device on which such code is stored or installed; or
(ii) damaging or destroying any data or file without the
users consent.
(l) To the Knowledge of Parent, none of the Parent Product
Software is subject to any copyleft or other
obligation or condition (including any obligation or condition
under any open source license such as the GNU Public
License, Lesser GNU Public License or Mozilla Public License)
that: (i) requires or could reasonably be expected to
require, or conditions or could reasonably be expected to
condition, the use or distribution of such Parent Product
Software on, the disclosure, licensing or distribution of any
Parent Source Code for any portion of such Parent Product
Software; or (ii) otherwise imposes or could reasonably be
expected to impose any material limitation, restriction or
condition on the right or ability of the Parent to use or
distribute any Parent Product Software.
3.10 Contracts.
(a) Part 3.10(a) of the Parent Disclosure Schedule
identifies each Parent Contract that constitutes a Parent
Material Contract. For purposes of this Agreement, each of the
following Parent Contracts shall be deemed to constitute a
Parent Material Contract:
(i) any Contract: (A) constituting a Parent Employment
Agreement; (B) pursuant to which any of the Bookham
Corporations is or may become obligated to make any severance,
termination or similar payment to any Parent Associate or any
spouse, heir or Representative of any Parent Associate except
for severance, termination or similar payments required by
applicable Legal Requirements or in an amount less than $50,000;
(C) pursuant to which any of the Bookham Corporations is or
may become obligated to make any bonus or similar payment (other
than payments constituting base salary or commissions paid in
the ordinary course of business) in excess of $50,000 to any
Parent Associate; or (D) pursuant to which any of the
Bookham Corporations is or may become obligated to grant or
accelerate the vesting of, or otherwise modify, any stock
option, restricted stock, stock appreciation right or other
equity interest in any of the Bookham Corporations;
(ii) any Contract identified or required to be identified
in Part 3.9 of the Parent Disclosure Schedule;
(iii) any Contract with any distributor and any contract
with any other reseller or sales representative, in each case
that provides exclusivity rights to such distributor, reseller
or sales representative;
(iv) any Contract with sole-source or single-source
suppliers to any Bookham Corporation of products or services
that are material to any Bookham Corporation;
Annex A-31
(v) any Contract that provides for: (A) reimbursement
of any Parent Associate for, or advancement to any Parent
Associate of, legal fees or other expenses associated with any
Legal Proceeding or the defense thereof; or
(B) indemnification of any Parent Associate;
(vi) any Contract imposing any restriction on the right or
ability of any Bookham Corporation: (A) to compete with any
other Person; (B) to acquire any product or other asset or
any services from any other Person; (C) to solicit, hire or
retain any Person as a director, an officer or other employee, a
consultant or an independent contractor; (D) to develop,
sell, supply, distribute, offer, support or service any product
or any technology or other asset to or for any other Person;
(E) to perform services for any other Person; or
(F) to transact business with any other Person, in each
case which restriction would or would reasonably be expected to
materially and adversely affect: (x) the conduct of the
business of the Bookham Corporations as currently conducted or
as currently proposed by the Bookham Corporations to be
conducted; or (y) the design, development, manufacturing,
reproduction, marketing, licensing, sale, offer for sale,
importation, distribution, performance, display, creation of
derivative works by any Bookham Corporation with respect to
and/or use
of the Parent Product;
(vii) any Contract relating to any currency hedging;
(viii) any Contract incorporating or relating to any
guaranty, any warranty, any sharing of liabilities or any
indemnity (including any indemnity with respect to Intellectual
Property or Intellectual Property Rights) or similar obligation,
other than Contracts entered into in the ordinary course of
business or that do not deviate in any material respect from the
standard forms of end-user licenses previously delivered or Made
Available by the Parent to Parent;
(ix) any Contract requiring that any of the Bookham
Corporations give any written notice or provide any information
to any Person prior to responding to or prior to accepting any
Acquisition Proposal or similar proposal, or prior to entering
into any discussions, agreement, arrangement or understanding
relating to any Acquisition Transaction;
(x) any Contract relating to the lease or sublease of
Bookham Leased Real Property;
(xi) any Contract that: (A) involved the payment or
delivery of cash or other consideration in an amount or having a
value in excess of $1,000,000 in the fiscal year ended
June 28, 2008; (B) requires by its terms the payment
or delivery of cash or other consideration in an amount or
having a value in excess of $1,000,000 in the fiscal year ending
June 30, 2009; (C) involved the performance of
services having a value in excess of $500,000 in the fiscal year
ended June 28, 2008; or (D) requires by its terms the
performance of services having a value in excess of $500,000 in
the fiscal year ending June 30, 2009;
(xii) Any Contract requiring that any Bookham Corporation:
(A) give more than 180 days notice prior to
discontinuing any Parent Product; (B) continue to deliver
any Parent Product
and/or spare
parts for any Parent Product more than 180 days following
any notice of discontinuance of such Parent Product or spare
part; (C) continue to deliver any Parent Product
and/or spare
parts for any Parent Product more than five years following the
termination or expiration of the Contract; and (D) continue
to deliver warranty service or out-of-warranty service more than
three years following the termination or expiration of the
Contract; and
(xiii) any Contract, the termination of which would
reasonably be expected to have a Parent Material Adverse Effect.
The Parent has delivered or Made Available to the Company an
accurate and complete copy of each Parent Contract that
constitutes a Parent Material Contract.
(b) Each Parent Contract that constitutes a Parent Material
Contract is valid and in full force and effect, and is
enforceable in accordance with its terms, subject to:
(i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors; and (ii) rules of law
governing specific performance, injunctive relief and other
equitable remedies.
Annex A-32
(c) Except as set forth in Part 3.10(c) of the Parent
Disclosure Schedule: (i) none of the Bookham Corporations
has violated or breached in any material respect, or committed
any default in any material respect under, any Parent Contract;
(ii) to the Knowledge of the Parent, no other Person has
violated or breached in any material respect, or committed any
default in any material respect under, any Parent Contract;
(iii) to the Knowledge of the Parent, no event has
occurred, and no circumstance or condition exists, that (with or
without notice or lapse of time) could reasonably be expected
to: (A) result in a violation or breach in any material
respect of any of the provisions of any Parent Contract;
(B) give any Person the right to declare a default in any
material respect under any Parent Contract; (C) give any
Person the right to receive or require a rebate, chargeback,
penalty or change in delivery schedule under any Parent
Contract; (D) give any Person the right to accelerate the
maturity or performance of any Parent Contract that constitutes
a Parent Material Contract; (E) result in the disclosure,
release or delivery of any Parent Source Code; or (F) give
any Person the right to cancel, terminate or modify any Parent
Contract that constitutes a Parent Material Contract; and
(iv) since January 1, 2007, none of the Bookham
Corporations has received any written notice (or, to the
Knowledge of the Parent, any other communication, whether
written or otherwise) regarding any actual or possible violation
or breach of, or default under, any Parent Material Contract.
3.11 Liabilities. None
of the Bookham Corporations has any material accrued, contingent
or other liabilities of any nature, either matured or unmatured,
except for: (a) liabilities identified as such, or
specifically reserved against, in the Parent Unaudited Balance
Sheet; (b) liabilities that have been incurred by the
Bookham Corporations since the date of the Parent Unaudited
Balance Sheet in the ordinary course of business and consistent
with past practices; (c) liabilities for performance of
obligations of the Bookham Corporations pursuant to the express
terms of Parent Contracts; (d) liabilities under this
Agreement or incurred in connection with the Contemplated
Transactions; and (e) liabilities described in
Part 3.11 of the Parent Disclosure Schedule.
3.12 Compliance with Legal
Requirements. Each of the Bookham
Corporations is, and has at all times since January 1, 2007
been, in compliance in all material respects with all applicable
Legal Requirements, including Environmental Laws and Legal
Requirements relating to employment, privacy law matters,
exportation of goods and services, securities law matters and
Taxes. Since January 1, 2007, none of the Bookham
Corporations has received any written notice (or, to the
Knowledge of Parent, any other communication, whether written or
otherwise) from any Governmental Body or other Person regarding
any actual or possible violation in any material respect of, or
failure to comply in any material respect with, any Legal
Requirement.
3.13 Certain Business
Practices. None of the Bookham Corporations,
and (to the Knowledge of Parent) no Representative of any of the
Bookham Corporations with respect to any matter relating to any
of the Bookham Corporations, has: (a) used any funds for
unlawful contributions, gifts, entertainment or other unlawful
expenses relating to political activity; (b) made any
unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or
campaigns or violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended; or (c) made any other
unlawful payment.
3.14 Governmental Authorizations.
(a) The Bookham Corporations hold all material Governmental
Authorizations necessary to enable the Bookham Corporations to
conduct their respective businesses in the manner in which such
businesses are currently being conducted, including all
Governmental Authorizations required under Environmental Laws.
All such Governmental Authorizations are valid and in full force
and effect. Each Bookham Corporation is, and at all times since
January 1, 2007 has been, in compliance in all material
respects with the terms and requirements of such Governmental
Authorizations. Since January 1, 2007, none of the Bookham
Corporations has received any written notice (or, to the
Knowledge of Parent, any other communication, whether written or
otherwise) from any Governmental Body regarding: (i) any
actual or possible material violation of or failure to comply in
any material respect with any term or requirement of any
material Governmental Authorization; or (ii) any actual or
possible revocation, withdrawal, suspension, cancellation,
termination or modification of any material Governmental
Authorization.
(b) Part 3.14(b) of the Parent Disclosure Schedule
describes the terms of each grant, incentive or subsidy provided
or made available to or for the benefit of any of the Bookham
Corporations by any U.S. federal, state
Annex A-33
or local Governmental Body or any foreign Governmental Body or
otherwise. Each of the Bookham Corporations is in compliance in
all material respects with all material terms and requirements
of each grant, incentive and subsidy identified or required to
be identified in Part 3.14(b) of the Parent Disclosure
Schedule. Neither the execution or delivery of this Agreement,
nor the consummation of the Merger or any of the other
Contemplated Transactions, does, will or would reasonably be
expected to (with or without notice or lapse of time) give any
Person the right to revoke, withdraw, suspend, cancel, terminate
or modify any grant, incentive or subsidy identified or required
to be identified in Part 3.14(b) of the Parent Disclosure
Schedule.
3.15 Tax Matters.
(a) Each of the material Tax Returns required to be filed
by or on behalf of the respective Bookham Corporations with any
Governmental Body (the Bookham Corporation
Returns): (i) has been filed on or before the
applicable due date (including any extensions of such due date);
and (ii) has been prepared in all material respects in
compliance with all applicable Legal Requirements. All amounts
shown on the Bookham Corporation Returns to be due have been
timely paid.
(b) The Parent Unaudited Balance Sheet accrues all
liabilities for Taxes with respect to all periods through the
date of the Parent Unaudited Balance Sheet in accordance with
GAAP, and none of the Bookham Corporations has incurred any
liabilities for Taxes since the date of the Parent Unaudited
Balance Sheet other than in the operation of the business of the
Bookham Corporations in the ordinary course.
(c) No Bookham Corporation and no Bookham Corporation
Return is currently under (or since January 1, 2007 has
been under) an audit by any Governmental Body. No extension or
waiver of the limitation period applicable to any material
Bookham Corporation Returns has been granted (by the Parent or
any other Person), and no such extension or waiver has been
requested from any Bookham Corporation.
(d) No claim or Legal Proceeding is pending or, to the
Knowledge of Parent, has been threatened against or with respect
to any Bookham Corporation in respect of any material Tax. There
are no unsatisfied liabilities for material Taxes with respect
to any notice of deficiency or similar document received by any
Bookham Corporation with respect to any material Tax (other than
liabilities for Taxes asserted under any such notice of
deficiency or similar document which are being contested in good
faith by the Bookham Corporations and with respect to which
reserves for payment have been established on the Parent
Unaudited Balance Sheet in accordance with GAAP). There are no
liens for material Taxes upon any of the assets of any of the
Bookham Corporations except liens for current Taxes not yet due
and payable or being contested in good faith by appropriate
proceedings and for which reserves have been established in
accordance with GAAP. None of the Bookham Corporations has been,
and none of the Bookham Corporations will be, required to
include any adjustment in taxable income for any tax period (or
portion thereof) pursuant to Section 481 or 263A of the
Code (or any comparable provision of state or foreign Tax laws)
as a result of transactions or events occurring, or accounting
methods employed, prior to the Closing.
(e) No claim which has resulted or could reasonably be
expected to result in an obligation to pay material Taxes has
ever been made by any Governmental Body in a jurisdiction where
an Bookham Corporation does not file a Tax Return that it is or
may be subject to taxation by that jurisdiction.
(f) There are no Contracts relating to allocating or
sharing of Taxes to which any Bookham Corporation is a party.
None of the Bookham Corporations is liable for Taxes of any
other Person (other than another Bookham Corporation), or is
currently under any contractual obligation to indemnify any
Person with respect to any amounts of such Persons Taxes
(except for customary agreements not primarily related to Taxes)
or is a party to any Contract providing for payments by an
Bookham Corporation with respect to any amount of Taxes of any
other Person.
(g) No Bookham Corporation has constituted either a
distributing corporation or a controlled
corporation within the meaning of
Section 355(a)(1)(A) of the Code. No Bookham Corporation is
or has been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code.
(h) No Bookham Corporation has been a member of an
affiliated group of corporations within the meaning of
Section 1504 of the Code or within the meaning of any
similar Legal Requirement to which an
Annex A-34
Bookham Corporation may be subject, other than the affiliated
group of which the Parent is the common parent.
(i) The Parent has delivered or Made Available to Parent
accurate and complete copies of all federal and California
income Tax Returns of the Bookham Corporations for all Tax years
that remain open or are otherwise subject to audit (other than
years that remain open solely because of the carry forward of
net operating losses or other Tax attributes), and all other
material Tax Returns of the Bookham Corporations filed since
December 31, 2004.
(j) The Parent has disclosed on its federal income Tax
Returns all positions that could give rise to a material
understatement penalty within the meaning of Section 6662
of the Code or any similar Legal Requirement.
(k) No Bookham Corporation has participated in, or is
currently participating in, a Listed Transaction or
a Reportable Transaction within the meaning of
Treasury
Regulation Section 1.6011-4(b)(2)
or similar transaction under any corresponding or similar Legal
Requirement.
3.16 Employee and Labor Matters; Benefit Plans.
(a) Except as set forth in Part 3.16(a) of the Parent
Disclosure Schedule or as required by applicable Legal
Requirements, the employment of each of the Bookham
Corporations employees is terminable by the applicable
Bookham Corporation at will.
(b) Except as set forth in Part 3.16(b) of the Parent
Disclosure Schedule, none of the Bookham Corporations is a party
to, or has a duty to bargain for, any collective bargaining
agreement or other Contract with a labor organization or works
council representing any of its employees and there are no labor
organizations or works councils representing, purporting to
represent or, to the Knowledge of the Parent, seeking to
represent any employees of any of the Bookham Corporations.
Since January 1, 2007, there has not been any strike,
slowdown, work stoppage, lockout, job action, picketing, labor
dispute, question concerning representation, union organizing
activity, or any threat thereof, or any similar activity or
dispute, affecting any of the Bookham Corporations or any of
their employees. There is not now pending, and no Person has
threatened to commence, any such strike, slowdown, work
stoppage, lockout, job action, picketing, labor dispute,
question regarding representation or union organizing activity
or any similar activity or dispute. There is no claim or
grievance pending or, to the Knowledge of Parent, threatened
relating to any employment Contract, wages and hours, leave of
absence, plant closing notification, employment statute or
regulation, privacy right, labor dispute, workers
compensation policy or long-term disability policy, safety,
retaliation, immigration or discrimination matters involving any
Parent Associate, including charges of unfair labor practices or
harassment complaints.
(c) The Parent has delivered or Made Available to the
Company an accurate and complete list, by country and as of the
date hereof, of each Parent Employee Plan and each Parent
Employee Agreement. None of the Bookham Corporations intends,
and none of the Bookham Corporations has committed, to establish
or enter into any new Parent Employee Plan or Parent Employee
Agreement, or to modify any Parent Employee Plan or Parent
Employee Agreement (except to conform any such Parent Employee
Plan or Parent Employee Agreement to the requirements of any
applicable Legal Requirements, in each case as previously
disclosed to the Company in writing or as required by this
Agreement).
(d) Parent has delivered or Made Available to the Company
accurate and complete copies of: (i) all documents setting
forth the terms of each Parent Employee Plan and each Parent
Employee Agreement, including all amendments thereto and all
related trust documents; (ii) the three most recent annual
reports (Form Series 5500 and all schedules and
financial statements attached thereto), if any, required under
applicable Legal Requirements in connection with each Parent
Employee Plan; (iii) if the Parent Employee Plan is subject
to the minimum funding standards of Section 302 of ERISA,
the most recent annual and periodic accounting of Parent
Employee Plan assets, if any; (iv) the most recent summary
plan description together with the summaries of material
modifications thereto, if any, required under ERISA or any
similar Legal Requirement with respect to each Parent Employee
Plan; (v) all material written Contracts relating to each
Parent Employee Plan, including administrative service
agreements and group insurance contracts; (vi) all
Annex A-35
discrimination tests required under the Code for each Parent
Employee Plan intended to be qualified under Section 401(a)
of the Code for the three most recent plan years; and
(vii) the most recent IRS determination or opinion letter
issued with respect to each Parent Employee Plan intended to be
qualified under Section 401(a) of the Code.
(e) Each of the Bookham Corporations and Parent Affiliates
has performed in all material respects all obligations required
to be performed by it under each Parent Employee Plan, and each
Parent Employee Plan has been established and maintained in all
material respects in accordance with its terms. Any Parent
Employee Plan intended to be qualified under Section 401(a)
of the Code has obtained a favorable determination letter (or
opinion letter, if applicable) as to its qualified status under
the Code. All Parent Pension Plans required to have been
approved by any foreign Governmental Body have been so approved,
no such approval has been revoked (or, to the Knowledge of
Parent, has revocation been threatened) and no event has
occurred to the Knowledge of Parent since the date of the most
recent approval or application therefor relating to any such
Parent Pension Plan that would reasonably be expected to
materially affect any such approval relating thereto or
materially increase the costs relating thereto. Each Parent
Employee Plan intended to be tax qualified under applicable
Legal Requirements is so tax qualified, and no event has
occurred and no circumstance or condition exists that could
reasonably be expected to result in the disqualification of any
such Parent Employee Plan. No prohibited
transaction, within the meaning of Section 4975 of
the Code or Sections 406 and 407 of ERISA, and not
otherwise exempt under Section 408 of ERISA, has occurred
with respect to any Parent Employee Plan. Each Parent Employee
Plan (other than any Parent Employee Plan to be terminated prior
to the Effective Time in accordance with this Agreement) can be
amended, terminated or otherwise discontinued after the Closing
in accordance with its terms, without liability to Parent, any
of the Bookham Corporations or any Parent Affiliate (other than
any liability for ordinary administration expenses). There are
no audits or inquiries pending or, to the Knowledge of Parent,
threatened by the IRS, the DOL or any other Governmental Body
with respect to any Parent Employee Plan. None of the Bookham
Corporations, and no Parent Affiliate, has ever incurred:
(i) any material penalty or tax with respect to any Parent
Employee Plan under Section 502(i) of ERISA or
Sections 4975 through 4980 of the Code; or (ii) any
material penalty or Tax under applicable Legal Requirements.
Each of the Bookham Corporations and Parent Affiliates has made
all contributions and other payments required by and due under
the terms of each Parent Employee Plan. Neither the terms nor
the performance of any Parent Employee Agreement or Parent
Employee Plan could reasonably be expected to result in gross
income inclusion after the Effective Time pursuant to
Section 409A(a)(1)(A) of the Code.
(f) None of the Bookham Corporations, and no Parent
Affiliate, has ever maintained, established, sponsored,
participated in or contributed to any: (i) Parent Pension
Plan subject to Title IV of ERISA;
(ii) multiemployer plan within the meaning of
Section (3)(37) of ERISA; or (iii) plan described in
Section 413 of the Code. No Parent Employee Plan is or has
been funded by, associated with or related to a voluntary
employees beneficiary association within the meaning
of Section 501(c)(9) of the Code. None of the Bookham
Corporations, and no Parent Affiliate, has ever maintained,
established, sponsored, participated in or contributed to any
Parent Pension Plan in which stock of any of the Bookham
Corporations or any Parent Affiliate is or was held as a plan
asset. The fair market value of the assets of each funded Parent
Foreign Plan, the liability of each insurer for any Parent
Foreign Plan funded through insurance, or the book reserve
established for any Parent Foreign Plan, together with any
accrued contributions, is sufficient to procure or provide in
full for the accrued benefit obligations, with respect to all
current and former participants in such Parent Foreign Plan
according to the reasonable actuarial assumptions and valuations
most recently used to determine employer contributions to and
obligations under such Parent Foreign Plan, and no Contemplated
Transaction will cause any such assets or insurance obligations
to be less than such benefit obligations. There are no
liabilities of the Bookham Corporations with respect to any
Parent Employee Plan that are not properly accrued and reflected
in the financial statements of the Parent in accordance with
GAAP.
(g) None of the Bookham Corporations, and no Parent
Affiliate, maintains, sponsors or contributes to any Parent
Employee Plan that is an employee welfare benefit plan (as such
term is defined in Section 3(1) of ERISA) and that is, in
whole or in part, self-funded or self-insured. No Parent
Employee Plan provides (except at no cost to the Bookham
Corporations or any Parent Affiliate), or reflects or represents
any liability of any
Annex A-36
of the Bookham Corporations or any Parent Affiliate to provide,
post-termination or retiree life insurance, post-termination or
retiree health benefits or other post-termination or retiree
employee welfare benefits to any Person for any reason, except
as may be required by COBRA or other applicable Legal
Requirements. Other than commitments made that involve no future
costs to any of the Bookham Corporations or any Parent
Affiliate, none of the Bookham Corporations nor any Parent
Affiliate has ever represented, promised or contracted (whether
in oral or written form) to any Parent Associate (either
individually or to Parent Associates as a group) or any other
Person that such Parent Associate(s) or other Person would be
provided with post-termination or retiree life insurance,
post-termination or retiree health benefit or other
post-termination or retiree employee welfare benefits, except to
the extent required by applicable Legal Requirements.
(h) Except as set forth in Part 3.16(h) of the Parent
Disclosure Schedule, and except as expressly required or
provided by this Agreement, neither the execution of this
Agreement nor the consummation of the Contemplated Transactions
will or could reasonably be expected to (either alone or upon
the occurrence of termination of employment) constitute an event
under any Parent Employee Plan, Parent Employee Agreement, trust
or loan that will or may result (either alone or in connection
with any other circumstance or event) in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Parent Associate.
(i) Except as set forth in Part 3.16(i) of the Parent
Disclosure Schedule, each of the Bookham Corporations and Parent
Affiliates: (i) is, and at all times has been, in
compliance in all material respects with any Order or
arbitration award of any court, arbitrator or any Governmental
Body respecting employment, employment practices, terms and
conditions of employment, wages, hours or other labor related
matters; (ii) has withheld and reported all amounts
required by applicable Legal Requirements or by Contract to be
withheld and reported with respect to wages, salaries and other
payments to Parent Associates; (iii) is not liable for any
arrears of wages or any taxes or any interest or penalty for
failure to comply with the Legal Requirements applicable of the
foregoing; and (iv) is not liable for any payment to any
trust or other fund governed by or maintained by or on behalf of
any Governmental Body with respect to unemployment compensation
benefits, social security, social charges or other benefits or
obligations for Parent Associates (other than routine payments
to be made in the normal course of business and consistent with
past practice).
(j) There is no agreement, plan, arrangement or other
Contract covering any Parent Associate, and no payments have
been made or will be made to any Parent Associate, that,
considered individually or considered collectively with any
other such Contracts or payments, will, or could reasonably be
expected to, be characterized as a parachute payment
within the meaning of Section 280G(b)(2) of the Code or
give rise directly or indirectly to the payment of any amount
that would not be deductible pursuant to Section 162(m) of
the Code (or any comparable provision under state or foreign Tax
laws). No Bookham Corporation is a party to or has any
obligation under any Contract to compensate any Person for
excise taxes payable pursuant to Section 4999 of the Code
or for additional taxes payable pursuant to Section 409A of
the Code.
(k) Since July 1, 2007, none of the Bookham
Corporations has effectuated a plant closing,
partial plant closing, relocation,
mass layoff or termination (as defined
in the WARN Act or any similar Legal Requirement) affecting any
site of employment or one or more facilities or operating units
within any site of employment or facility of any of the Bookham
Corporations.
3.17 Environmental Matters.
(a) Since January 1, 2007, none of the Bookham
Corporations has received any written notice (or, to the
Knowledge of Parent, any other communication, whether written or
otherwise), whether from a Governmental Body, citizens group,
Parent Associate or otherwise, that alleges that any of the
Bookham Corporations is not or might not be in compliance in any
material respect with any Environmental Law, which
non-compliance has not been cured or for which there is any
remaining material liability.
(b) To the Knowledge of Parent: (i) all Bookham Leased
Real Property and any other property that is or was leased to or
controlled or used by any of the Bookham Corporations, and all
surface water, groundwater and soil associated with or adjacent
to such property, is free of any Materials of Environmental
Concern or
Annex A-37
material environmental contamination except as would not
reasonably be expected to require any corrective action or other
remedial obligations under Environmental Laws; (ii) none of
the Bookham Leased Real Property or any other property that is
or was leased to or controlled or used by any of the Bookham
Corporations contains any underground storage tanks, asbestos,
equipment using PCBs or underground injection wells; and
(iii) none of the Bookham Leased Real Property or any other
property that is or was leased to or controlled or used by any
of the Bookham Corporations contains any septic tanks in which
process wastewater or any Materials of Environmental Concern
have been Released.
(c) To the Knowledge of Parent, no Bookham Corporation has
ever sent or transported, or arranged to send or transport, any
Materials of Environmental Concern to a site that, pursuant to
any applicable Environmental Law: (i) has been placed on
the National Priorities List of hazardous waste
sites or any similar state list; (ii) is otherwise
designated or identified as a potential site for remediation,
cleanup, closure or other environmental remedial activity; or
(iii) is subject to a Legal Requirement to take
removal or remedial action as detailed
in any applicable Environmental Law or to make payment for the
cost of cleaning up any site.
(d) None of the Bookham Corporations has entered into any
Parent Contract that may require any of them to guarantee,
reimburse, defend, hold harmless or indemnify any other party
with respect to liabilities arising out of Environmental Laws,
or the activities of the Bookham Corporations or any other
Person relating to Materials of Environmental Concern.
3.18 Insurance. Each
material insurance policy and self-insurance program and
arrangement relating to the business, assets and operations of
the Bookham Corporations is in full force and effect. Since
January 1, 2007, none of the Bookham Corporations has
received any written notice (or, to the Knowledge of Parent, any
other communication, whether written or otherwise) regarding any
actual or possible: (a) cancellation or invalidation of any
material insurance policy; (b) refusal of any coverage or
rejection of any material claim under any material insurance
policy; or (c) material adjustment in the amount of the
premiums payable with respect to any material insurance policy.
There is no pending workers compensation or other claim
under or based upon any material insurance policy of any of the
Bookham Corporations involving an amount in excess of $100,000
in any individual case or $500,000 in the aggregate.
3.19 Transactions with
Affiliates. Except as set forth in the Parent
SEC Documents filed prior to the date of this Agreement, during
the period commencing on the date of the Parents last
proxy statement filed with the SEC through the date of this
Agreement, no event has occurred that would be required to be
reported by the Parent pursuant to Item 404 of
Regulation S-K
promulgated by the SEC.
3.20 Legal Proceedings; Orders.
(a) Except as set forth in Part 3.20(a) of the Parent
Disclosure Schedule, there is no pending Legal Proceeding, and
(to the Knowledge of Parent) no Person has threatened to
commence any material Legal Proceeding: (i) that involves
any of the Bookham Corporations, or any business of any of the
Bookham Corporations, any of the assets owned, leased or used by
any of the Bookham Corporations; or (ii) that challenges,
or that may have the effect of preventing, delaying, making
illegal or otherwise interfering with, the Merger or any of the
other Contemplated Transactions.
(b) There is no Order to which any of the Bookham
Corporations, or any of the assets owned or used by any of the
Bookham Corporations, is subject. To the Knowledge of Parent, no
officer or other key employee of any of the Bookham Corporations
is subject to any Order that prohibits such officer or other
employee from engaging in or continuing any conduct, activity or
practice relating to the business of any of the Bookham
Corporations.
3.21 Authority; Binding Nature of
Agreement. Parent and Merger Sub have the
corporate right, power and authority to enter into and, subject
to obtaining the Required Parent Stockholder Vote (as defined in
Section 3.22), the Required Amendment Vote (as defined in
Section 3.22) and the Required Merger Sub Stockholder Vote
(as defined in Section 3.22), to perform their respective
obligations under this Agreement. The Parent Board (at a meeting
duly called and held) has: (a) unanimously authorized and
approved the execution, delivery and performance of this
Agreement by the Parent; (b) unanimously authorized and
Annex A-38
approved Parents Certificate of Amendment (as defined in
Section 3.22); and (c) unanimously recommended the
approval of the issuance of the Parent Common Stock pursuant to
this Agreement and the approval of Parents Certificate of
Amendment by the holders of Parent Common Stock and directed
that the issuance of such shares and Parents Certificate
of Amendment be submitted for consideration by the Parents
stockholders at the Parent Stockholders Meeting (as
defined in Section 5.3). Assuming the due authorization,
execution and delivery of this Agreement by the Company, this
Agreement constitutes the legal, valid and binding obligation of
Parent and Merger Sub, enforceable against Parent and Merger Sub
in accordance with its terms, subject to: (i) laws of
general application relating to bankruptcy, insolvency, the
relief of debtors and creditors rights generally; and
(ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
3.22 Vote
Required. The only vote of Parents
stockholders required to approve the issuance of Parent Common
Stock in the Merger is the vote prescribed by Marketplace
Rule 4350 of the National Association of Securities Dealers
(the
Required Parent Stockholder Vote). The
affirmative vote of the holders of a majority of the voting
power of the shares of the Parent Common Stock (the
Required Amendment Vote) is the only vote of
the holders of any class or series of Parents capital
stock necessary to adopt an amendment to the Parents
certificate of incorporation to effect an increase in the number
of authorized shares of Parent (the
Parents
Certificate of Amendment). The affirmative vote of the
holders of a majority of the voting power of the shares of
common stock of Merger Sub (the
Required Merger Sub
Stockholder Vote) is the only vote of the holders of
any class or series of Merger Subs capital stock necessary
to adopt this Agreement.
3.23 Non-Contravention;
Consents. Assuming compliance with the
applicable provisions of the DGCL, the HSR Act, if applicable,
any foreign antitrust Legal Requirements and the listing
requirements of the NASDAQ Global Market, except as set forth in
Part 3.24 of the Parent Disclosure Schedule, neither
(1) the execution and delivery of this Agreement by Parent
and Merger Sub, nor (2) the consummation of the Merger or
any of the other Contemplated Transactions, would reasonably be
expected to, directly or indirectly (with or without notice or
lapse of time):
(a) contravene, conflict with or result in a violation of:
(i) any of the provisions of the certificate of
incorporation, bylaws or other charter or organizational
documents of any of the Bookham Corporations; or (ii) any
resolution adopted by the stockholders, the board of directors
or any committee of the board of directors of any of the Bookham
Corporations;
(b) contravene, conflict with or result in a violation of,
any Legal Requirement or any Order to which any of the Bookham
Corporations, or any of the assets owned or used by any of the
Bookham Corporations, is subject;
(c) contravene, conflict with or result in a violation of
any of the terms or requirements of, or give any Governmental
Body the right to revoke, withdraw, suspend, cancel, terminate
or modify, any Governmental Authorization that is held by any of
the Bookham Corporations or that otherwise relates to the
business of any of the Bookham Corporations or to any of the
assets owned or used by any of the Bookham Corporations;
(d) contravene, conflict with or result in a violation or
breach of, or result in a default under, any provision of any
Parent Material Contract, or give any Person the right to:
(i) declare a default or exercise any remedy under any such
Parent Material Contract; (ii) a rebate, chargeback,
penalty or change in delivery schedule under any such Parent
Material Contract; (iii) accelerate the maturity or
performance of any such Parent Material Contract; or
(iv) cancel, terminate or modify any right, benefit,
obligation or other term of such Parent Material Contract;
(e) result in the imposition or creation of any Encumbrance
upon or with respect to any tangible asset owned or used by any
of the Bookham Corporations (except for minor liens that will
not, in any case or in the aggregate, materially detract from
the value of the assets subject thereto or materially impair the
operations of any of the Bookham Corporations); or
Annex A-39
(f) result in the disclosure or delivery to any
escrowholder or other Person of any Parent IP (including Parent
Source Code), or the transfer of any material asset of any of
the Bookham Corporations to any Person.
Except as may be required by the Exchange Act, the DGCL, the HSR
Act, any foreign antitrust Legal Requirement and the listing
requirements of the NASDAQ Global Market (as they relate to the
Joint Proxy Statement/Prospectus), none of the Bookham
Corporations was, is or will be required to make any filing with
or give any notice to, or to obtain any Consent from, any Person
in connection with: (x) the execution, delivery or
performance of this Agreement; or (y) the consummation of
the Merger or any of the other Contemplated Transactions.
3.24 Opinion of Financial
Advisor. The Parent Board has received the
opinion of Citigroup Global Markets Inc.
(Parents
Financial Advisor), financial advisor to Parent, to
the effect that as of January 27, 2009 the Exchange Ratio
is fair, from a financial point of view, to Parent.
3.25 Financial
Advisor. Except for Parents Financial
Advisor, no broker, finder or investment banker is entitled to
any brokerage, finders or other fee or commission in
connection with the Merger or any of the other Contemplated
Transactions based upon arrangements made by or on behalf of
Parent.
3.26 Merger
Sub. Merger Sub was formed solely for the
purpose of engaging in the Contemplated Transactions and has not
engaged in any business activities or conducted any operations
other than in connection with the Contemplated Transactions.
3.27 Valid
Issuance. The Parent Common Stock to be
issued in the Merger, including the Parent Common Stock to be
issued upon the exercise of assumed and converted Company
Options and upon vesting of assumed and converted Company RSUs,
has been duly authorized and will, when issued in accordance
with the provisions of this Agreement, be validly issued, fully
paid and nonassessable and will not be subject to any
restriction on resale under the Securities Act, other than
restrictions imposed by Rules 144 and 145 under the
Securities Act.
3.28 Disclosure. None
of the information to be supplied by or on behalf of Parent for
inclusion or incorporation by reference in the
Form S-4
Registration Statement will, at the time the
Form S-4
Registration Statement is filed with the SEC or at the time it
becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under
which they are made, not misleading. None of the information to
be supplied by or on behalf of Parent for inclusion or
incorporation by reference in the Joint Proxy
Statement/Prospectus will, at the time the Joint Proxy
Statement/Prospectus is mailed to the stockholders of the
Company or the stockholders of Parent or at the time of the
Company Stockholders Meeting (or any adjournment or
postponement thereof) or the Parent Stockholders Meeting
(or any adjournment or postponement thereof), contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under
which they are made, not misleading. The Joint Proxy
Statement/Prospectus will comply as to form in all material
respects with the provisions of the Exchange Act and the rules
and regulations promulgated by the SEC thereunder. No
representation or warranty is made by Parent with respect to
statements made or incorporated by reference in the
Form S-4
Registration Statement or the Joint Proxy Statement/Prospectus
based on information supplied by any party other than any
Bookham Corporation for inclusion or incorporation by reference
in the
Form S-4
Registration Statement or the Joint Proxy Statement/Prospectus.
Section 4. Certain
Covenants of the Parties
4.1 Access and
Investigation. During the period commencing
on the date of this Agreement and ending as of the earlier of
the Effective Time or the termination of this Agreement (the
Pre-Closing Period), subject to applicable
Legal Requirements and the terms of any confidentiality
restrictions under Contracts of a party as of the date hereof,
upon reasonable notice the Company and Parent shall each, and
shall cause each of their respective Subsidiaries to:
(a) provide the Representatives of the other party with
reasonable access during normal business hours to its personnel,
tax and accounting advisers and assets and to
Annex A-40
all existing books, records, Tax Returns, work papers and other
documents and information relating to such Entity or any of its
Subsidiaries, in each case as reasonably requested by Parent or
the Company, as the case may be; and (b) provide the
Representatives of the other party with such copies of the
existing books, records, Tax Returns, work papers and other
documents and information relating to such Entity and its
Subsidiaries as reasonably requested by Parent or the Company,
as the case may be. During the Pre-Closing Period, the Company
shall, and shall cause the Representatives of each of the Avanex
Corporations to, permit Parents senior officers to meet,
upon reasonable notice and during normal business hours, with
the chief financial officer and other officers of the Company
responsible for the Companys financial statements and the
internal controls of the Avanex Corporations to discuss such
matters as Parent may deem necessary or appropriate in order to
enable Parent to satisfy its post-Closing obligations under the
Sarbanes-Oxley Act and the rules and regulations relating
thereto. Without limiting the generality of any of the
foregoing, during the Pre-Closing Period, subject to applicable
Legal Requirements, the Company and Parent shall each promptly
provide the other with copies of any notice, report or other
document filed with or sent to any Governmental Body on behalf
of any of the Avanex Corporations or Parent or Merger Sub in
connection with the Merger or any of the other Contemplated
Transactions.
4.2 Operation of the Business of the Avanex
Corporations.
(a) During the Pre-Closing Period, except as set forth in
Part 4.2(a) of the Company Disclosure Schedule, as
otherwise contemplated by this Agreement, as required by Legal
Requirements or to the extent that Parent shall otherwise
consent in writing: (i) the Company shall ensure that each
of the Avanex Corporations conducts its business and operations
in the ordinary course and in accordance in all material
respects with past practices; (ii) the Company shall use
commercially reasonable efforts to attempt to ensure that each
of the Avanex Corporations preserves intact the material
components of its current business organization, keeps available
the services of its current officers and key employees and
maintains its relations and goodwill with all material
suppliers, material customers, material licensors and
Governmental Bodies; and (iii) the Company shall promptly
notify Parent following its becoming aware of any Legal
Proceeding commenced, or, to the Companys Knowledge,
either: (A) with respect to a Governmental Body, overtly
threatened; or (B) with respect to any other Person,
threatened in writing, in either case of clause (A)
or (B) of this sentence, against, relating to,
involving or otherwise affecting any of the Avanex Corporations
that relates to any of the Contemplated Transactions.
(b) Except as set forth in Part 4.2(b) of the Company
Disclosure Schedule, as otherwise contemplated by this Agreement
or as required by Legal Requirements, during the Pre-Closing
Period, the Company shall not (without the prior written consent
of Parent, which consent shall not be unreasonably withheld or
delayed), and the Company shall ensure that each of the other
Avanex Corporations does not (without the prior written consent
of Parent, which consent shall not be unreasonably withheld or
delayed):
(i) declare, accrue, set aside or pay any dividend or make
any other distribution in respect of any shares of capital
stock, or repurchase, redeem or otherwise reacquire any shares
of capital stock or other securities, other than:
(A) dividends or distributions between or among any of the
Avanex Corporations to the extent consistent with past
practices; or (B) pursuant to the Companys right to
repurchase restricted shares of Company Common Stock held by an
employee of the Company upon termination of such employees
employment;
(ii) sell, issue, grant or authorize the sale, issuance or
grant of: (A) any capital stock or other security;
(B) any option, call, warrant or right to acquire any
capital stock or other security; or (C) any instrument
convertible into or exchangeable for any capital stock or other
security (except that: (1) the Company may issue shares of
Company Common Stock: (aa) upon the valid exercise of Company
Options or Company Warrants, or upon the vesting of Company
RSUs, in each case outstanding as of the date of this Agreement;
and (bb) pursuant to the Company Officer and Director SPP or the
Company ESPP; and (2) the Company may, in the ordinary
course of business and consistent with past practices grant
Company Options to any newly hired employee of an Avanex
Corporation under the Company Option Plans commensurate with his
or her position with such Avanex Corporation; provided,
however, that (aa) in each calendar month the Company shall
not grant Company Options to purchase more than
Annex A-41
25,000 shares of Company Common Stock; (bb) such Company
Options shall have an exercise price equal to the fair market
value of the Company Common Stock covered by such options
determined as of the time of the grant of such options;
(cc) such Company Options shall not contain any
single-trigger, double-trigger or other
vesting acceleration provisions and shall not otherwise be
subject to acceleration (in whole or in part) as a result of the
Merger, any of the other Contemplated Transactions or any other
similar transaction (whether alone or in combination with any
termination of employment or other event); (dd) shall be
granted pursuant to the Companys standard agreement and
shall contain the Companys standard vesting schedule; and
(ee) shall not be non-plan options;
(iii) amend or waive any of its rights under, or accelerate
the vesting under, any provision of any of the Company Option
Plans, any provision of any agreement evidencing any outstanding
stock option or any restricted stock unit purchase agreement, or
otherwise modify any of the terms of any outstanding option,
restricted stock unit, warrant or other security or any related
Contract;
(iv) amend, terminate or grant any waiver under the Company
Rights Agreement;
(v) amend or permit the adoption of any amendment to its
certificate of incorporation or bylaws or other charter or
organizational documents;
(vi) (A) except in the ordinary course of business and
consistent with past practices, acquire any equity interest or
other interest in any other Entity; (B) except in the
ordinary course of business and consistent with past practices,
form any Subsidiary; or (C) effect or become a party to any
merger, consolidation, share exchange, business combination,
amalgamation, recapitalization, reclassification of shares,
stock split, reverse stock split, division or subdivision of
shares, consolidation of shares or similar transaction;
(vii) make any capital expenditure (except that the Avanex
Corporations may make any capital expenditure that: (A) is
provided for in the Companys capital expense budget
delivered or Made Available to Parent prior to the date of this
Agreement; or (B) when added to all other capital
expenditures made on behalf of all of the Avanex Corporations
since the date of this Agreement but not provided for in the
Companys capital expense budget delivered or Made
Available to Parent prior to the date of this Agreement, does
not exceed $500,000 in the aggregate);
(viii) other than in the ordinary course of business and
consistent with past practices: (A) enter into or become
bound by, or permit any of the assets owned or used by it to
become bound by, any Company Material Contract or any other
Contract that is material to the Avanex Corporations (taken as a
whole); or (B) amend, terminate, or waive any material
right or remedy under, any Company Material Contract or any
other Contract that is material to the Avanex Corporations
(taken as a whole);
(ix) acquire, lease or license any right or other asset
from any other Person or sell or otherwise dispose of, or lease
or license, any right or other asset to any other Person (except
in each case for assets: (A) acquired, leased, licensed or
disposed of by the Company in the ordinary course of business
and consistent with past practices; or (B) that are
immaterial to the business of the Avanex Corporations);
(x) make any pledge of any of its material assets or permit
any of its material assets to become subject to any
Encumbrances, except for Encumbrances that do not materially
detract from the value of such assets or that do not materially
impair the operations of any of the Avanex Corporations;
(xi) lend money to any Person (other than extensions of
credit to trade creditors, intercompany indebtedness and routine
travel and business expense advances made to directors or
employees, in each case in the ordinary course of business), or,
except in the ordinary course of business and consistent with
past practices, incur or guarantee any indebtedness;
(xii) establish, adopt, enter into or amend any Company
Employee Plan or Company Employee Agreement, pay any bonus or
make any profit-sharing or similar payment to, or increase the
amount of the wages, salary, commissions, fringe benefits or
other compensation (including equity-based compensation, whether
payable in stock, cash or other property) or remuneration
payable to, or adopt or agree to any retention arrangements with
or for the benefit of, any of its directors or any of its
officers or other
Annex A-42
employees (except that the Company: (A) may provide
routine, reasonable salary increases to non-officer employees in
the ordinary course of business and in accordance with past
practices in connection with the Companys customary
employee review process; (B) may amend the Company Employee
Plans to the extent required by applicable Legal Requirements;
and (C) may make customary bonus payments and profit
sharing payments consistent with past practices in accordance
with bonus and profit sharing plans existing on the date of this
Agreement);
(xiii) hire any employee at the level of Vice President or
above or with an annual base salary in excess of $200,000, or
promote any employee to the level of Vice President or above
(except in order to fill a position vacated after the date of
this Agreement);
(xiv) other than in the ordinary course of business and
consistent with past practices or as required by concurrent
changes in GAAP or SEC rules and regulations, change any of its
methods of accounting or accounting practices in any respect;
(xv) make any material Tax election;
(xvi) commence any Legal Proceeding, except with respect
to: (A) routine matters in the ordinary course of business
and consistent with past practices; (B) in such cases where
the Company reasonably determines in good faith that the failure
to commence suit would result in a material impairment of a
valuable aspect of its business (provided that the Company
consults with Parent and considers the views and comments of
Parent with respect to such Legal Proceedings prior to
commencement thereof); or (C) in connection with a breach
of this Agreement or the other agreements listed in the
definition of Contemplated Transactions;
(xvii) settle any Legal Proceeding or other material claim,
other than pursuant to a settlement: (A) that results
solely in monetary obligation involving payment by the Avanex
Corporations of the amount specifically reserved in accordance
with GAAP with respect to such Legal Proceedings or claim on the
Company Unaudited Balance Sheet; or (B) that results solely
in monetary obligation involving only the payment of monies by
the Avanex Corporations of not more than $1,000,000 in the
aggregate;
(xviii) enter into any Contract covering any Company
Employee, or make any payment to any Company Employee, that,
considered individually or considered collectively with any
other such Contracts or payments, will, or would reasonably be
expected to, be characterized as a parachute payment
within the meaning of Section 280G(b)(2) of the Code or
give rise directly or indirectly to the payment of any amount
that would not be deductible pursuant to Section 162(m) of
the Code (or any comparable provision under state or foreign Tax
laws);
(xix) except for actions taken pursuant to
Section 5.7, take any action that would reasonably be
expected to cause the Merger to fail to qualify as a
reorganization under Section 368(a) of the Code
(whether or not otherwise permitted by the provisions of this
Section 4) or fail to take any commercially reasonable
action necessary to cause the Merger to so qualify; or
(xx) agree or commit to take any of the actions described
in clauses (i) through (xix) of
this Section 4.2(b).
(c) During the Pre-Closing Period, the Company shall
promptly notify Parent in writing of any event, condition, fact
or circumstance that would reasonably be expected to make the
timely satisfaction of any of the conditions set forth in
Section 6 impossible or unlikely or that has had or would
reasonably be expected to have or result in a Company Material
Adverse Effect. Without limiting the generality of the
foregoing, the Company shall promptly advise Parent in writing
of any material Legal Proceeding or material claim threatened,
commenced or asserted against or with respect to any of the
Avanex Corporations. No notification given to Parent pursuant to
this Section 4.2(c) shall limit or otherwise affect any of
the representations, warranties, covenants or obligations of the
Company contained in this Agreement.
Annex A-43
4.3 Operation of the Business of the Bookham
Corporations.
(a) During the Pre-Closing Period, except as set forth in
Part 4.3(a) of the Parent Disclosure Schedule, as otherwise
contemplated by this Agreement, as required by Legal
Requirements or to the extent that the Company shall otherwise
consent in writing: (i) Parent shall ensure that each of
the Bookham Corporations conducts its business and operations in
the ordinary course and in accordance in all material respects
with past practices; (ii) Parent shall use commercially
reasonable efforts to attempt to ensure that each of the Bookham
Corporations preserves intact the material components of its
current business organization, keeps available the services of
its current officers and key employees and maintains its
relations and goodwill with all material suppliers, material
customers, material licensors, and Governmental Bodies; and
(iii) Parent shall promptly notify Company following its
becoming aware of any Legal Proceeding commenced, or, to
Parents Knowledge, either: (A) with respect to a
Governmental Body, overtly threatened; or (B) with respect
to any other Person, threatened in writing, in either case of
clause (A) or (B) of this sentence,
against, relating to, involving or otherwise affecting any of
the Bookham Corporations that relates to any of the Contemplated
Transactions.
(b) Except as set forth in Part 4.3(b) of the Company
Disclosure Schedule, as otherwise contemplated by this Agreement
or as required by Legal Requirements, during the Pre-Closing
Period, Parent shall not (without the prior written consent of
Company, which consent shall not be unreasonably withheld or
delayed), and Parent shall ensure that each of the other Bookham
Corporations does not (without the prior written consent of the
Company, which consent shall not be unreasonably withheld or
delayed):
(i) declare, accrue, set aside or pay any dividend or make
any other distribution in respect of any shares of capital
stock, or repurchase, redeem or otherwise reacquire any shares
of capital stock or other securities, other than:
(A) dividends or distributions between or among any of the
Bookham Corporations to the extent consistent with past
practices; or (B) pursuant to Parents right to
repurchase restricted shares of Parent Common Stock held by an
employee of Parent upon termination of such employees
employment;
(ii) sell, issue, grant or authorize the sale, issuance or
grant of: (A) any capital stock or other security;
(B) any option, call, warrant or right to acquire any
capital stock or other security; or (C) any instrument
convertible into or exchangeable for any capital stock or other
security (except that: (1) Parent may issue shares of
Parent Common Stock: (aa) upon the valid exercise of Parent
Options or upon the vesting of any Parent RSUs, in each case
outstanding as of the date of this Agreement; and (bb) pursuant
to the Parent ESPP; and (2) Parent may, in the ordinary
course of business and consistent with past practices grant
Parent Options to any newly hired employee of a Bookham
Corporation under the Parent Option Plans commensurate with his
or her position with such Bookham Corporation; provided,
however, that (aa) in each calendar month Parent shall not
grant Parent Options to purchase more than 25,000 shares of
Parent Common Stock; (bb) such Parent Options shall have an
exercise price equal to the fair market value of the Parent
Common Stock covered by such options determined as of the time
of the grant of such options; (cc) such Parent Options
shall not contain any single-trigger,
double-trigger or other vesting acceleration
provisions and shall not otherwise be subject to acceleration
(in whole or in part) as a result of the Merger, any of the
other Contemplated Transactions or any other similar transaction
(whether alone or in combination with any termination of
employment or other event); (dd) shall be granted pursuant
to the Parents standard agreement and shall contain the
Parents standard vesting schedule; and (ee) shall not be
non-plan options;
(iii) amend or waive any of its rights under, or accelerate
the vesting under, any provision of any of the Parent Option
Plans, any provision of any agreement evidencing any outstanding
stock option or any restricted stock unit purchase agreement, or
otherwise modify any of the terms of any outstanding option,
restricted stock unit, warrant or other security or any related
Contract;
(iv) amend or permit the adoption of any amendment to its
certificate of incorporation or bylaws or other charter or
organizational documents;
Annex A-44
(v) (A) except in the ordinary course of business and
consistent with past practices, acquire any equity interest or
other interest in any other Entity; (B) except in the
ordinary course of business and consistent with past practices,
form any Subsidiary; or (C) effect or become a party to any
merger, consolidation, share exchange, business combination,
amalgamation, recapitalization, reclassification of shares,
stock split, reverse stock split, division or subdivision of
shares, consolidation of shares or similar transaction;
(vi) make any capital expenditure (except that the Bookham
Corporations may make any capital expenditure that: (A) is
provided for in Parents capital expense budget delivered
or Made Available to the Company prior to the date of this
Agreement; or (B) when added to all other capital
expenditures made on behalf of all of the Bookham Corporations
since the date of this Agreement but not provided for in
Parents capital expense budget delivered or Made Available
to the Company prior to the date of this Agreement, does not
exceed $2,500,000 in the aggregate);
(vii) other than in the ordinary course of business and
consistent with past practices: (A) enter into or become
bound by, or permit any of the assets owned or used by it to
become bound by, any Parent Material Contract or any other
Contract that is material to the Bookham Corporations (taken as
a whole); or (B) amend, terminate, or waive any material
right or remedy under, any Parent Material Contract or any other
Contract that is material to the Bookham Corporations (taken as
a whole);
(viii) acquire, lease or license any right or other asset
from any other Person or sell or otherwise dispose of, or lease
or license, any right or other asset to any other Person (except
in each case for assets: (A) acquired, leased, licensed or
disposed of by Parent in the ordinary course of business and
consistent with past practices; or (B) that are immaterial
to the business of the Bookham Corporations);
(ix) make any pledge of any of its material assets or
permit any of its material assets to become subject to any
Encumbrances, except for Encumbrances that do not materially
detract from the value of such assets or that do not materially
impair the operations of any of the Bookham Corporations;
(x) lend money to any Person (other than extensions of
credit to trade creditors, intercompany indebtedness and routine
travel and business expense advances made to directors or
employees in the ordinary course of business), or, except in the
ordinary course of business and consistent with past practices,
incur or guarantee any indebtedness;
(xi) establish, adopt, enter into or amend any Parent
Employee Plan or Parent Employee Agreement, pay any bonus or
make any profit-sharing or similar payment to, or increase the
amount of the wages, salary, commissions, fringe benefits or
other compensation (including equity-based compensation, whether
payable in stock, cash or other property) or remuneration
payable to, or adopt or agree to any retention arrangements with
or for the benefit of, any of its directors or any of its
officers or other employees (except that Parent: (A) may
provide routine, reasonable salary increases to employees in the
ordinary course of business and in accordance with past
practices in connection with Parents customary employee
review process; (B) may amend the Parent Employee Plans to
the extent required by applicable Legal Requirements; and
(C) may make customary bonus payments and profit sharing
payments consistent with past practices in accordance with bonus
and profit sharing plans existing on the date of this Agreement);
(xii) hire any employee at the level of Vice President or
above or with an annual base salary in excess of $200,000, or
promote any employee to the level of Vice President or above
(except in order to fill a position vacated after the date of
this Agreement);
(xiii) other than in the ordinary course of business and
consistent with past practices or as required by concurrent
changes in GAAP or SEC rules and regulations, change any of its
methods of accounting or accounting practices in any respect;
(xiv) make any material Tax election;
(xv) commence any Legal Proceeding, except with respect to:
(A) routine matters in the ordinary course of business and
consistent with past practices; (B) in such cases where
Parent reasonably determines in good faith that the failure to
commence suit would result in a material impairment of a
Annex A-45
valuable aspect of its business (provided that Parent consults
with the Company and considers the views and comments of the
Company with respect to such Legal Proceedings prior to
commencement thereof); or (C) in connection with a breach
of this Agreement or the other agreements listed in the
definition of Contemplated Transactions;
(xvi) settle any Legal Proceeding or other material claim,
other than pursuant to a settlement: (A) that results
solely in monetary obligation involving payment by the Bookham
Corporations of the amount specifically reserved in accordance
with GAAP with respect to such Legal Proceedings or claim on the
Parent Unaudited Balance Sheet; or (B) that results solely
in monetary obligation involving only the payment of monies by
the Bookham Corporations of not more than $1,000,000 in the
aggregate;
(xvii) enter into any Contract covering any Parent
Employee, or make any payment to any Parent Employee, that,
considered individually or considered collectively with any
other such Contracts or payments, will, or would reasonably be
expected to, be characterized as a parachute payment
within the meaning of Section 280G(b)(2) of the Code or
give rise directly or indirectly to the payment of any amount
that would not be deductible pursuant to Section 162(m) of
the Code (or any comparable provision under state or foreign Tax
laws);
(xviii) except for actions taken pursuant to
Section 5.7, take any action that would reasonably be
expected to cause the Merger to fail to qualify as a
reorganization under Section 368(a) of the Code
(whether or not otherwise permitted by the provisions of this
Section 4) or fail to take any commercially reasonable
action necessary to cause the Merger to so qualify; or
(xix) agree or commit to take any of the actions described
in clauses (i) through (xviii) of this
Section 4.3(b).
(c) During the Pre-Closing Period, Parent shall promptly
notify the Company in writing of any event, condition, fact or
circumstance that would reasonably be expected to make the
timely satisfaction of any of the conditions set forth in
Section 7 impossible or unlikely or that has had or would
reasonably be expected to have or result in a Parent Material
Adverse Effect. Without limiting the generality of the
foregoing, Parent shall promptly advise the Company in writing
of any material Legal Proceeding or material claim threatened,
commenced or asserted against or with respect to any of the
Bookham Corporations. No notification given to the Company
pursuant to this Section 4.3(c) shall limit or otherwise
affect any of the representations, warranties, covenants or
obligations of Parent contained in this Agreement.
4.4 No Solicitation.
(a) The Company shall not, directly or indirectly, shall
cause its Subsidiaries and the respective officers, directors,
financial advisers, attorneys and accountants of the Avanex
Corporations to not, directly or indirectly and shall use its
reasonable best efforts to ensure that the other Representatives
of the Avanex Corporations do not, directly or indirectly:
(i) solicit, initiate, knowingly encourage or knowingly
facilitate the making, submission or announcement of any
Acquisition Proposal with respect to an Avanex Corporation or
Acquisition Inquiry with respect to an Avanex Corporation;
(ii) furnish any information regarding any of the Avanex
Corporations to any Person in connection with or in response to
an Acquisition Proposal with respect to an Avanex Corporation or
Acquisition Inquiry with respect to an Avanex Corporation;
(iii) engage in discussions or negotiations with any Person
relating to any Acquisition Proposal with respect to an Avanex
Corporation or Acquisition Inquiry with respect to an Avanex
Corporation;
(iv) approve, endorse or recommend any Acquisition Proposal
with respect to an Avanex Corporation or Acquisition Inquiry
with respect to an Avanex Corporation or any Person or group
becoming an interested stockholder under
Section 203 of the DGCL; or
Annex A-46
(v) enter into any letter of intent or similar document or
any Contract (other than a confidentiality agreement on the
terms described below) contemplating or otherwise relating to
any Acquisition Transaction with respect to an Avanex
Corporation;
provided, however, that prior to the adoption of this
Agreement by the Required Company Stockholder Vote, neither this
Section 4.4(a) nor any other provision of this Agreement
shall prohibit the Company from furnishing nonpublic information
regarding the Avanex Corporations to, or entering into
discussions and negotiations with, any Person in response to an
Acquisition Proposal that is reasonably expected to result in a
Company Superior Offer that is submitted to the Company by such
Person after the date hereof (and not withdrawn) if:
(A) such Acquisition Proposal did not result from any
breach of, or any action inconsistent with, any of the
provisions set forth in this Section 4.4(a); (B) the
Company Board concludes in good faith, after having consulted
with its outside legal counsel, that failure to take such action
would be a breach of the fiduciary duties of the Company Board
to the Companys stockholders under applicable law;
(C) at least four business days prior to furnishing any
such nonpublic information to, or entering into discussions or
negotiations with, such Person, the Company gives Parent written
notice of the identity of such Person and of the Companys
intention to furnish nonpublic information to, or enter into
discussions with, such Person, and the Company receives from
such Person an executed confidentiality agreement containing
provisions (including nondisclosure provisions, use restrictions
and non-solicitation) at least as favorable to the Company as
the provisions of the Confidentiality Agreement as in effect
immediately prior to the execution of this Agreement (provided,
however, that no such confidentiality agreement need include
standstill provisions); and (D) at least two
business days prior to furnishing any such nonpublic information
to such Person, the Company furnishes such nonpublic information
to Parent (to the extent such nonpublic information has not been
previously furnished by the Company to Parent).
(b) Parent shall not, directly or indirectly, shall cause
its Subsidiaries and the respective officers, directors,
financial advisers, attorneys and accountants of the Bookham
Corporations to not, directly or indirectly and shall use its
reasonable best efforts to ensure that the other Representatives
of the Bookham Corporations do not, directly or indirectly
(i) solicit, initiate, knowingly encourage or knowingly
facilitate the making, submission or announcement of any
Acquisition Proposal with respect to a Bookham Corporation or
Acquisition Inquiry with respect to a Bookham Corporation;
(ii) furnish any information regarding any of the Bookham
Corporations to any Person in connection with or in response to
an Acquisition Proposal with respect to a Bookham Corporation or
Acquisition Inquiry with respect to a Bookham Corporation;
(iii) engage in discussions or negotiations with any Person
relating to any Acquisition Proposal with respect to a Bookham
Corporation or Acquisition Inquiry with respect to a Bookham
Corporation;
(iv) approve, endorse or recommend any Acquisition Proposal
with respect to a Bookham Corporation or Acquisition Inquiry
with respect to a Bookham Corporation or any Person or group
becoming an interested stockholder under
Section 203 of the DGCL; or
(v) enter into any letter of intent or similar document or
any Contract (other than a confidentiality agreement on the
terms described below) contemplating or otherwise relating to
any Acquisition Transaction with respect to a Bookham
Corporation;
provided, however, that prior to the approval of the
issuance of shares of Parent Common Stock in the Merger by the
Required Parent Stockholder Vote, neither this
Section 4.4(b) nor any other provision of this Agreement
shall prohibit Parent from furnishing nonpublic information
regarding the Bookham Corporations to, or entering into
discussions and negotiations with, any Person in response to an
Acquisition Proposal that is reasonably expected to result in a
Parent Superior Offer that is submitted to Parent by such Person
after the date hereof (and not withdrawn) if: (A) such
Acquisition Proposal did not result from any breach of, or any
action inconsistent with, any of the provisions set forth in
this Section 4.4(b); (B) the Parent Board concludes in
good faith, after having consulted with its outside legal
counsel, that failure to take such action would be a breach of
the fiduciary duties of the Parent Board to Parents
stockholders under applicable law; (C) at least
Annex A-47
four business days prior to furnishing any such nonpublic
information to, or entering into discussions or negotiations
with, such Person, Parent gives the Company written notice of
the identity of such Person and of Parents intention to
furnish nonpublic information to, or enter into discussions
with, such Person, and Parent receives from such Person an
executed confidentiality agreement containing provisions
(including nondisclosure provisions, use restrictions or
non-solicitation provisions) at least as favorable to Parent as
the provisions of the Confidentiality Agreement as in effect
immediately prior to the execution of this Agreement (provided,
however, that no such confidentiality agreement need include
standstill provisions); and (D) at least two
business days prior to furnishing any such nonpublic information
to such Person, Parent furnishes such nonpublic information to
the Company (to the extent such nonpublic information has not
been previously furnished by Parent to the Company).
(c) Each of Parent and the Company shall promptly (and in
no event later than 48 hours after receipt of any
Acquisition Proposal with respect to a Bookham Corporation or an
Avanex Corporation, as the case may be, or Acquisition Inquiry
with respect to a Bookham Corporation or an Avanex Corporation,
as the case may be) advise the other party to this Agreement
orally and in writing of any such Acquisition Proposal or
Acquisition Inquiry (including the identity of the Person making
or submitting such Acquisition Proposal or Acquisition Inquiry
and the terms thereof and copies of all correspondence and other
written material sent or provided to such party in connection
therewith) that is made or submitted by any Person during the
Pre-Closing Period. Each party receiving an Acquisition Proposal
or Acquisition Inquiry shall keep the other party reasonably
informed with respect to: (i) the status of any such
Acquisition Proposal or Acquisition Inquiry; and (ii) the
status and terms of any material modification or proposed
material modification thereto.
(d) Each of Parent and the Company shall immediately cease
and cause to be terminated any discussions existing as of the
date of this Agreement with any Person that relate to any
Acquisition Proposal or Acquisition Inquiry.
(e) Each of Parent and the Company agrees not to release or
permit the release of any Person from, or to waive or permit the
waiver of any provision of, any confidentiality,
non-solicitation, no hire, standstill or similar
Contract to which any such party or any of its Subsidiaries is a
party or under which any such party or any of its Subsidiaries
has any rights, and will use its reasonable best efforts to
cause each such agreement to be enforced in accordance with its
terms at the request of the other party to this Agreement.
Section 5. Additional
Covenants of the Parties
5.1 Registration Statement; Joint Proxy
Statement/Prospectus.
(a) As promptly as practicable after the date of this
Agreement, Parent and the Company shall prepare and cause to be
filed with the SEC the Joint Proxy Statement/Prospectus and
Parent shall prepare and cause to be filed with the SEC the
Form S-4
Registration Statement, in which the Joint Proxy
Statement/Prospectus will be included as a prospectus. Each of
Parent and the Company shall use reasonable best efforts:
(i) to cause the
Form S-4
Registration Statement and the Joint Proxy Statement/Prospectus
to comply with the applicable rules and regulations promulgated
by the SEC; (ii) to promptly notify the other of, cooperate
with each other with respect to and respond promptly to any
comments of the SEC or its staff; (iii) to have the
Form S-4
Registration Statement declared effective under the Securities
Act as promptly as practicable after it is filed with the SEC;
and (iv) to keep the
Form S-4
Registration Statement effective through the Closing in order to
permit the consummation of the Merger. Parent shall use
reasonable best efforts to cause the Joint Proxy
Statement/Prospectus to be mailed to Parents stockholders,
and the Company shall use reasonable best efforts to cause the
Joint Proxy Statement/Prospectus to be mailed to the
Companys stockholders, as promptly as practicable after
the
Form S-4
Registration Statement is declared effective under the
Securities Act. Each of Parent and the Company shall promptly
furnish the other party all information concerning such party,
its Subsidiaries and stockholders that may be required or
reasonably requested in connection with any action contemplated
by this Section 5.1. If either Parent or the Company
becomes aware of any information that should be disclosed in an
amendment or supplement to the
Form S-4
Registration Statement or the Joint Proxy Statement/Prospectus,
then such party: (i) shall promptly inform the other party
thereof; (ii) shall provide the other party (and its
counsel) with a reasonable opportunity to review and comment on
any amendment or supplement to the
Form S-4
Registration Statement or the Joint Proxy Statement/Prospectus
prior to it being
Annex A-48
filed with the SEC; (iii) shall provide the other party
with a copy of such amendment or supplement promptly after it is
filed with the SEC; and (iv) shall cooperate, if
appropriate, in mailing such amendment or supplement to the
stockholders of the Company or Parent.
(b) Prior to the Effective Time, Parent shall use
reasonable best efforts to obtain all regulatory approvals
needed to ensure that the Parent Common Stock to be issued in
the Merger will (to the extent required) be registered or
qualified or exempt from registration or qualification under the
securities law of every state of the United States in which any
registered holder of Company Common Stock has an address of
record on the record date for determining the stockholders
entitled to notice of and to vote at the Company
Stockholders Meeting; provided, however, that
Parent shall not be required: (i) to qualify to do business
as a foreign corporation in any jurisdiction in which it is not
now qualified; or (ii) to file a general consent to service
of process in any jurisdiction.
5.2 Company Stockholders Meeting.
(a) The Company: (i) shall take all action necessary
under all applicable Legal Requirements to call, give notice of
and hold a meeting of the holders of Company Common Stock to
vote on a proposal to adopt this Agreement (the Company
Stockholders Meeting); and (ii) shall
submit such proposal to such holders at the Company
Stockholders Meeting and shall not submit any other
proposal to such holders in connection with the Companys
Stockholders Meeting without the prior written consent of
Parent. The Company in consultation with Parent shall set a
record date for persons entitled to notice of, and to vote at,
the Companys Stockholders Meeting and shall not
change such record date without the prior written consent of
Parent. The Company Stockholders Meeting shall be held (on
a date selected by the Company in consultation with Parent) as
promptly as practicable after the
Form S-4
Registration Statement is declared effective under the
Securities Act. The Company shall ensure that all proxies
solicited in connection with the Company Stockholders
Meeting are solicited in compliance with all applicable Legal
Requirements. Notwithstanding anything to the contrary contained
in this Agreement, the Company after consultation with Parent
may, or if requested by Parent shall, adjourn or postpone the
Companys Stockholders Meeting: (A) to the
extent necessary to ensure that any supplement or amendment to
the Joint Proxy Statement/Prospectus that is required by
applicable law is timely provided to the Companys
stockholders; (B) if as of the time for which the Company
Stockholders Meeting is originally scheduled there are
insufficient shares of Company Common Stock represented (either
in person or by proxy) to constitute a quorum necessary to
conduct the business to be conducted at the Companys
Stockholders Meeting; or (C) if additional time is
reasonably required to solicit proxies in favor of the adoption
of this Agreement.
(b) Subject to Section 5.2(c): (i) the Joint
Proxy Statement/Prospectus shall include a statement to the
effect that the Company Board recommends that the Companys
stockholders vote to adopt this Agreement at the Company
Stockholders Meeting (the recommendation of the Company
Board that the Companys stockholders vote to adopt this
Agreement being referred to as the Company Board
Recommendation); (ii) the Company Board
Recommendation shall not be withdrawn or modified in a manner
adverse to Parent; (iii) neither the Company Board nor any
committee thereof shall: (A) fail to reaffirm the Company
Board Recommendation, or fail to publicly state that the Merger
and this Agreement are in the best interest of the
Companys stockholders, within ten business days after
Parent requests in writing that such action be taken;
(B) fail to publicly announce, within ten business days
after a tender offer or exchange offer relating to the
securities of the Company shall have been commenced, a statement
disclosing that the Company Board recommends rejection of such
tender or exchange offer; (C) fail to issue, within ten
business days after an Acquisition Proposal with respect to an
Avanex Corporation is publicly announced, a press release
announcing its opposition to such Acquisition Proposal; or
(D) resolve to take any action described in clauses
(ii) or (iii) of this sentence (each of
the foregoing actions described in clauses (ii) and
(iii) being referred to as a Company Change
in Recommendation).
(c) Notwithstanding anything to the contrary contained in
Section 5.2(b) or elsewhere in this Agreement, at any time
prior to the adoption of this Agreement by the Required Company
Stockholder Vote, the Company
Annex A-49
Board may effect, or cause the Company to effect, as the case
may be, a Company Change in Recommendation:
(i) if: (A) the Company has not breached its
obligations under Section 4.4(a) in connection with the
offer referred to in the following clause (B);
(B) after the date of this Agreement, an unsolicited, bona
fide, written offer to purchase all of the outstanding shares of
Company Common Stock (whether through a tender offer, merger or
otherwise) is made to the Company and is not withdrawn;
(C) the Company Board determines in its good faith
judgment, after consulting with an independent financial advisor
and outside legal counsel, that such offer constitutes a Company
Superior Offer; (D) the Company Board does not effect, or
cause the Company to effect, a Company Change in Recommendation
at any time within five business days after Parent receives
written notice from the Company confirming that the Company
Board has determined that such offer is a Company Superior
Offer; (E) during such five business day period, if
requested by Parent, the Company engages in good faith
negotiations with Parent to amend this Agreement in such a
manner that the offer that was determined to constitute a
Company Superior Offer no longer constitutes a Company Superior
Offer; (F) at the end of such five business day period,
such offer has not been withdrawn and continues to constitute a
Company Superior Offer (taking into account any changes to the
terms of this Agreement proposed by Parent as a result of the
negotiations required by clause (E) or otherwise);
and (G) the Company Board determines in good faith, after
having consulted with its outside legal counsel, that, in light
of such Company Superior Offer, the failure to make a Company
Change in Recommendation would be a breach of the fiduciary
duties of the Company Board to the Companys stockholders
under applicable law; or
(ii) if: (A) other than the development or
circumstances contemplated by clause (i) of this
Section 5.2(c), a material development or change in
circumstances occurs or arises after the date of this Agreement
that was neither known to any Avanex Corporation or any
Representative of any Avanex Corporation nor reasonably
foreseeable to any Avanex Corporation as of the date of this
Agreement (such material development or change in circumstances
being referred to as an Intervening Event);
(B) at least five business days prior to any meeting of the
Company Board at which the Company Board will consider whether
such Intervening Event requires the Company Board to effect, or
cause the Company to effect, a Company Change in Recommendation,
the Company provides Parent with a written notice specifying the
date and time of such meeting and the reasons for holding such
meeting; (C) during such five business day period, if
requested by Parent, the Company engages in good faith
negotiations with Parent to amend this Agreement in such a
manner that obviates the need for the Company Board to effect,
or cause the Company to effect, a Company Change in
Recommendation as a result of such Intervening Event; and
(D) the Company Board determines in good faith, after
having consulted with its outside legal counsel, that, in light
of such Intervening Event, the failure to make a Company Change
in Recommendation would be a breach of the fiduciary duties of
the Company Board to the Companys stockholders under
applicable law.
(d) Notwithstanding any Company Change in Recommendation,
unless earlier terminated in accordance with Section 8.1,
this Agreement shall be submitted to the holders of
Companys Common Stock at the Company Stockholders
Meeting for the purpose of voting on the adoption of this
Agreement and nothing contained in this Agreement shall be
deemed to relieve the Company of such obligation.
5.3 Parent Stockholders Meeting.
(a) Parent: (i) shall take all action necessary under
all applicable Legal Requirements to call, give notice of and
hold a meeting of the holders of Parent Common Stock to vote on
a proposal to approve the issuance of shares of Parent Common
Stock in the Merger (the Parent Stockholders
Meeting); and (ii) shall submit such proposal to
such holders at the Parent Stockholders Meeting and,
except as otherwise contemplated by this Agreement (and except
for Parent Proposals), shall not submit any other proposal to
such holders in connection with the Parent Stockholders
Meeting without the prior written consent of the Company. Parent
in consultation with the Company shall set a record date for
persons entitled to notice of, and to vote at, the Parent
Stockholders Meeting and shall not change such record date
without the prior written consent of the Company. The Parent
Stockholders Meeting shall be held on the date that (or,
to the extent that Parent and
Annex A-50
the Company agree, as promptly as practicable after) this
Agreement shall have been adopted by the Companys
stockholders at the Company Stockholders Meeting. Parent
shall ensure that all proxies solicited in connection with the
Parent Stockholders Meeting are solicited in compliance
with all applicable Legal Requirements. Notwithstanding anything
to the contrary contained in this Agreement, Parent after
consultation with the Company may, or if requested by the
Company shall, adjourn or postpone the Parent Stockholders
Meeting: (A) to the extent necessary to ensure that any
supplement or amendment to the Joint Proxy Statement/Prospectus
that is required by applicable law is timely provided to
Parents stockholders; (B) if as of the time for which
the Parent Stockholders Meeting is originally scheduled
there are insufficient shares of Parent Common Stock represented
(either in person or by proxy) to constitute a quorum necessary
to conduct the business to be conducted at the Parent
Stockholders Meeting; or (C) if additional time is
reasonably required to solicit proxies in favor of the approval
of the issuance of shares of Parent Common Stock in the Merger.
(b) Subject to Section 5.3(c): (i) the Joint
Proxy Statement/Prospectus shall include a statement to the
effect that the Parent Board recommends that Parents
stockholders vote to approve: (A) the issuance of shares of
Parent Common Stock in the Merger; and (B) Parents
Certificate of Amendment at the Parent Stockholders
Meeting (the recommendation of the Parent Board that
Parents stockholders vote to approve: (A) the
issuance of Parent Common Stock in the Merger; and
(B) Parents Certificate of Amendment being
collectively referred to as the Parent Board
Recommendation); (ii) the Parent Board
Recommendation shall not be withdrawn or modified in a manner
adverse to the Company; (iii) neither the Parent Board nor
any committee thereof shall: (A) fail to reaffirm the
Parent Board Recommendation, or fail to publicly state that the
Merger and this Agreement and Parents Certificate of
Amendment are in the best interest of Parents
stockholders, within ten business days after the Company
requests in writing that such action be taken; (B) fail to
publicly announce, within ten business days after a tender offer
or exchange offer relating to the securities of Parent shall
have been commenced, a statement disclosing that the Parent
Board recommends rejection of such tender or exchange offer;
(C) fail to issue, within ten business days after an
Acquisition Proposal with respect to a Bookham Corporation is
publicly announced, a press release announcing its opposition to
such Acquisition Proposal; or (D) resolve to take any
action described in clauses (ii) or
(iii) of this sentence (each of the foregoing
actions described in clauses (ii) and
(iii) being referred to as a Parent Change
in Recommendation).
(c) Notwithstanding anything to the contrary contained in
Section 5.3(b) or elsewhere in this Agreement, at any time
prior to the approval of the issuance of shares of Parent Common
Stock in the Merger by the Required Parent Stockholder Vote, the
Parent Board may effect, or cause Parent to effect, as the case
may be, a Parent Change in Recommendation:
(i) if: (A) Parent has not breached its obligations
under Section 4.4(b) in connection with the offer referred
to in the following clause (B); (B) after the
date of this Agreement, an unsolicited, bona fide, written offer
to purchase all of the outstanding shares of Parent Common Stock
(whether through a tender offer, merger or otherwise) is made to
Parent and is not withdrawn; (C) the Parent Board
determines in its good faith judgment, after consulting with an
independent financial advisor and outside legal counsel, that
such offer constitutes a Parent Superior Offer; (D) the
Parent Board does not effect, or cause Parent to effect, a
Parent Change in Recommendation at any time within five business
days after the Company receives written notice from Parent
confirming that the Parent Board has determined that such offer
is a Parent Superior Offer; (E) during such five business
day period, if requested by the Company, Parent engages in good
faith negotiations with the Company to amend this Agreement in
such a manner that the offer that was determined to constitute a
Parent Superior Offer no longer constitutes a Parent Superior
Offer; (F) at the end of such five business day period,
such offer has not been withdrawn and continues to constitute a
Parent Superior Offer (taking into account any changes to the
terms of this Agreement proposed by the Company as a result of
the negotiations required by clause (E) or
otherwise); and (G) the Parent Board determines in good
faith, after having consulted with its outside legal counsel,
that, in light of such Parent Superior Offer, the failure to
make a Parent Change in Recommendation would be a breach of the
fiduciary duties of the Parent Board to Parents
stockholders under applicable law; or
Annex A-51
(ii) if: (A) other than the development or
circumstances contemplated by clause (i) of this
Section 5.3(c), a material development or change in
circumstances occurs or arises after the date of this Agreement
that was neither known to any Bookham Corporation or any
Representative of any Bookham Corporation nor reasonably
foreseeable to any Bookham Corporation as of the date of this
Agreement (such material development or change in circumstances
being referred to as an Intervening Event);
(B) at least five business days prior to any meeting of the
Parent Board at which the Parent Board will consider whether
such Intervening Event requires the Parent Board to effect, or
cause Parent to effect, a Parent Change in Recommendation,
Parent provides the Company with a written notice specifying the
date and time of such meeting and the reasons for holding such
meeting; (C) during such five business day period, if
requested by the Company, Parent engages in good faith
negotiations with the Company to amend this Agreement in such a
manner that obviates the need for the Parent Board to effect, or
cause Parent to effect, a Parent Change in Recommendation as a
result of such Intervening Event; and (D) the Parent Board
determines in good faith, after having consulted with its
outside legal counsel, that, in light of such Intervening Event,
the failure to make a Parent Change in Recommendation would be a
breach of the fiduciary duties of the Parent Board to
Parents stockholders under applicable law.
(d) Notwithstanding any Parent Change in Recommendation,
unless earlier terminated in accordance with Section 8.1,
this Agreement shall be submitted to the holders of Parent
Common Stock at the Parent Stockholders Meeting for the
purpose of voting on the approval of the issuance of shares of
Parent Common Stock in the Merger and nothing contained in this
Agreement shall be deemed to relieve Parent of such obligation.
5.4 Stock Options; Company RSUs; Company ESPP;
Company Officer and Director SPP and Company Warrants.
(a) At the Effective Time, each Company Option that is
outstanding and unexercised immediately prior to the Effective
Time, whether or not vested, shall be converted into and become
an option to purchase Parent Common Stock, and Parent shall
assume such Company Option in accordance with the terms (as in
effect as of the date of this Agreement) of the applicable
Company Option Plan and the terms of the stock option agreement
by which such Company Option is evidenced. All rights with
respect to Company Common Stock under Company Options assumed by
Parent shall thereupon be converted into options with respect to
Parent Common Stock. Accordingly, from and after the Effective
Time: (A) each Company Option assumed by Parent may be
exercised solely for shares of Parent Common Stock; (B) the
number of shares of Parent Common Stock subject to each Company
Option assumed by Parent shall be determined by multiplying the
number of shares of Company Common Stock that were subject to
such Company Option immediately prior to the Effective Time by
the Exchange Ratio, and rounding the resulting number down to
the nearest whole number of shares of Parent Common Stock;
(C) the per share exercise price for the Parent Common
Stock issuable upon exercise of each Company Option assumed by
Parent shall be determined by dividing the per share exercise
price of Company Common Stock subject to such Company Option, as
in effect immediately prior to the Effective Time, by the
Exchange Ratio, and rounding the resulting exercise price up to
the nearest whole cent; and (D) any restriction on the
exercise of any Company Option assumed by Parent shall continue
in full force and effect and the term, exercisability, vesting
schedule and other provisions of such Company Option shall
otherwise remain unchanged as a result of the assumption of such
Company Option; provided, however, that Parent Board or a
committee thereof shall succeed to the authority and
responsibility of the Company Board or any committee thereof
with respect to each Company Option assumed by Parent.
(b) Effective as of the Effective Time, each Company RSU
with respect to which shares of Company Common Stock remain
unvested or unissued as of the Effective Time shall be converted
automatically into a restricted stock unit reflecting Parent
Common Stock and shall remain subject to the vesting conditions
in effect on the date hereof, except that the number of shares
of Parent Common Stock subject to each such converted Company
RSU shall be determined by multiplying the number of shares of
Company Common Stock subject to such Company RSU by the Exchange
Ratio and rounding the resulting number down to the nearest
whole number of shares of Parent Common Stock.
Annex A-52
(c) Parent shall file with the SEC, no later than
15 days after the date on which the Merger becomes
effective, a registration statement on
Form S-8,
if available for use by Parent, relating to the shares of Parent
Common Stock issuable with respect to the Company Options
assumed by Parent in accordance with Section 5.4(a) and the
Company RSUs converted in accordance with Section 5.4(b).
(d) At the Effective Time, Parent may (if Parent determines
that it desires to do so) assume any or all of the Company
Option Plans. If Parent elects to assume any Company Option
Plan, then, under such Company Option Plan, Parent shall be
entitled to grant stock awards, to the extent permissible under
applicable Legal Requirements, using the share reserves of such
Company Option Plan as of the Effective Time (including any
shares returned to such share reserves as a result of the
termination of Company Options that are assumed by Parent
pursuant to Section 5.4(a)), except that: (i) stock
covered by such awards shall be shares of Parent Common Stock;
(ii) all references in such Company Option Plan to a number
of shares of Company Common Stock shall be deemed amended to
refer instead to a number of shares of Parent Common Stock
determined by multiplying the number of referenced shares of
Company Common Stock by the Exchange Ratio, and rounding the
resulting number down to the nearest whole number of shares of
Parent Common Stock; and (iii) the Parent Board or a
committee thereof shall succeed to the authority and
responsibility of the Company Board or any committee thereof
with respect to the administration of such Company Option Plan.
(e) Prior to the Effective Time, the Company shall take all
action that may be necessary (under the Company Option Plans and
otherwise) to effectuate the provisions of this Section 5.4
and to ensure that, from and after the Effective Time, holders
of Company Options and Company RSUs have only those rights with
respect thereto specifically provided in this Section 5.4.
(f) Prior to the Effective Time, the Company shall take all
action that may be necessary to: (i) cause any outstanding
offering period (or similar period during which Company Common
Stock may be purchased) under the Company ESPP and the Company
Officer and Director SPP to be terminated as of the last
business day prior to the date on which the Merger becomes
effective (the last business day prior to, or if more
administratively advisable, the last payroll date of the Company
immediately prior to, the date on which the Merger becomes
effective being referred to as the Designated
Date); (ii) make any pro-rata adjustments that
may be necessary to reflect the shortened offering period (or
similar period), but otherwise treat such shortened offering
period (or similar period) as a fully effective and completed
offering period for all purposes under the Company ESPP and the
Company Officer and Director SPP; (iii) cause the exercise
as of the Designated Date of each outstanding purchase right
under the Company ESPP and Company Officer and Director SPP; and
(iv) provide that no further offering period (or similar
period) or purchase period shall commence under the Company ESPP
or the Company Officer and Director SPP after the Designated
Date; provided, however, that the actions described in
clauses (i) through (iv) of this
sentence shall be conditioned upon the consummation of the
Merger. On the Designated Date, the Company shall apply the
funds credited as of such date under the Company ESPP and the
Company Officer and Director SPP within each participants
payroll withholding account to the purchase of whole shares of
Company Common Stock in accordance with the terms of the Company
ESPP and the Company Officer and Director SPP. Immediately prior
to and effective as of the Effective Time (and subject to the
consummation of the Merger), the Company shall terminate the
Company ESPP and the Company Officer and Director SPP.
(g) At the Effective Time, each Company Warrant that is
outstanding and unexercised immediately prior to the Effective
Time, whether or not vested, shall be converted into and become
a warrant to purchase Parent Common Stock, and Parent shall
replace such Company Warrant by issuing a reasonably equivalent
replacement stock warrant in substitution therefor, in either
case in accordance with the terms (as in effect as of the date
of this Agreement) of the terms of the warrant agreement by
which such Company Warrant is evidenced. All rights with respect
to Company Common Stock under any Company Warrant replaced by
Parent shall thereupon be converted into warrants with respect
to Parent Common Stock. Accordingly, from and after the
Effective Time: (i) each Company Warrant assumed or
replaced by Parent may be exercised solely for shares of Parent
Common Stock; (ii) the number of shares of Parent Common
Stock subject to each Company Warrant assumed or replaced by
Parent shall be determined by multiplying the number of shares
of Company Common Stock that were subject to such Company
Warrant immediately prior to the Effective Time by the Exchange
Ratio, and rounding the resulting number down to the nearest
whole number of shares of
Annex A-53
Parent Common Stock; (iii) the per share exercise price for
the Parent Common Stock issuable upon exercise of each Company
Warrant replaced by Parent shall be determined by dividing the
per share exercise price of Company Common Stock subject to such
Company Warrant, as in effect immediately prior to the Effective
Time, by the Exchange Ratio, and rounding the resulting exercise
price up to the nearest whole cent; and (iv) any
restriction on the exercise of any Company Warrant replaced by
Parent shall continue in full force and effect and the term,
exercisability, vesting schedule and other provisions of such
Company Warrant shall otherwise remain unchanged as a result of
the replacement of such Company Warrant.
5.5 Employee Benefits.
(a) Parent agrees that, subject to any necessary transition
period and subject to any applicable plan provisions,
contractual requirements or Legal Requirements: (i) all
employees of the Avanex Corporations who continue employment
with Parent, the Surviving Corporation or any Subsidiary of the
Surviving Corporation after the Effective Time
(Continuing Employees) shall be eligible to
participate in Parents health, vacation and 401(k) plans,
to substantially the same extent as similarly situated employees
of Parent; and (ii) for purposes of determining a
Continuing Employees eligibility to participate in such
plans (but not for purposes of benefit accrual), such Continuing
Employee shall receive credit under such plans for his or her
years of continuous service with the Avanex Corporations prior
to the Effective Time. Parent currently intends to allow the
Continuing Employees to continue to participate in Avanexs
health and 401(k) plans until the end of the 2009 calendar year.
(b) With respect to each employee benefit plan
as defined in Section 3(3) of ERISA and each vacation and
severance plan (that is not an employee benefit plan as
defined in Section 3(3) of ERISA) maintained by Parent or
any Subsidiary of Parent (collectively, the Parent
Benefit Plans) in which any Continuing Employee will
participate after the Effective Time, Parent shall, or shall
cause the Surviving Corporation to, recognize all service of the
Continuing Employees with the Company or a Subsidiary, as the
case may be, for purposes of eligibility, vesting and
participation, but not for purposes of benefit accrual, in any
such Parent Benefit Plan. In addition, Parent shall or shall
cause the Surviving Corporation to: (i) waive all
limitations as to preexisting conditions, exclusions and waiting
periods with respect to participation and coverage requirements
(provided that such preexisting condition limitations,
exclusions or waiting periods can legally be waived by Parent or
the Surviving Corporation without the consent of any insurance
carrier) applicable to the Continuing Employees under any Parent
Benefit Plan that is a welfare benefit plan in which such
Continuing Employees may be eligible to participate after the
Effective Time, other than preexisting condition limitations,
exclusions or waiting periods that are already in effect with
respect to such Continuing Employees and that have not been
satisfied or waived as of the Effective Time under any welfare
benefit plan maintained for the Continuing Employees immediately
prior to the Effective Time; and (ii) provide each
Continuing Employee with credit for any co-payments and
deductibles paid prior to the Effective Time in satisfying any
applicable deductible or out-of-pocket requirements under any
Benefit Plan that is a welfare plans in which such Continuing
Employees may be eligible to participate after the Effective
Time, (provided that such credits can legally be provided by
Parent or the Surviving Corporation without the consent of any
insurance carrier).
(c) Nothing in this Section 5.5 or elsewhere in this
Agreement shall be construed to create a right in any Company
Associate to employment with Parent, the Surviving Corporation
or any other Subsidiary of Parent. Except for Indemnified
Parties (as defined in Section 5.6) to the extent of their
respective rights pursuant to Section 5.6, no Company
Associate, and no Continuing Employee, shall be deemed to be a
third party beneficiary of this Agreement. No provision of this
Section 5.5 shall modify or amend any other agreement,
plan, program or document unless this Agreement expressly states
that the provision amends that other agreement,
plan, program or document.
(d) If requested by Parent at least five days prior to the
Closing, the Company shall take (or cause to be taken) all
actions necessary or appropriate to terminate, effective no
later than the day prior to the date on which the Merger becomes
effective, any Company Employee Plan that contains a cash or
deferred arrangement intended to qualify under
Section 401(k) of the Code (a Company 401(k)
Plan). If the Company is required to terminate any
Company 401(k) Plan, then the Company shall provide to Parent
prior to the Closing Date written evidence of the adoption by
the Company Board of resolutions authorizing the
Annex A-54
termination of such Company 401(k) Plan (the form and substance
of which resolutions shall be subject to the reasonable review
of Parent).
(e) To the extent any employee notification or consultation
requirements are imposed by applicable Legal Requirements with
respect to any of the Contemplated Transactions, the Company
shall cooperate with Parent to ensure that such requirements are
complied with prior to the Effective Time. Prior to the
Effective Time, the Company shall not, and shall ensure that its
Subsidiaries and the respective Representatives of the Avanex
Corporations do not, communicate with any employees of the
Avanex Corporations regarding post-Closing employment matters,
including post-Closing employee benefits and compensation,
without the prior written approval of Parent, which approval
shall not be unreasonably withheld.
5.6 Indemnification of Officers and Directors.
(a) For a period of six years after the Effective Time,
Parent shall cause the Surviving Corporation and its
Subsidiaries to indemnify their respective current or former
directors and officers and any person who becomes a director or
officer of any of the Avanex Corporations prior to the Effective
Time (the Indemnified Parties) to the fullest
extent that applicable Legal Requirements permit a company to
indemnify its own directors and officers.
(b) For a period of six years following the Effective Time,
Parent and the Surviving Corporation shall cause to be
maintained in effect the existing policy of Companys
directors and officers liability insurance (or a
comparable replacement policy) (the D&O
Policy) covering claims arising from facts or events
that occurred at or prior to the Effective Time to the extent
that such claims are of the type covered by the D&O Policy
(including for acts or omissions occurring in connection with
this Agreement and the consummation of the Contemplated
Transactions to the extent that such acts or omissions are
covered by the D&O Policy) and covering each Indemnified
Party who is covered as of the Effective Time by the D&O
Policy, in any case on terms with respect to coverage and
amounts that are no less favorable in the aggregate than those
terms in effect on the date hereof; provided, however,
that in no event shall Parent or the Surviving Corporation be
required to expend in any one year an amount in excess of 150%
of the current annual premium paid by the Company (which annual
premium is set forth on Part 5.6(b) of the Company
Disclosure Schedule) for such insurance (such 150% amount, the
Maximum Annual Premium); and provided
further, however, that if the annual premiums of such
insurance coverage exceed the Maximum Annual Premium, Parent and
the Surviving Corporation shall be obligated to obtain a policy
with the greatest comparable coverage available for a cost not
exceeding the Maximum Annual Premium. Notwithstanding anything
to the contrary in this Agreement, in lieu of its obligations
under the first sentence of this Section 5.6(b), Parent may
purchase a six-year tail prepaid policy on the
D&O Policy on terms with respect to coverage and amounts no
less favorable in the aggregate than the D&O Policy, and in
the event that Parent shall purchase such a tail
policy, Parent and the Surviving Corporation shall maintain such
tail policy in full force and effect and continue to
honor their respective obligations thereunder, in lieu of all
other obligations of Parent and the Surviving Corporation under
the first sentence of this Section 5.6(b) for so long as
such tail policy shall be maintained in full force
and effect.
(c) The obligations under this Section 5.6 shall not
be terminated, amended or otherwise modified in such a manner as
to adversely affect any Indemnified Party (or any other person
who is a beneficiary under the D&O Policy or the
tail policy referred to in Section 5.6(b)) (and
any of such persons heirs and representatives)) without
the prior written consent of such affected Indemnified Party or
other person who is a beneficiary under the D&O Policy or
the tail policy referred to in Section 5.6(b)
(and, after the death of any of the foregoing persons, such
persons heirs and representatives). Each of the
Indemnified Parties or other persons who are beneficiaries under
the D&O Policy or the tail policy referred to
in Section 5.6(b) (and, after the death of any of the
foregoing persons, such persons heirs and representatives)
are intended to be third party beneficiaries of this
Section 5.6, with full rights of enforcement as if a party
thereto. The rights of the Indemnified Parties (and other
persons who are beneficiaries under the D&O Policy or the
tail policy referred to in Section 5.6(b) (and
their heirs and representatives)) under this Section 5.6
shall be in addition to, and not in substitution for, any other
rights that such persons may have under the certificate or
articles of incorporation, bylaws or other equivalent
organizational documents, any and all indemnification agreements
of
Annex A-55
or entered into by Company or any of its Subsidiaries, or
applicable Legal Requirement (whether at law or in equity).
(d) In the event that Parent, the Surviving Corporation or
any of their Subsidiaries (or any of their respective successors
or assigns) shall consolidate or merge with any other person and
shall not be the continuing or surviving corporation or entity
in such consolidation or merger, then in each case, to the
extent necessary to protect the rights of the Indemnified
Parties, proper provision shall be made so that the continuing
or surviving corporation or entity (or its successors or
assigns, if applicable) shall assume the obligations set forth
in this Section 5.6.
5.7 Regulatory Approvals and Related Matters.
(a) Each party shall use reasonable best efforts to file,
as soon as practicable after the date of this Agreement, all
notices, reports and other documents required to be filed by
such party with any Governmental Body with respect to the Merger
and the other Contemplated Transactions, and to submit promptly
any additional information requested by any such Governmental
Body. Without limiting the generality of the foregoing, the
Company and Parent shall, promptly after the date of this
Agreement, prepare and file the notifications required under any
Legal Requirement that is designed to prohibit, restrict or
regulate actions having the purpose or effect of monopolization
or restraint of trade (collectively, Antitrust
Laws) in connection with the Merger. The Company and
Parent shall use reasonable best efforts to respond as promptly
as practicable to any inquiries or requests received from any
state attorney general, antitrust authority or other
Governmental Body in connection with antitrust or related
matters.
(b) Subject to Section 5.7(c), Parent and the Company
shall use reasonable best efforts to take, or cause to be taken,
all actions necessary to consummate the Merger and make
effective the other Contemplated Transactions. Without limiting
the generality of the foregoing, but subject to
Section 5.7(c), each party to this Agreement:
(i) shall make all filings (if any) and give all notices
(if any) required to be made and given by such party in
connection with the Merger and the other Contemplated
Transactions; (ii) shall use reasonable best efforts to
obtain each Consent (if any) required to be obtained (pursuant
to any applicable Legal Requirement or Contract, or otherwise)
by such party in connection with the Merger or any of the other
Contemplated Transactions; and (iii) shall use commercially
reasonable efforts to lift any restraint, injunction or other
legal bar to the Merger.
(c) Notwithstanding anything to the contrary contained in
this Section 5.7, none of Parent, Merger Sub or the Company
shall have any obligation under this Agreement: (i) to
divest or agree to divest (or cause any of its Subsidiaries to
divest or agree to divest) any of its respective businesses,
product lines or assets, or to take or agree to take (or cause
any of its Subsidiaries to take or agree to take) any other
action or agree (or cause any of its Subsidiaries to agree) to
any limitation or restriction on any of its respective
businesses, product lines or assets; (ii) to license or
otherwise make available (or cause any of its Subsidiaries to
license or otherwise make available) to any Person, any
technology, software or other Intellectual Property or
Intellectual Property Right; or (iii) to contest any
lawsuit by any Governmental Body relating to the Merger or any
of the other Contemplated Transactions.
5.8 Disclosure. Parent
and the Company: (a) have agreed to the text of the joint
press release announcing the signing of this Agreement; and
(b) shall consult with each other before issuing any
further press release or otherwise making any public statement,
and shall not issue any such press release or make any such
public statement without the prior written consent of the other
party hereto, which consent shall not be unreasonably withheld,
delayed or conditioned. The Company shall consult with Parent
and consider the views and comments of Parent before any of the
Avanex Corporations or any of their Representatives sends any
emails or other documents to the Company Associates generally or
otherwise communicate with the Company Associates generally,
with respect to the Merger or any of the other Contemplated
Transactions. Notwithstanding the foregoing:: (i) each
party may, without such consultation or consent, make any public
statement in response to questions from the press, analysts,
investors or those attending industry conferences and make
internal announcements to employees, so long as such statements
are consistent with previous press releases, public disclosures
or public statements made jointly by the parties (or
individually, if approved by the other party), (ii) a party
may, without the prior consent of the other party hereto, issue
any such press release or
Annex A-56
make any such public announcement or statement as may be
required by Legal Requirement or the rules and regulations of
the Nasdaq if it first notifies and consults with the other
party hereto prior to issuing any such press release or making
any such public announcement or statement; (iii) the
Company need not consult with Parent in connection with any
press release, public statement or filing to be issued or made
with respect to any Acquisition Proposal relating to any Avanex
Corporation or any Company Change in Recommendation; and
(iv) Parent need not consult with the Company in connection
with any press release, public statement or filing to be issued
or made with respect to any Acquisition Proposal relating to any
Bookham Corporation or any Parent Change in Recommendation.
5.9 Tax
Matters. Prior to the filing of the
Form S-4
Registration Statement, the Company, Parent and Merger Sub shall
execute and deliver to Cooley Godward Kronish
llp and to Wilson
Sonsini Goodrich & Rosati, P.C. tax
representation letters in customary form. To the extent
requested by Parent or the Company, each of Parent, Merger Sub
and the Company shall confirm to Cooley Godward Kronish
llp and to Wilson
Sonsini Goodrich & Rosati, P.C. the accuracy and
completeness as of the Effective Time of the tax representation
letters delivered pursuant to the immediately preceding
sentence. Following the delivery of the tax representation
letters pursuant to the first sentence of this Section 5.9:
(a) Parent shall use commercially reasonable efforts to
cause Cooley Godward Kronish
llp to deliver to
it a tax opinion satisfying the requirements of Item 601 of
Regulation S-K
under the Securities Act; and (b) the Company shall use
commercially reasonable efforts to cause Wilson Sonsini
Goodrich & Rosati, P.C. to deliver to it a tax
opinion satisfying the requirements of Item 601 of
Regulation S-K
under the Securities Act. In rendering such opinions, each of
such counsel shall be entitled to rely on the tax representation
letters referred to in this Section 5.9.
5.10 Obligations of Merger
Sub. Parent shall take all action necessary
to cause Merger Sub and, after the Effective Time, the Surviving
Corporation to perform their respective obligations under this
Agreement and to consummate the Contemplated Transactions upon
the terms and subject to the conditions set forth in this
Agreement.
5.11 Listing. Parent
shall use reasonable best efforts to cause the shares of Parent
Common Stock to be issued in the Merger, including the Parent
Common Stock to be issued upon the exercise of assumed and
converted Company Options and upon vesting of assumed and
converted Company RSUs, to be approved for listing (subject to
notice of issuance) on the NASDAQ Global Market at or prior to
the Effective Time.
5.12 Resignation of Officers and
Directors. The Company shall use commercially
reasonable efforts to obtain and deliver to Parent at or prior
to the Effective Time the resignation of each corporate officer
and director of each of the Avanex Corporations, effective, in
the case of a director of the Company, 24 hours after the
Effective Time (it being understood that such resignation shall
not constitute a voluntary termination of employment under any
Company Employee Agreement or Company Employee Plan applicable
to such individuals status as a corporate officer or
director of an Avanex Corporation). Parent shall use
commercially reasonable efforts to obtain and deliver to the
Company at or prior to the Effective Time the resignation of
each director of Parent other than those directors continuing in
office in accordance with Section 5.13 (it being understood
that such resignation shall not constitute a voluntary
termination of employment under any Parent Employee Agreement or
Parent Employee Plan applicable to such individuals status
as a director of Parent).
5.13 Board of Directors of the
Combined Company. The parties shall take all
actions necessary to ensure that effective immediately following
the Effective Time, the Parent Board and its committees shall
consist of the members listed on
Schedule 5.13
(unless otherwise agreed between the parties in writing prior to
the Effective Time), each to be in the class identified on
Schedule 5.13 and to hold office from and after the
Effective Time until the earliest of appointment of his or her
respective successor, resignation or proper removal.
5.14 Section 16
Matters. Subject to the following sentence,
prior to the Effective Time, Parent and the Company shall take
all such steps as may be required (to the extent permitted under
applicable Legal Requirements and no-action letters issued by
the SEC) to cause any dispositions of Company Common Stock
(including derivative securities with respect to Company Common
Stock) resulting from the contemplated Transactions by each
individual who is subject to the reporting requirements of
Section 16(a) of the Exchange
Annex A-57
Act with respect to the Company, and the acquisition of Parent
Common Stock (including derivative securities with respect to
Parent Common Stock) by each individual who is or will be
subject to the reporting requirements of Section 16(a) of
the Exchange Act with respect to Parent, to be exempt under
Rule 16b-3
under the Exchange Act. At least 30 days prior to the
Closing Date, the Company shall furnish the following
information to Parent for each individual who, immediately after
the Effective Time, will become subject to the reporting
requirements of Section 16(a) of the Exchange Act with
respect to Parent: (a) the number of shares of Company
Common Stock held by such individual and expected to be
exchanged for shares of Parent Common Stock pursuant to the
Merger; (b) the number of Company Options and Company RSUs
held by such individual and expected to be converted into
options
and/or
restricted stock units to purchase or rights to be issued shares
of Parent Common Stock in connection with the Merger; and
(c) the number of other derivative securities (if any) with
respect to Company Common Stock held by such individual and
expected to be converted into shares of Parent Common Stock or
derivative securities with respect to Parent Common Stock in
connection with the Merger.
5.15 Internal
Controls. If, during the Pre-Closing Period,
the Company or the Companys auditors identify any material
weaknesses (or a series of control deficiencies that
collectively are deemed to constitute a material weakness) in
the effectiveness of the Companys internal control over
financial reporting, then the Company shall promptly notify
Parent thereof and use its commercially reasonable efforts
during the Pre-Closing Period to rectify such material weakness
or series of control deficiencies, as the case may be. If,
during the Pre-Closing Period, Parent or Parents auditors
identify any material weaknesses (or a series of control
deficiencies that collectively are deemed to constitute a
material weakness) in the effectiveness of Parents
internal control over financial reporting, then Parent shall
promptly notify the Company thereof and use its commercially
reasonable efforts during the Pre-Closing Period to rectify such
material weakness or series of control deficiencies, as the case
may be.
5.16 Name of the Combined
Corporation. The parties shall take all
actions necessary to ensure that effective as promptly as
practicable following the Effective Time the name of Parent
shall be the name mutually agreed to by Parent and the Company.
The obligations of Parent and Merger Sub to cause the Merger to
be effected and otherwise cause the Contemplated Transactions to
be consummated are subject to the satisfaction, at or prior to
the Closing, of each of the following conditions:
6.1 Accuracy of Representations.
(a) Each of the Company Designated Representations shall
have been accurate in all material respects as of the date of
this Agreement and shall be accurate in all material respects as
of the Closing Date as if made on and as of the Closing Date
(except for any such representations and warranties made as of a
specific date, which shall have been accurate in all material
respects as of such date); provided, however, that, for
purposes of determining the accuracy of such representations and
warranties as of the foregoing dates, all materiality
qualifications limiting the scope of such representations and
warranties shall be disregarded.
(b) Each of the representations and warranties of the
Company (other than the Company Designated Representations)
shall have been accurate in all respects as of the date of this
Agreement and shall be accurate in all respects as of the
Closing Date as if made on and as of the Closing Date (except
for any such representations and warranties made as of a
specific date, which shall have been accurate in all respects as
of such date); provided, however, that: (i) for
purposes of determining the accuracy of such representations and
warranties as of the foregoing dates all materiality
qualifications limiting the scope of such representations and
warranties shall be disregarded; and (ii) any inaccuracies
in such representations and warranties will be disregarded if
the circumstances giving rise to all such inaccuracies
(considered collectively) do not constitute, and would not
reasonably be expected to have or result in, a Company Material
Adverse Effect.
6.2 Performance of
Covenants. The covenants and obligations in
this Agreement that the Company is required to comply with or to
perform at or prior to the Closing shall have been complied with
and performed in all material respects.
Annex A-58
6.3 Effectiveness of Registration
Statement. The
Form S-4
Registration Statement shall have become effective in accordance
with the provisions of the Securities Act; no stop order shall
have been issued by the SEC and shall remain in effect with
respect to the
Form S-4
Registration Statement; and no proceeding seeking such a stop
order shall have been initiated by the SEC and remain pending or
shall be threatened by the SEC.
(a) This Agreement shall have been duly adopted by the
Required Company Stockholder Vote;
(b) The issuance of shares of Parent Common Stock in the
Merger shall have been duly approved by the Required Parent
Stockholder Vote; and
(c) Parents Certificate of Amendment shall have been
duly adopted by the Required Amendment Vote.
6.5 Documents. Parent
and Merger Sub shall have received the following documents, each
of which shall be in full force and effect:
(a) a legal opinion of Cooley Godward Kronish
llp, dated as of
the Closing Date and addressed to Parent, to the effect that the
Merger will constitute a reorganization within the meaning of
Section 368 of the Code (it being understood that:
(i) in rendering such opinion, Cooley Godward
llp may rely upon
the tax representation letters referred to in Section 5.9;
and (ii) if Cooley Godward Kronish
llp does not
render such opinion or withdraws or modifies such opinion, this
condition shall nonetheless be deemed to be satisfied if Wilson
Sonsini Goodrich & Rosati, P.C. renders such
opinion to Parent); and
(b) a certificate executed by the Chief Executive Officer
and Chief Financial Officer of the Company confirming that the
conditions set forth in 6.1, 6.2, 6.4(a), 6.6, 6.10 and 6.11
have been duly satisfied.
6.6 No Company Material Adverse
Effect. Since the date of this Agreement,
there shall not have occurred any Company Material Adverse
Effect which has not been cured, and no event shall have
occurred or circumstance shall exist that, in combination with
any other events or circumstances then in existence, would
reasonably be expected to have or result in a Company Material
Adverse Effect.
(a) Any waiting period applicable to the consummation of
the Merger under any applicable Antitrust Law (including the HSR
Act) shall have expired or been terminated.
(b) Any Governmental Authorization or other Consent
required to be obtained with respect to the Merger under any
applicable Antitrust Law or other Legal Requirement shall have
been obtained and shall remain in full force and effect (other
than any such Governmental Authorization or Consent under other
Legal Requirements, the failure to obtain which would not
reasonably be expected to have a Company Material Adverse Effect
or a Parent Material Adverse Effect), and no such Governmental
Authorization or other Consent so obtained shall require,
contain or contemplate any term, limitation, condition or
restriction that has or would reasonably be expected to have or
result in a Company Material Adverse Effect or a Parent Material
Adverse Effect.
6.8 Listing. The
shares of Parent Common Stock to be issued in the Merger,
including the Parent Common Stock to be issued upon the exercise
of assumed and converted Company Options and upon vesting of
assumed and converted Company RSUs, shall have been approved for
listing (subject to notice of issuance) on the NASDAQ Global
Market.
6.9 No
Restraints. No temporary restraining order,
preliminary or permanent injunction or other Order preventing
the consummation of the Merger shall have been issued by any
court of competent jurisdiction or other Governmental Body and
remain in effect, and there shall not be any Legal Requirement
enacted or deemed applicable to the Merger that makes
consummation of the Merger illegal.
6.10 No Governmental
Litigation. There shall not be pending any
suit, action or judicial proceeding brought by, or overtly
threatened by, a Governmental Body: (a) challenging or
seeking to restrain, prohibit, rescind or unwind the
consummation of the Merger or any of the other Contemplated
Transactions; (b) seeking
Annex A-59
to prohibit or limit in any material respect Parents
ability to vote, transfer, receive dividends with respect to or
otherwise exercise ownership rights with respect to the stock of
the Surviving Corporation; (c) relating to the Merger or
the other Contemplated Transactions and that would reasonably be
expected to materially and adversely affect the right or ability
of Parent or any of the Avanex Corporations to own any of the
material assets or materially limit the operation of the
business of any of the Avanex Corporations; (d) seeking to
compel any of the Avanex Corporations, Parent or any Subsidiary
of Parent to dispose of or hold separate any material assets or
business as a result of the Merger or any of the other
Contemplated Transactions; or (e) relating to the Merger or
the other Contemplated Transactions and seeking to impose (or
that would reasonably be expected to result in the imposition
of) any criminal sanctions or criminal liability on Parent or
any of the Avanex Corporations,
6.11 Current SEC
Reports. The Company shall have filed all
statements, reports, schedules, forms and other documents
required to be filed with the SEC since the date of this
Agreement.
Section 7. Conditions
Precedent to Obligation of the Company
The obligation of the Company to effect the Merger and otherwise
consummate the Contemplated Transactions is subject to the
satisfaction, at or prior to the Closing, of the following
conditions:
(a) Each of the Parent Designated Representations shall
have been accurate in all material respects as of the date of
this Agreement and shall be accurate in all material respects as
of the Closing Date as if made on and as of the Closing Date
(except for any such representations and warranties made as of a
specific date, which shall have been accurate in all material
respects as of such date); provided, however, that, for
purposes of determining the accuracy of such representations and
warranties as of the foregoing dates, all materiality
qualifications limiting the scope of such representations and
warranties shall be disregarded.
(b) Each of the representations and warranties of Parent
and Merger Sub (other than the Parent Designated
Representations) shall have been accurate in all respects as of
the date of this Agreement and shall be accurate in all respects
as of the Closing Date as if made on and as of the Closing Date
(except for any such representations and warranties made as of a
specific date, which shall have been accurate in all respects as
of such date); provided, however, that: (i) for
purposes of determining the accuracy of such representations and
warranties as of the foregoing dates all materiality
qualifications limiting the scope of such representations and
warranties shall be disregarded; and (ii) any inaccuracies
in such representations and warranties will be disregarded if
the circumstances giving rise to all such inaccuracies
(considered collectively) do not constitute, and would not
reasonably be expected to have or result in, a Parent Material
Adverse Effect.
7.2 Performance of
Covenants. The covenants and obligations in
this Agreement that Parent and Merger Sub are required to comply
with or to perform at or prior to the Closing shall have been
complied with and performed in all material respects.
7.3 Effectiveness of Registration
Statement. The
Form S-4
Registration Statement shall have become effective in accordance
with the provisions of the Securities Act; no stop order shall
have been issued by the SEC and shall remain in effect with
respect to the
Form S-4
Registration Statement; and no proceeding seeking such a stop
order shall have been initiated by the SEC and remain pending or
shall be threatened by the SEC.
(a) This Agreement shall have been duly adopted by the
Required Company Stockholder Vote;
(b) The issuance of shares of Parent Common Stock in the
Merger shall have been duly approved by the Required Parent
Stockholder Vote; and
(c) Parents Certificate of Amendment shall have been
duly adopted by the Required Amendment Vote.
Annex A-60
7.5 Documents. The
Company shall have received the following documents:
(a) a legal opinion of Wilson Sonsini Goodrich &
Rosati, P.C., dated as of the Closing Date, to the effect
that the Merger will constitute a reorganization within the
meaning of Section 368 of the Code (it being understood
that: (i) in rendering such opinion, Wilson Sonsini
Goodrich & Rosati, P.C. may rely upon the tax
representation letters referred to in Section 5.9; and
(ii) if Wilson Sonsini Goodrich &
Rosati, P.C. does not render such opinion or withdraws or
modifies such opinion, this condition shall nonetheless be
deemed to be satisfied if Cooley Godward Kronish LLP renders
such opinion to the Company); and
(b) a certificate executed by an executive officer of
Parent confirming that the conditions set forth in
Sections 7.1, 7.2, 7.4(b), 7.6, 7.10 and 7.11 have been
duly satisfied.
7.6 No Parent Material Adverse
Effect. Since the date of this Agreement,
there shall not have occurred any Parent Material Adverse Effect
which has not been cured, and no event shall have occurred or
circumstance shall exist that, in combination with any other
events or circumstances, then in existence would reasonably be
expected to have or result in a Parent Material Adverse Effect.
(a) Any waiting period applicable to the consummation of
the Merger under any applicable Antitrust Law (including the HSR
Act) shall have expired or been terminated.
(b) Any Governmental Authorization or other Consent
required to be obtained with respect to the Merger under any
applicable Antitrust Law or other Legal Requirement shall have
been obtained and shall remain in full force and effect (other
than any such Governmental Authorization or Consent under other
Legal Requirements, the failure to obtain which would not
reasonably be expected to have a Company Material Adverse Effect
or a Parent Material Adverse Effect), and no such Governmental
Authorization or other Consent so obtained shall require,
contain or contemplate any term, limitation, condition or
restriction that has or would reasonably be expected to have or
result in a Company Material Adverse Effect or a Parent Material
Adverse Effect.
7.8 Listing. The
shares of Parent Common Stock to be issued in the Merger,
including the Parent Common Stock to be issued upon the exercise
of assumed and converted Company Options and upon vesting of
assumed and converted Company RSUs, shall have been approved for
listing (subject to notice of issuance) on the NASDAQ Global
Market.
7.9 No
Restraints. No temporary restraining order,
preliminary or permanent injunction or other Order preventing
the consummation of the Merger shall have been issued by any
court of competent jurisdiction or other Governmental Body and
remain in effect, and there shall not be any Legal Requirement
enacted or deemed applicable to the Merger that makes
consummation of the Merger illegal.
7.10 No Governmental
Litigation. There shall not be pending any
suit, action or judicial proceeding brought by, or overtly
threatened by, a Governmental Body: (a) challenging or
seeking to restrain, prohibit, rescind or unwind the
consummation of the Merger or any of the other Contemplated
Transactions; (b) seeking to prohibit or limit in any
material respect Parents ability to vote, transfer,
receive dividends with respect to or otherwise exercise
ownership rights with respect to the stock of the Surviving
Corporation; (c) relating to the Merger or the other
Contemplated Transactions and that would reasonably be expected
to materially and adversely affect the right or ability of
Parent or any of the Avanex Corporations to own any of the
material assets or materially limit the operation of the
business of any of the Avanex Corporations; (d) seeking to
compel any of the Avanex Corporations, Parent or any Subsidiary
of Parent to dispose of or hold separate any material assets or
business as a result of the Merger or any of the other
Contemplated Transactions; or (e) relating to the Merger or
the other Contemplated Transactions and seeking to impose (or
that would reasonably be expected to result in the imposition
of) any criminal sanctions or criminal liability on Parent or
any of the Avanex Corporations.
7.11 Current SEC
Reports. Parent shall have filed all
statements, reports, schedules, forms and other documents
required to be filed with the SEC since the date of this
Agreement.
Annex A-61
8.1 Termination. This
Agreement may be terminated prior to the Effective Time (whether
before or after adoption of this Agreement by the Companys
stockholders and whether before or after approval of the
issuance of shares of Parent Common Stock in the Merger by
Parents stockholders):
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company if the Merger shall not
have been consummated by July 26, 2009 (the End
Date); provided, however, that a party shall
not be permitted to terminate this Agreement pursuant to this
Section 8.1(b) if the failure to consummate the Merger by
the End Date is attributable to a failure on the part of such
party to perform any covenant or obligation in this Agreement
required to be performed by such party at or prior to the
Effective Time;
(c) by either Parent or the Company if a court of competent
jurisdiction or other Governmental Body shall have issued a
final and nonappealable Order, or shall have taken any other
action, having the effect of permanently restraining, enjoining
or otherwise prohibiting the Merger;
(d) by either Parent or the Company if: (i) the
Company Stockholders Meeting (including any adjournments
and postponements thereof) shall have been held and completed
and the Companys stockholders shall have taken a final
vote on a proposal to adopt this Agreement; and (ii) this
Agreement shall not have been adopted at the Company
Stockholders Meeting (and shall not have been adopted at
any adjournment or postponement thereof) by the Required Company
Stockholder Vote;
(e) by either Parent or the Company if: (i) the Parent
Stockholders Meeting (including any adjournments and
postponements thereof) shall have been held and completed and
Parents stockholders shall have taken a final vote on the
issuance of shares of Parent Common Stock in the Merger and on
Parents Certificate of Amendment; and (ii) either the
issuance of shares of Parent Common Stock in the Merger or
Parents Certificate of Amendment shall not have been
approved at the Parent Stockholders Meeting (and shall not
have been approved at any adjournment or postponement thereof)
by the Required Parent Stockholder Vote or the Required
Amendment Vote, as the case may be;
(f) by Parent (at any time prior to the adoption of this
Agreement by the Required Company Stockholder Vote) if a Company
Triggering Event shall have occurred;
(g) by the Company (at any time prior to the approval of
the issuance of shares of Parent Common Stock in the Merger by
the Required Parent Stockholder Vote and the approval of
Parents Certificate of Amendment by the Required Amendment
Vote) if a Parent Triggering Event shall have occurred;
(h) by Parent if: (i) any of the Companys
representations and warranties contained in this Agreement shall
be inaccurate as of the date of this Agreement such that the
condition set forth in Section 6.1(a) or the condition set
forth in Section 6.1(b) would not be satisfied, or shall
have become inaccurate as of a date subsequent to the date of
this Agreement (as if made on such subsequent date) such that
the condition set forth in Section 6.1(a) or the condition
set forth in Section 6.1(b) would not be satisfied (it
being understood that, for purposes of determining the accuracy
of such representations and warranties as of the date of this
Agreement or as of any subsequent date all materiality
qualifications limiting the scope of such representations and
warranties shall be disregarded); or (ii) any of the
Companys covenants or obligations contained in this
Agreement shall have been breached such that the condition set
forth in Section 6.2 would not be satisfied; provided,
however, that, for purposes of clauses (i) and
(ii) above, if an inaccuracy in any of the
Companys representations and warranties (as of the date of
this Agreement or as of a date subsequent to the date of this
Agreement) or a breach of a covenant or obligation by the
Company is curable by the Company by the End Date and the
Company is continuing to exercise its reasonable best efforts to
cure such inaccuracy or breach, then Parent may not terminate
this Agreement under this Section 8.1(h) on account of such
inaccuracy or breach unless such inaccuracy or breach shall
remain uncured for a period of 30 days commencing on the
date that Parent gives the Company notice of such inaccuracy or
breach; or
Annex A-62
(i) by the Company if: (i) any of Parents
representations and warranties contained in this Agreement shall
be inaccurate as of the date of this Agreement such that the
condition set forth in Section 7.1(a) or the condition set
forth in Section 7.1(b) would not be satisfied, or shall
have become inaccurate as of a date subsequent to the date of
this Agreement (as if made on such subsequent date) such that
the condition set forth in Section 7.1(a) or the condition
set forth in Section 7.1(b) would not be satisfied (it
being understood that, for purposes of determining the accuracy
of such representations and warranties as of the date of this
Agreement or as of any subsequent date all materiality
qualifications limiting the scope of such representations and
warranties shall be disregarded); or (ii) any of
Parents covenants or obligations contained in this
Agreement shall have been breached such that the condition set
forth in Section 7.2 would not be satisfied; provided,
however, that, for purposes of clauses (i) and
(ii) above, if an inaccuracy in any of Parents
representations and warranties (as of the date of this Agreement
or as of a date subsequent to the date of this Agreement) or a
breach of a covenant or obligation by Parent is curable by
Parent by the End Date and Parent is continuing to exercise its
reasonable best efforts to cure such inaccuracy or breach, then
the Company may not terminate this Agreement under this
Section 8.1(i) on account of such inaccuracy or breach
unless such inaccuracy or breach shall remain uncured for a
period of 30 days commencing on the date that the Company
gives Parent notice of such inaccuracy or breach.
8.2 Effect of
Termination. In the event of the termination
of this Agreement as provided in Section 8.1, this
Agreement shall be of no further force or effect;
provided,
however, that: (i) this Section 8.2,
Section 8.3 and Section 9 shall survive the
termination of this Agreement and shall remain in full force and
effect; (ii) the Confidentiality Agreement shall survive
the termination of this Agreement and shall remain in full force
and effect in accordance with its terms; and (iii) the
termination of this Agreement shall not relieve any party from
any liability for any intentional breach of this Agreement or
fraud.
(a) Except as set forth in this Section 8.3, all fees
and expenses incurred in connection with this Agreement and the
Contemplated Transactions shall be paid by the party incurring
such expenses, whether or not the Merger is consummated;
provided, however, that Parent and the Company shall
share equally all fees and expenses, other than attorneys
fees, incurred in connection with: (i) the filing, printing
and mailing of the
Form S-4
Registration Statement and the Joint Proxy Statement/Prospectus
and any amendments or supplements thereto; and (ii) the
filing by the parties hereto of any notice or other document
under any applicable antitrust or competition Legal Requirement.
(b) If this Agreement is terminated: (i) by Parent
pursuant to Section 8.1(f); or (ii) by Parent or the
Company pursuant to Section 8.1(d), and in the case of
clause (ii) of this sentence: (A) at or prior
to the time of the termination of this Agreement an Acquisition
Proposal with respect to an Avanex Corporation shall have been
disclosed, announced, commenced, submitted or made and shall not
have been withdrawn; and (B) on or prior to the first
anniversary of such termination of this Agreement, either:
(1) an Acquisition Transaction with respect to an Avanex
Corporation is consummated; or (2) a definitive agreement
relating to an Acquisition Transaction with respect to an Avanex
Corporation is entered into by an Avanex Corporation, then the
Company shall pay to Parent, in cash at the time specified in
the following sentence, a nonrefundable fee in the amount of
$1,640,000 (the Company Termination Fee). The
Company Termination Fee shall be paid as follows: (x) in
the case of clause (i) of the preceding sentence,
within two business days after termination of this Agreement;
and (y) in the case of clause (ii) of the
preceding sentence, within two business days after the first to
occur of the consummation of the Acquisition Transaction or the
entering into by an Avanex Corporation of the definitive
agreement.
If this Agreement is terminated by Parent or the Company
pursuant to Section 8.1(d), then the Company shall pay to
Parent in cash within two business days after the termination of
this Agreement the amount of $1,000,000 in respect of
Parents expenses in connection with this Agreement, which
shall be credited against the fees payable pursuant to this
Section 8.3(b), if any.
(c) If this Agreement is terminated: (i) by the
Company pursuant to Section 8.1(g); or (ii) by Parent
or the Company pursuant to Section 8.1(e), and in the case
of clause (ii) of this sentence: (A) at or
prior to the
Annex A-63
time of the termination of this Agreement an Acquisition
Proposal with respect to a Bookham Corporation shall have been
publicly disclosed or announced, and shall not have been
withdrawn; and (B) on or prior to the first anniversary of
such termination of this Agreement, either: (1) an
Acquisition Transaction with respect to a Bookham Corporation is
consummated; or (2) a definitive agreement relating to an
Acquisition Transaction with respect to a Bookham Corporation is
entered into by a Bookham Corporation, then Parent shall pay to
the Company, in cash at the time specified in the following
sentence, a nonrefundable fee in the amount of $1,640,000 (the
Parent Termination Fee). The Parent
Termination Fee shall be paid as follows: (x) in the case
of clause (i) of the preceding sentence, within two
business days after termination of this Agreement; and
(y) in the case of clause (ii) of the preceding
sentence, within two business days after the first to occur of
the consummation of the Acquisition Transaction or the entering
into by a Bookham Corporation of the definitive agreement.
If this Agreement is terminated by Parent or the Company
pursuant to Section 8.1(e), then Parent shall pay to the
Company in cash within two business days after the termination
of this Agreement the amount of $1,000,000 in respect of the
Companys expenses in connection with this Agreement, which
shall be credited against the fees payable pursuant to this
Section 8.3(c), if any.
(d) If a party fails to pay when due any amount payable by
such party under this Section 8.3, then: (i) such
party shall reimburse the other party for all costs and expenses
(including fees and disbursements of counsel) incurred in
connection with the collection of such overdue amount and the
enforcement by the other party of its rights under this
Section 8.3; and (ii) such party shall pay to the
other party interest on such overdue amount (for the period
commencing as of the date such overdue amount was originally
required to be paid through the date such overdue amount is
actually paid to the other party in full) at a rate per annum
equal to the lower of: (i) 350 basis points over the
prime rate (as announced by Citibank, N.A. or any
successor thereto) in effect on the date such overdue amount was
originally required to be paid; or (ii) the maximum rate
permitted by applicable Legal Requirements.
9.1 Amendment. This
Agreement may be amended with the approval of the respective
boards of directors of the Company and Parent at any time
(whether before or after the adoption of this Agreement by the
Companys stockholders and whether before or after approval
of the issuance of Parent Common Stock in the Merger by
Parents stockholders);
provided, however, that:
(a) after any such adoption of this Agreement by the
Companys stockholders, no amendment shall be made which by
applicable Legal Requirement requires further approval of the
stockholders of the Company without the further approval of such
stockholders; and (b) after any such approval of the
issuance of shares of Parent Common Stock in the Merger by
Parents stockholders, no amendment shall be made which by
law or regulation of the NASDAQ Global Market requires further
approval of Parents stockholders without the further
approval of such stockholders. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of
the parties hereto.
(a) Subject to Sections 9.2(b) and 9.2(c), at any time
prior to the Effective Time, any party hereto may:
(i) extend the time for the performance of any of the
obligations or other acts of the other parties to this
Agreement; (ii) waive any inaccuracy in or breach of any
representation, warranty, covenant or obligation of the other
party in this Agreement or in any document delivered pursuant to
this Agreement; and (iii) waive compliance with any
covenant, obligation or condition for the benefit of such party
contained in this Agreement.
(b) No failure on the part of any party to exercise any
power, right, privilege or remedy under this Agreement, and no
delay on the part of any party in exercising any power, right,
privilege or remedy under this Agreement, shall operate as a
waiver of such power, right, privilege or remedy; and no single
or partial exercise of any such power, right, privilege or
remedy shall preclude any other or further exercise thereof or
of any other power, right, privilege or remedy.
Annex A-64
(c) No party shall be deemed to have waived any claim
arising out of this Agreement, or any power, right, privilege or
remedy under this Agreement, unless the waiver of such claim,
power, right, privilege or remedy is expressly set forth in a
written instrument duly executed and delivered on behalf of such
party; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
9.4 Entire Agreement; Counterparts;
Exchanges by Facsimile or Electronic
Delivery. This Agreement and the other
agreements, exhibits and disclosure schedules referred to herein
constitute the entire agreement and supersede all prior
agreements and understandings, both written and oral, among or
between any of the parties with respect to the subject matter
hereof and thereof;
provided, however, that, except as
superseded by this Agreement, the Confidentiality Agreement
shall not be superseded and shall remain in full force and
effect in accordance with its terms (it being understood that no
provision in this Agreement or in the Confidentiality Agreement
shall limit any partys rights or remedies in the case of
fraud). This Agreement may be executed in several counterparts,
each of which shall be deemed an original and all of which shall
constitute one and the same instrument. The exchange of a fully
executed Agreement (in counterparts or otherwise) by facsimile
or by electronic delivery shall be sufficient to bind the
parties to the terms and conditions of this Agreement.
9.5 Applicable Law; Jurisdiction;
Specific Performance; Remedies. This
Agreement shall be governed by, and construed in accordance
with, the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of
conflicts of laws thereof. In any action between any of the
parties arising out of or relating to this Agreement or any of
the Contemplated Transactions: (a) each of the parties
irrevocably and unconditionally consents and submits to the
exclusive jurisdiction and venue of the Chancery Court of the
State of Delaware; and (b) each of the parties irrevocably
waives the right to trial by jury. The parties agree that
irreparable damage would occur and that the parties would not
have any adequate remedy at law in the event that any of the
provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions of this
Agreement, this being in addition to any other remedy to which
they are entitled at law or in equity. All rights and remedies
existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
9.6 Disclosure
Schedules. The Company Disclosure Schedule
shall be arranged in separate parts corresponding to the
numbered and lettered sections contained in Section 2. The
Parent Disclosure Schedule shall be arranged in separate parts
corresponding to the numbered and lettered sections contained in
Section 3. For purposes of this Agreement: (a) each
statement or other item of information set forth in the Company
Disclosure Schedule shall be deemed to be a representation and
warranty made by the Company in Section 2; and
(b) each statement or other item of information set forth
in the Parent Disclosure Schedule shall be deemed to be a
representation and warranty made by Parent in Section 3.
The Company Disclosure Schedule and Parent Disclosure Schedule
shall each be delivered as of the date hereof, and no amendments
or modifications thereto shall be made. Any purported update or
modification to the Company Disclosure Schedule or Parent
Disclosure Schedule after the date hereof shall be disregarded.
9.7 Attorneys
Fees. In any action at law or suit in equity
to enforce this Agreement or the rights of any of the parties
hereunder, the prevailing party in such action or suit shall be
entitled to receive a reasonable sum for its attorneys
fees and all other reasonable costs and expenses incurred in
such action or suit.
9.8 Assignability; No Third Party
Rights. This Agreement shall be binding upon,
and shall be enforceable by and inure solely to the benefit of,
the parties hereto and their respective successors and assigns;
provided, however, that neither this Agreement nor any
partys rights or obligations hereunder may be assigned or
delegated by such party without the prior written consent of the
other parties, and any attempted assignment or delegation of
this Agreement or any of such rights or obligations by any party
without the prior written consent of the other parties shall be
void and of no effect. Nothing in this Agreement, express or
implied, is
Annex A-65
intended to or shall confer upon any Person (other than the
parties hereto) any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement, except
(i) as specifically provided in Section 5.6 and
(ii) after the Effective Time, with respect to the payment
of consideration to holders of Company Common Stock pursuant to
Section 1 hereof.
9.9 Notices. All
notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed to have been
duly given or made as follows: (a) if sent by registered or
certified mail in the United States return receipt requested,
upon receipt; (b) if sent designated for overnight delivery
by nationally recognized overnight air courier (such as Federal
Express), one business day after mailing; (c) if sent by
facsimile transmission before 5:00 p.m. Pacific Time,
when transmitted and receipt is confirmed; (d) if sent by
facsimile transmission after 5:00 p.m. Pacific Time
and receipt is confirmed, on the following business day; and
(e) if otherwise actually personally delivered, when
delivered, provided that such notices, requests, demands and
other communications are delivered to the address set forth
below, or to such other address as any party shall provide by
like notice to the other parties to this Agreement:
if to Parent or Merger Sub:
Bookham, Inc.
2584 Junction Ave
San Jose, CA 95134
Tel:
(408) 383-1400
Attention: Chief Executive Officer and General Counsel
Facsimile:
(408) 904-4913
with a copy (which shall not constitute notice) to:
Cooley Godward Kronish llp
5 Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Attention: Keith Flaum, Esq.
Facsimile:
(650) 849-7400
if to the Company:
Avanex Corporation
40919 Encyclopedia Circle
Fremont, California 94538
Attention: Chief Executive Officer
Facsimile:
(510) 897-4345
with a copy (which shall not constitute notice) to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California
94304-1050
Attention: David J. Segre
Telephone No.:
(650) 493-9300
Telecopy No.:
(650) 493-6811
and
Wilson Sonsini Goodrich & Rosati
Professional Corporation
One Market, Spear Tower
Suite 3300
San Francisco, CA 94105
Attention: Robert T. Ishii
Telephone No.:
(415) 947-2000
Annex A-66
Telecopy No.:
(415) 947-2099
9.10 Severability. Any
term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and
provisions of this Agreement or the validity or enforceability
of the offending term or provision in any other situation or in
any other jurisdiction. Upon such determination that any term or
provision is invalid, illegal or incapable of being enforced,
the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that the
Contemplated Transactions are fulfilled to the fullest extent
possible.
(a) For purposes of this Agreement, whenever the context
requires: the singular number shall include the plural, and vice
versa; the masculine gender shall include the feminine and
neuter genders; the feminine gender shall include the masculine
and neuter genders; and the neuter gender shall include
masculine and feminine genders.
(b) The parties hereto agree that any rule of construction
to the effect that ambiguities are to be resolved against the
drafting party shall not be applied in the construction or
interpretation of this Agreement.
(c) As used in this Agreement, the words
include and including, and variations
thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words without
limitation.
(d) Except as otherwise indicated, all references in this
Agreement to Sections, Exhibits and
Schedules are intended to refer to Sections of this
Agreement and Exhibits or Schedules to this Agreement.
(e) The bold-faced headings contained in this Agreement are
for convenience of reference only, shall not be deemed to be a
part of this Agreement and shall not be referred to in
connection with the construction or interpretation of this
Agreement.
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Annex A-67
In Witness
Whereof, the parties have caused this Agreement to be
executed as of the date first above written.
Bookham,
Inc.
Name: Alain Couder
|
|
|
|
Title:
|
President and Chief Executive Officer
|
Ultraviolet
Acquisition Sub, Inc.
Name: Alain Couder
Avanex
Corporation
|
|
|
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By:
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/s/ Giovanni
Barbarossa
|
Name: Giovanni Barbarossa
Merger
Agreement Signature Page
Annex A-68
Exhibit A
Certain
Definitions
For purposes of the Agreement (including this Exhibit A):
Acquisition Inquiry. Acquisition
Inquiry shall mean an inquiry, indication of interest or
request for nonpublic information (other than an inquiry,
indication of interest or request for nonpublic information made
or submitted by Parent or the Company) that would reasonably be
expected to lead to an Acquisition Proposal.
Acquisition Proposal. Acquisition
Proposal shall mean any offer or proposal (other than an
offer or proposal made or submitted by Parent or the Company)
contemplating or otherwise relating to any Acquisition
Transaction.
Acquisition Transaction. Acquisition
Transaction with respect to an Entity shall mean any
transaction or series of transactions (other than the
Contemplated Transactions) involving:
(a) any merger, exchange, consolidation, business
combination, issuance of securities, acquisition of securities,
reorganization, recapitalization, takeover offer, tender offer,
exchange offer or other similar transaction: (i) in which
such Entity or any of its Significant Subsidiaries is a
constituent corporation and which would result in a third party
beneficially owning 15% or more of any class of equity or voting
securities of such Entity or any of its Significant
Subsidiaries; (ii) in which a Person or group
(as defined in the Exchange Act and the rules promulgated
thereunder) of Persons directly or indirectly acquires
beneficial or record ownership of securities representing more
than 15% of the outstanding securities of any class of voting
securities of such Entity or any of its Significant
Subsidiaries; or (iii) in which such Entity or any of its
Significant Subsidiaries issues securities representing more
than 15% of the outstanding securities of any class of voting
securities of such Entity or any of its Significant Subsidiaries;
(b) any sale, lease, exchange, transfer, license,
acquisition or disposition of any business or businesses or
assets that constitute or account for 15% or more of the
consolidated net revenues, consolidated net income or
consolidated assets of such Entity or any of its Significant
Subsidiaries (it being understood that in no event shall the
sale, lease, exchange, transfer or disposition of the assets
identified in Part A of the Parent Disclosure
Schedule constitute an Acquisition
Transaction); or
(c) any liquidation or dissolution of such Entity or any of
its Significant Subsidiaries.
Agreement. Agreement shall mean
the Agreement and Plan of Merger and Reorganization to which
this Exhibit A is attached, as it may be amended from time
to time.
Avanex Corporations. Avanex
Corporations shall mean: (a) the Company; and
(b) each of the Companys Subsidiaries.
Bookham Corporations. Bookham
Corporations shall mean: (a) Parent; and
(b) each of Parents Subsidiaries.
COBRA. COBRA shall mean the
Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended.
Code. Code shall mean the United
States Internal Revenue Code of 1986, as amended.
Company Affiliate. Company
Affiliate shall mean any Person under common control with
any of the Avanex Corporations within the meaning of
Section 414(b), Section 414(c), Section 414(m) or
Section 414(o) of the Code, and the regulations issued
thereunder.
Company Associate. Company
Associate shall mean any current or former officer or
other employee, or current or former independent contractor,
consultant or director, of or to any of the Avanex Corporations
or any Company Affiliate.
Annex A-69
Company Board. Company Board shall
mean the Companys board of directors.
Company Common Stock. Company Common
Stock shall mean the Common Stock, $.001 par value
per share, of the Company.
Company Contract. Company Contract
shall mean any Contract: (a) to which any of the Avanex
Corporations is a party; (b) by which any of the Avanex
Corporations is bound or under which any of the Avanex
Corporations has any obligation; or (c) under which any of
the Avanex Corporations has any right or interest.
Company Designated
Representations. Company Designated
Representations shall mean the representations and
warranties set forth in Sections 2.3(a) (the first sentence
only), 2.3(d)(i), 2.3(d)(iv), 2.3(g), 2.21, 2.22, 2.23, 2.25,
2.26 and 2.27.
Company Disclosure Schedule. Company
Disclosure Schedule shall mean the Company Disclosure
Schedule that has been prepared by the Company in accordance
with the requirements of Section 9.6 of the Agreement and
that has been delivered by the Company to Parent on the date of
the Agreement.
Company Employee. Company Employee
shall mean any director or any officer or other employee of any
of the Avanex Corporations.
Company Employee Agreement. Company
Employee Agreement shall mean each management, employment,
severance, retention, transaction bonus, change in control,
consulting, relocation, repatriation or expatriation agreement
or other Contract between: (a) any of the Avanex
Corporations or any Company Affiliate; and (b) any Company
Associate, other than any such Contract that is terminable
at will (or following a notice period imposed by
applicable law) without any obligation on the part of any Avanex
Corporation or any Company Affiliate to make any severance,
termination, change in control or similar payment or to provide
any benefit.
Company Employee Plan. Company Employee
Plan shall mean each plan, program, policy, practice or
Contract (including any Company Foreign Plan) providing for
compensation, severance, termination pay, deferred compensation,
performance awards, stock or stock-related awards, fringe
benefits, retirement benefits or other benefits or remuneration
of any kind, whether or not in writing and whether or not
funded, including each employee benefit plan, within
the meaning of Section 3(3) of ERISA (whether or not ERISA
is applicable to such plan): (a) that is or has been
maintained or contributed to, or required to be maintained or
contributed to, by any of the Avanex Corporations or any Company
Affiliate for the benefit of any Company Associate; or
(b) with respect to which any of the Avanex Corporations or
any Company Affiliate has or may incur or become subject to any
liability or obligation; provided, however, that a
Company Employee Agreement shall not be considered a Company
Employee Plan.
Company Equity Award. Company Equity
Award shall mean any Company Option or Company RSU.
Company Foreign Plan. Company Foreign
Plan shall mean any: (a) plan, program, policy,
practice, Contract or other arrangement of any Avanex
Corporation mandated by a Governmental Body outside the United
States; (b) Company Employee Plan that is subject to any of
the Legal Requirements of any jurisdiction outside the United
States; or (c) Company Employee Plan that covers or has
covered any Company Associate whose services are or have been
performed primarily outside the United States.
Company IP. Company IP shall mean:
(a) all Intellectual Property Rights in or to the Company
Products and all Intellectual Property Rights in or to Company
Product Software; and (b) all other Intellectual Property
Rights and Intellectual Property with respect to which any of
the Avanex Corporations has (or purports to have) an ownership
interest or an exclusive license or similar exclusive right.
Company Material Adverse Effect. Company
Material Adverse Effect shall mean any effect, change,
claim, event or circumstance (collectively,
Effect) that, considered together with all
other Effects, is or would reasonably be expected to be or to
become materially adverse to, or has or would reasonably be
expected to have or result in a material adverse effect on:
(a) the business, financial condition or results of
operations of the Avanex Corporations taken as a whole;
provided, however, that, in no event shall any Effects
Annex A-70
resulting from any of the following, alone or in combination, be
deemed to constitute, or be taken into account in determining
whether there has occurred, a Company Material Adverse Effect:
(i) conditions generally affecting the industries in which
the Company participates or the U.S. or global economy as a
whole, to the extent that such conditions do not have a
disproportionate impact on the Avanex Corporations, taken as a
whole; (ii) general conditions in the financial markets,
and any changes therein (including any changes arising out of
acts of terrorism, war, weather conditions or other force
majeure events), to the extent that such conditions do not have
a disproportionate impact on the Avanex Corporations, taken as a
whole; (iii) changes in the trading price or trading volume
of Company Common Stock, or the suspension of trading in or
delisting of the Companys securities on the Nasdaq Global
Market (it being understood, however, that, except as otherwise
provided in clauses (i), (ii),
(iv), (v), (vi)
(vii), (viii) or (ix) of
this sentence, any Effect giving rise to or contributing to such
changes in the trading price or trading volume, or suspension or
delisting, of Company Common Stock may give rise to a Company
Material Adverse Effect and may be taken into account in
determining whether a Company Material Adverse Effect has
occurred); (iv) changes in GAAP (or any interpretations of
GAAP) applicable to Company or any of its Subsidiaries;
(v) the failure to meet public estimates or forecasts of
revenues, earnings of other financial metrics, in and of itself,
or the failure to meet internal projections, forecasts or
budgets of revenues, earnings or other financial metrics, in and
of itself (it being understood, however, that, except as
otherwise provided in clauses (i), (ii),
(iii), (iv), (vi),
(vii) (viii) or (ix)of this
sentence, any Effect giving rise to or contributing to any such
failure may give rise to a Company Material Adverse Effect and
may be taken into account in determining whether a Company
Material Adverse Effect has occurred); (vi) any lawsuit
commenced by a stockholder of the Company (in his, her or its
capacity as a stockholder) directly resulting from the execution
of this Agreement or the performance of the Contemplated
Transactions; (vii) loss of employees, suppliers or
customers (including customer orders or Contracts) resulting
directly from the announcement or pendency of this Agreement or
the Contemplated Transactions; (viii) the taking of any
action expressly required to be taken pursuant to this
Agreement; or (ix) the items identified in
Part A of the Company Disclosure Schedule; or
(b) the ability of the Company to consummate the Merger or
any of the other Contemplated Transactions or to perform any of
its covenants or obligations under the Agreement.
Company Option Plans. Company Option
Plans shall mean: (a) the Companys 1998 Stock
Plan; and (b) the Companys 1999 Director Option
Plan.
Company Options. Company Options
shall mean options to purchase shares of Company Common Stock
from the Company (whether granted by the Company pursuant to the
Company Option Plans, assumed by the Company or otherwise).
Company Pension Plan. Company Pension
Plan shall mean each: (a) Company Employee Plan that
is an employee pension benefit plan, within the
meaning of Section 3(2) of ERISA; or (b) other
occupational pension plan, including any final salary or money
purchase plan.
Company Preferred Stock. Company
Preferred Stock shall mean the Preferred Stock,
$.001 par value per share, of the Company.
Company Product. Company Product
shall mean any product or service: (a) developed,
manufactured, marketed, distributed, provided, leased, licensed
or sold, directly or indirectly, by or on behalf of any Avanex
Corporation; or (b) currently under development by or for
any Avanex Corporation (whether or not in collaboration with
another Person).
Company Product Software. Company
Product Software shall mean any software (regardless of
whether such software is owned by an Avanex Corporation or
licensed to an Avanex Corporation by a third party) contained or
included in or provided with any Company Product or used in the
development, manufacturing, maintenance, repair, support,
testing or performance of any Company Product.
Company RSU. Company RSU shall
mean each restricted stock unit representing the right to vest
in and be issued shares of Company Common Stock by the Company,
whether granted by the Company pursuant to a Company Option
Plan, assumed by the Company in connection with any merger,
acquisition or similar transaction or otherwise issued or
granted and whether vested or unvested.
Annex A-71
Company Source Code. Company Source
Code shall mean any source code, or any portion, aspect or
segment of any source code, relating to any Intellectual
Property owned by or licensed to any of the Avanex Corporations
or otherwise used by any of the Avanex Corporations, including
the Company Product Software.
Company Superior Offer. Company Superior
Offer shall mean an unsolicited bona fide written offer by
a third party to purchase all of the outstanding shares of
Company Common Stock (whether through a tender offer, merger or
otherwise), that is determined by the Company Board, in its good
faith judgment, after consulting with an independent financial
advisor and outside legal counsel, and after taking into account
the likelihood and anticipated timing of consummation, to be
more favorable from a financial point of view to the
Companys stockholders than the Contemplated Transactions
determined on a basis of long-term value, without consideration
of short-term changes in stock price or trading volume in and of
itself.
Company Triggering Event. A Company
Triggering Event shall be deemed to have occurred if:
(a) the Company Board shall have failed to recommend that
the Companys stockholders vote to adopt the Agreement, or
shall have withdrawn or shall have modified in a manner adverse
to Parent the Company Board Recommendation; (b) the Company
shall have failed to include in the Joint Proxy
Statement/Prospectus the Company Board Recommendation or a
statement to the effect that the Company Board has determined
and believes that the Merger is advisable to, and in the best
interests of, the Companys stockholders; (c) the
Company Board fails to reaffirm the Company Board
Recommendation, or fails to reaffirm its determination that the
Merger is in the best interests of the Companys
stockholders, within 10 business days after Parent requests in
writing that such recommendation or determination be reaffirmed;
(d) the Company Board shall have approved, endorsed or
recommended any Acquisition Proposal; (e) the Company shall
have entered into any letter of intent or similar document or
any Contract relating to any Acquisition Proposal; (f) a
tender or exchange offer relating to securities of the Company
shall have been commenced and the Company shall not have sent to
its securityholders, within 10 business days after the
commencement of such tender or exchange offer, a statement
disclosing that the Company recommends rejection of such tender
or exchange offer; (g) an Acquisition Proposal with respect
to an Avanex Corporation is publicly announced, and the Company
fails to issue a press release announcing its opposition to such
Acquisition Proposal within 10 business days after such
Acquisition Proposal is announced; or (h) the Company shall
have breached in any material respect any material provision of
Section 4.4(a) or Section 5.2 of the Agreement.
Company Unaudited Balance Sheet. Company
Unaudited Balance Sheet shall mean the unaudited
consolidated balance sheet of the Company and its consolidated
Subsidiaries as of September 30, 2008 included in the
Companys Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2008.
Company Warrant. Company Warrant
shall mean each warrant to purchase shares of Company Common
Stock (or exercisable for cash).
Confidentiality
Agreement. Confidentiality Agreement
shall mean that certain Mutual Confidentiality Agreement dated
as of October 7, 2008, between the Company and Parent.
Consent. Consent shall mean any
approval, consent, ratification, permission, waiver or
authorization (including any Governmental Authorization).
Contemplated Transactions. Contemplated
Transactions shall mean the Merger and the other
transactions contemplated by the Agreement, the Company
Stockholder Voting Agreements, the Parent Stockholder Voting
Agreements and the Rights Agreement Amendment.
Contract. Contract shall mean any
written agreement, contract, subcontract, lease, instrument,
note, option, warranty, purchase order, license, sublicense,
insurance policy, benefit plan or legally binding commitment or
undertaking, written or oral.
DGCL. DGCL shall mean the Delaware
General Corporation Law.
DOL. DOL shall mean the United
States Department of Labor.
Encumbrance. Encumbrance shall
mean any lien, pledge, hypothecation, charge, mortgage,
easement, encroachment, imperfection of title, title exception,
title defect, right of possession, lease, tenancy license,
Annex A-72
security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right,
community property interest or restriction of any nature
(including any restriction on the voting of any security, any
restriction on the transfer of any security or other asset, any
restriction on the receipt of any income derived from any asset,
any restriction on the use of any asset and any restriction on
the possession, exercise or transfer of any other attribute of
ownership of any asset).
Entity. Entity shall mean any
corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership,
joint venture, estate, trust, company (including any company
limited by shares, limited liability company or joint stock
company), firm, society or other enterprise, association,
organization or entity.
ERISA. ERISA shall mean the
Employee Retirement Income Security Act of 1974, as amended.
Exchange Act. Exchange Act shall
mean the Securities Exchange Act of 1934, as amended.
Form S-4
Registration
Statement. Form S-4
Registration Statement shall mean the registration
statement on
Form S-4
to be filed with the SEC by Parent in connection with the
issuance of Parent Common Stock in the Merger, as said
registration statement may be amended prior to the time it is
declared effective by the SEC.
GAAP. GAAP shall mean generally
accepted accounting principles in the United States.
Governmental Authorization. Governmental
Authorization shall mean any: (a) permit, license,
certificate, franchise, permission, variance, clearance,
registration, qualification or authorization issued, granted,
given or otherwise made available by or under the authority of
any Governmental Body or pursuant to any Legal Requirement; or
(b) right under any Contract with any Governmental Body.
Governmental Body. Governmental
Body shall mean any: (a) nation, state, commonwealth,
province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local,
municipal, foreign or other government; (c) governmental or
quasi-governmental authority of any nature (including any
governmental division, department, agency, commission,
instrumentality, official, ministry, fund, foundation, center,
organization, unit, body or Entity and any court or other
tribunal); or (d) self-regulatory organization (including
the NASDAQ Global Market).
HSR Act. HSR Act shall mean the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
Intellectual Property. Intellectual
Property shall mean algorithms, apparatus, databases, data
collections, diagrams, formulae, inventions (whether or not
patentable), know-how, logos, marks (including brand names,
product names, logos, and slogans), methods, processes,
proprietary information, protocols, schematics, specifications,
software, software code (in any form, including source code and
executable or object code), techniques, user interfaces, URLs,
web sites, works of authorship and other forms of technology
(whether or not embodied in any tangible form and including all
tangible embodiments of the foregoing, such as instruction
manuals, laboratory notebooks, prototypes, samples, studies and
summaries).
Intellectual Property
Rights. Intellectual Property Rights
shall mean all rights of the following types, which may exist or
be created under the laws of any jurisdiction in the world:
(a) rights associated with works of authorship, including
exclusive exploitation rights, copyrights, moral rights and mask
works; (b) trademark, trade name and domain name rights and
similar rights; (c) trade secret rights; (d) patent
and industrial property rights; (e) other proprietary
rights in Intellectual Property; and (f) rights in or
relating to registrations, renewals, extensions, combinations,
divisions and reissues of, and applications for, any of the
rights referred to in clauses (a) through
(e) above.
IRS. IRS shall mean the United
States Internal Revenue Service.
Joint Proxy Statement/Prospectus. Joint
Proxy Statement/Prospectus shall mean the joint proxy
statement/prospectus to be sent to the Companys
stockholders in connection with the Company Stockholders
Meeting and to Parents stockholders in connection with the
Parent Stockholders Meeting.
Annex A-73
Knowledge. Knowledge of a party
shall mean the actual knowledge of an executive officer (as such
term is defined under the rules promulgated by the SEC) of such
party and: (a) with respect to the Company shall also
include the following (to the extent not covered by the
preceding sentence): Giovanni Barbarossa, Mark Weinswig, Myo
Ohn, Lynn Scott Parker, Richard Smart, David
Parker, Ken Johnson, Sam Pakdel (but only with respect to
Sections 2.8, 2.17 and 2.18), Leo Higashi (but only with
respect to Section 2.10), Christopher Lin (but only with
respect to Section 2.9) and Mark Gordon (but only with
respect to Sections 2.4 and 2.15); and (b) with
respect to Parent shall include the following (to the extent not
covered by the preceding sentence): Alain Couder; Jim Haynes,
Adrian Meldrum, Jerry Turin, Yves LeMaitre, Kathy Zwickert, Kate
Rundle, Andy Thompson, Keith Borders, Andy Carter, Chris Clarke,
Adam Price, Topher Croddy.
Legal Proceeding. Legal Proceeding
shall mean any action, suit, litigation, arbitration, proceeding
(including any civil, criminal, administrative, investigative or
appellate proceeding), hearing, inquiry, audit, examination or
investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental
Body or any arbitrator or arbitration panel.
Legal Requirement. Legal
Requirement shall mean any federal, state, local,
municipal, foreign or other law, statute, constitution,
principle of common law, resolution, ordinance, code, edict,
decree, rule, regulation, order, award, ruling or requirement
issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental
Body (or under the authority of the NASDAQ Global Market).
Made Available. Any statement in the Agreement
to the effect that any information, document or other material
has been Made Available shall mean that:
(a) with respect to information, document or other material
Made Available by the Company: (i) (A) such information,
document or material was made available by the Company for
review by Parent or Parents Representatives for a
reasonable period of time prior to the execution of the
Agreement in the virtual data room maintained by the Company
with IntraLinks in connection with the Contemplated Transactions
contemplated (it being understood that a document that was only
made available for review in the virtual data room in the two
days prior to the execution of the Agreement shall only be
deemed to have been made available for a reasonable period of
time if the Company shall have promptly notified Parent or its
outside legal counsel that such document was uploaded into the
virtual data room); and (B) Parent and Parents
Representatives had access to such information, document or
material throughout the entire period of time such information,
document or other material was in such virtual data room; or
(ii) such information, document or material was made
available by the Company for review by selected Representatives
of Parent for a reasonable period of time prior to the execution
of the Agreement in a physical data room maintained by the
Company at the offices of Wilson Sonsini Goodrich &
Rosati in 650 Page Mill Road in Palo Alto, California in
connection with the Contemplated Transactions (it being
understood that a document that was only made available for
review in the physical data room in the two days prior to the
execution of the Agreement shall only be deemed to have been
made available for a reasonable period of time if the Company
shall have promptly notified Parent or its outside legal counsel
that such document was added to the physical data room); and
(b) with respect to information, document or other material
Made Available by Parent: (i) (A) such information,
document or material was made available by Parent for review by
the Company or the Companys Representatives for a
reasonable period of time prior to the execution of the
Agreement in the virtual data room maintained by Parent with
Merrill DataSite in connection with the Contemplated
Transactions (it being understood that a document that was only
made available for review in the virtual data room in the two
days prior to the execution of the Agreement shall only be
deemed to have been made available for a reasonable period of
time if Parent shall have promptly notified the Company or its
outside legal counsel that such document was uploaded into the
virtual data room); and (B) the Company and the
Companys Representatives had access to such information,
document or material throughout the entire period of time such
information, document or other material was in such virtual data
room; or (ii) such information, document or material was
made available by Parent for review by selected Representatives
of the Company for a reasonable period of time prior to the
execution of the Agreement in a physical data room maintained by
Parent at the Parents offices in 2584 Junction Ave.,
San Jose, California in connection with the Contemplated
Transactions (it being understood that a document that was only
made available for review in
Annex A-74
the physical data room in the two days prior to the execution of
the Agreement shall only be deemed to have been made available
for a reasonable period of time if Parent shall have promptly
notified the Company or its outside legal counsel that such
document was added to the physical data room).
Order. Order shall mean any order,
writ, injunction, judgment or decree.
Parent Affiliate. Parent Affiliate
shall mean any Person under common control with any of the
Bookham Corporations within the meaning of Section 414(b),
Section 414(c), Section 414(m) or Section 414(o)
of the Code, and the regulations issued thereunder.
Parent Associate. Parent Associate
shall mean any current or former officer or other employee, or
current or former independent contractor, consultant or
director, of or to any of the Bookham Corporations or any Parent
Affiliate.
Parent Board. Parent Board shall
mean Parents board of directors.
Parent Common Stock. Parent Common
Stock shall mean the Common Stock, $.01 par value per
share, of Parent.
Parent Contract. Parent Contract
shall mean any Contract: (a) to which any of the Bookham
Corporations is a party; (b) by which any of the Bookham
Corporations or any asset of any of the Bookham Corporations is
bound or under which any of the Bookham Corporations has any
obligation; or (c) under which any of the Bookham
Corporations has any right or interest.
Parent Designated
Representations. Parent Designated
Representations shall mean the representations and
warranties set forth in Sections 3.3(a) (the first sentence
only), 3.3(c)(i), 3.3(c)(iii), 3.3(f), 3.21, 3.22, 3.24 and 3.25.
Parent Disclosure Schedule. Parent
Disclosure Schedule shall mean the Parent Disclosure
Schedule that has been prepared by Parent in accordance with the
requirements of Section 9.6 of the Agreement and that has
been delivered by Parent to the Company on the date of the
Agreement.
Parent Employee. Parent Employee
shall mean any director or any officer or any other employee of
any of the Bookham Corporations.
Parent Employee Agreement. Parent
Employee Agreement shall mean any management, employment,
severance, retention, transaction bonus, change in control,
consulting, relocation, repatriation or expatriation agreement
or other Contract between: (a) any of the Bookham
Corporations; and (b) any Parent Employee, other than any
such Contract that is terminable at will (or
following a notice period imposed by applicable law) without any
obligation on the part of any Bookham Corporation to make any
severance, termination, change in control or similar payment or
to provide any benefit.
Parent Employee Plan. Parent Employee
Plan shall mean any plan, program, policy, practice or
Contract (including any Parent Foreign Plan) providing for
compensation, severance, termination pay, deferred compensation,
performance awards, stock or stock-related awards, fringe
benefits, retirement benefits or other benefits or remuneration
of any kind, whether or not in writing and whether or not
funded, including each employee benefit plan, within
the meaning of Section 3(3) of ERISA (whether or not ERISA
is applicable to such plan): (a) that is or has been
maintained or contributed to, or required to be maintained or
contributed to, by any of the Bookham Corporations for the
benefit of any Parent Employee; or (b) with respect to
which any of the Bookham Corporations has or may incur or become
subject to any liability or obligation; provided, however,
that a Parent Employee Agreement shall not be considered a
Parent Employee Plan.
Parent Equity Award. Parent Equity
Award shall mean any Parent Option or Parent RSU.
Parent ESPP. Parent ESPP shall
mean Parents 2004 Employee Stock Purchase Plan.
Parent Foreign Plan. Parent Foreign
Plan shall mean any: (a) plan, program, policy,
practice, Contract or other arrangement of any Bookham
Corporation mandated by a Governmental Body outside the United
States; (b) Parent Employee Plan that is subject to any of
the Legal Requirements of any jurisdiction outside
Annex A-75
the United States; or (c) Parent Employee Plan that covers
or has covered any Parent Associate whose services are or have
been performed primarily outside the United States.
Parent IP. Parent IP shall mean:
(a) all Intellectual Property Rights in or to the Parent
Products and all Intellectual Property Rights in or to Parent
Product Software; and (b) all other Intellectual Property
Rights and Intellectual Property with respect to which any of
the Bookham Corporations has (or purports to have) an ownership
interest or an exclusive license or similar exclusive right.
Parent Material Adverse Effect. Parent
Material Adverse Effect shall mean any Effect that,
considered together with all other Effects, is or would
reasonably be expected to be or to become materially adverse to,
or has or would reasonably be expected to have or result in a
material adverse effect on: (a) the business, financial
condition or results of operations of Parent and its
Subsidiaries taken as a whole; provided, however, that,
in no event shall any Effects resulting from any of the
following, alone or in combination, be deemed to constitute, or
be taken into account in determining whether there has occurred,
a Parent Material Adverse Effect: (i) conditions generally
affecting the industries in which Parent participates or the
U.S. or global economy as a whole, to the extent that such
conditions do not have a disproportionate impact on the Bookham
Corporations, taken as a whole; (ii) general conditions in
the financial markets, and any changes therein (including any
changes arising out of acts of terrorism, war, weather
conditions or other force majeure events), to the extent that
such conditions do not have a disproportionate impact on the
Bookham Corporations, taken as a whole; (iii) changes in
the trading price or trading volume of Parent Common Stock, or
the suspension of trading in or delisting of the Parents
securities on the Nasdaq Global Market (it being understood,
however, that, except as otherwise provided in clauses
(i), (ii), (iv),
(v), (vi), (vii),
(viii) or (ix) of this sentence, any
Effect giving rise to or contributing to such changes in the
trading price or trading volume, or suspension or delisting, of
Parent Common Stock may give rise to a Parent Material Adverse
Effect and may be taken into account in determining whether a
Parent Material Adverse Effect has occurred); (iv) changes
in GAAP (or any interpretations of GAAP) applicable to Parent or
any of its Subsidiaries; (v) the failure to meet public
estimates or forecasts of revenues, earnings of other financial
metrics, in and of itself, or the failure to meet internal
projections, forecasts or budgets of revenues, earnings or other
financial metrics, in and of itself (it being understood,
however, that, except as otherwise provided in clauses
(i), (ii), (iii),
(iv), (vi), (vii),
(viii) or (ix) of this sentence, any
Effect giving rise to or contributing to any such failure may
give rise to a Parent Material Adverse Effect and may be taken
into account in determining whether a Parent Material Adverse
Effect has occurred); (vi) any lawsuit commenced by a
stockholder of Parent (in his, her or its capacity as a
stockholder) directly resulting from the execution of this
Agreement or the performance of the Contemplated Transactions;
(vii) loss of employees, suppliers or customers (including
customer orders or Contracts) resulting directly from the
announcement or pendency of this Agreement or the Contemplated
Transactions; (viii) the taking of any action expressly
required to be taken pursuant to this Agreement; or
(ix) the items identified in Part B of
the Parent Disclosure Schedule; or (b) the ability of
Parent to consummate the Merger or any of the other Contemplated
Transactions or to perform any of its covenants or obligations
under the Agreement.
Parent Option Plans. Parent Option
Plans shall mean: (a) Parents 2004 Amended and
Restated Stock Incentive Plan; (b) Bookham Technology
plcs 1998 Employee Share Option Scheme; and (c) New
Focus Inc.s 1999 Stock Plan; and (d) New Focus
Inc.s 2000 Stock Plan.
Parent Options. Parent Options
shall mean options to purchase shares of Parent Common Stock
from Parent (whether granted by Parent pursuant to the Parent
Option Plans, assumed by Parent or otherwise).
Parent Pension Plan. Parent Pension
Plan shall mean each: (a) Parent Employee Plan that
is an employee pension benefit plan, within the
meaning of Section 3(2) of ERISA; or (b) other
occupational pension plan, including any final salary or money
purchase plan.
Parent Preferred Stock. Parent Preferred
Stock shall mean the Preferred Stock, $0.01 par value
per share, of Parent.
Parent Product. Parent Product
shall mean any product or service: (a) developed,
manufactured, marketed, distributed, provided, leased, licensed
or sold, directly or indirectly, by or on behalf of any Bookham
Annex A-76
Corporation; or (b) currently under development by or for
any Bookham Corporation (whether or not in collaboration with
another Person).
Parent Proposal. Parent Proposal
shall mean each of the following proposals: (a) a possible
reverse stock split to the extent that the Parent Board desires
to consider effecting a reverse stock split, including any
amendment to the Parents Certificate of Incorporation to
affect such split; (b) an increase in the authorized number
of shares of Parent Common Stock, including any amendment to the
Parents Certificate of Incorporation to affect such
increase; and (c) a change of Parents name following
the Merger pursuant to Section 5.17 of the Agreement,
including any change to the Parents Certificate of
Incorporation to affect such change.
Parent Product Software. Parent Product
Software shall mean any software (regardless of whether
such software is owned by an Bookham Corporation or licensed to
an Bookham Corporation by a third party) contained or included
in or provided with any Parent Product or used in the
development, manufacturing, maintenance, repair, support,
testing or performance of any Parent Product.
Parent RSU. Parent RSU shall mean
each restricted stock unit representing the right to vest in and
be issued shares of Parent Common Stock by Parent, whether
granted by Parent pursuant to a Parent Option Plan, assumed by
Parent in connection with any merger, acquisition or similar
transaction or otherwise issued or granted and whether vested or
unvested.
Parent Source Code. Parent Source
Code shall mean any source code, or any portion, aspect or
segment of any source code, relating to any Intellectual
Property owned by or licensed to any of the Bookham Corporations
or otherwise used by any of the Bookham Corporations, including
the Parent Product Software.
Parent Superior Offer. Parent Superior
Offer shall mean an unsolicited bona fide written offer by
a third party to purchase all of the outstanding shares of
Parent Common Stock (whether through a tender offer, merger or
otherwise), that is determined by the Parent Board, in its good
faith judgment, after consulting with an independent financial
advisor and outside legal counsel, and after taking into account
the likelihood and anticipated timing of consummation, to be
more favorable from a financial point of view to Parents
stockholders than the Contemplated Transactions determined on a
basis of long-term value, without consideration of short-term
changes in stock price or trading volume in and of itself.
Parent Triggering Event. A Parent
Triggering Event shall be deemed to have occurred if:
(a) the Parent Board shall have failed to recommend that
Parents stockholders vote to approve the issuance of
shares of Parent Common Stock in the Merger and Parents
Certificate of Amendment, or shall have withdrawn or shall have
modified in a manner adverse to the Company the Parent Board
Recommendation; (b) Parent shall have failed to include in
the Joint Proxy Statement/Prospectus the Parent Board
Recommendation or a statement to the effect that the Parent
Board has determined and believes that the Merger and
Parents Certificate of Amendment are advisable to, and in
the best interests of, the Parents stockholders;
(c) the Parent Board fails to reaffirm the Parent Board
Recommendation, or fails to reaffirm its determination that the
Merger and Parents Certificate of Amendment are in the
best interests of Parents stockholders, within 10 business
days after the Company requests in writing that such
recommendation or determination be reaffirmed; (d) the
Parent Board shall have approved, endorsed or recommended any
Acquisition Proposal; (e) Parent shall have entered into
any letter of intent or similar document or any Contract
relating to any Acquisition Proposal; (f) a tender or
exchange offer relating to securities of Parent shall have been
commenced and Parent shall not have sent to its securityholders,
within 10 business days after the commencement of such tender or
exchange offer, a statement disclosing that Parent recommends
rejection of such tender or exchange offer; (g) an
Acquisition Proposal with respect to a Bookham Corporation is
publicly announced, and Parent fails to issue a press release
announcing its opposition to such Acquisition Proposal within 10
business days after such Acquisition Proposal is announced; or
(h) Parent shall have breached in any material respect any
material provision of Section 4.4(b) or Section 5.3 of
the Agreement.
Parent Unaudited Balance Sheet. Parent
Unaudited Balance Sheet shall mean the unaudited
consolidated balance sheet of Parent and its consolidated
Subsidiaries as of September 27, 2008 included in
Parents Quarterly Report on
Form 10-Q
for the quarter ended September 27, 2008.
Annex A-77
Parent Warrant. Parent Warrant
shall mean each warrant to purchase shares of Parent Common
Stock (or exercisable for cash).
Person. Person shall mean any
individual, Entity or Governmental Body.
Registered IP. Registered IP shall
mean all Intellectual Property Rights that are registered, filed
or issued with, by or under the authority of any Governmental
Body, including all patents, registered copyrights, registered
mask works and registered trademarks and all applications for
any of the foregoing.
Representatives. Representatives
shall mean directors, officers, employees, agents, attorneys,
accountants, investment bankers, other advisors and
representatives.
Sarbanes-Oxley Act. Sarbanes-Oxley
Act shall mean the Sarbanes-Oxley Act of 2002, as it may
be amended from time to time.
SEC. SEC shall mean the United
States Securities and Exchange Commission.
Securities Act. Securities Act
shall mean the Securities Act of 1933, as amended.
Significant Subsidiary. Significant
Subsidiary with respect to an Entity shall mean any
Subsidiary of such Entity that owns assets that constitute or
account for 10% or more of the consolidated net revenues,
consolidated net income or consolidated assets of such Entity
and all of its Subsidiaries taken as a whole.
Subsidiary. An Entity shall be deemed to be a
Subsidiary of another Person if such Person directly
or indirectly owns or purports to own, beneficially or of
record: (a) an amount of voting securities of or other
interests in such Entity that is sufficient to enable such
Person to elect at least a majority of the members of such
Entitys board of directors or other governing body; or
(b) at least 50% of the outstanding equity, voting or
financial interests in such Entity.
Tax. Tax shall mean any federal,
state, local, foreign or other tax (including any income tax,
franchise tax, capital gains tax, gross receipts tax,
value-added tax, surtax, estimated tax, unemployment tax,
national health insurance tax, excise tax, ad valorem tax,
transfer tax, stamp tax, sales tax, use tax, property tax,
business tax, withholding tax or payroll tax), levy, assessment,
tariff, duty (including any customs duty), deficiency or fee,
and any related charge or amount (including any fine, penalty or
interest), imposed, assessed or collected by or under the
authority of any Governmental Body.
Tax Return. Tax Return shall mean
any return (including any information return), report,
statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or
information, and any amendment or supplement to any of the
foregoing, filed with or submitted to, or required to be filed
with or submitted to, any Governmental Body in connection with
the determination, assessment, collection or payment of any Tax
or in connection with the administration, implementation or
enforcement of or compliance with any Legal Requirement relating
to any Tax.
Annex A-78
Exhibits
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Exhibit A
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Certain Definitions
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Exhibit B
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Form of Certificate of Incorporation of Surviving Corporation
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Exhibit C
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Form of Bylaws of Surviving Corporation
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Schedules
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Schedule 5.13
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Structure of Parent Board Immediately Following the Effective
Time
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Annex A-79
Schedule 5.13
Immediately following the Closing the Parent Board shall consist
of the following members, in each case such member of the board
will hold office from and after the Effective Time until the
earliest of appointment of his or her respective successor,
resignation or proper removal in accordance with the
Parents certificate of incorporation and bylaws
and/or
applicable Legal Requirements:
Class I (which is up for election in 2011, subject to
the recital of this Schedule 5.13)
Two members to be chosen by Parent (in its sole discretion), or,
to the extent any such person determines not to serve (or is
unable to serve) as a member of the board, another person
designated by Parent
Giovanni Barbarossa, or, to the extent such person determines
not to serve (or is unable to serve) as a member of the board,
another person designated by the Company
Class II (which is up for election in 2009, subject to
the recital of this Schedule 5.13)
Greg Dougherty, or, to the extent such person determines not to
serve (or is unable to serve) as a member of the board, another
person designated by the Company
One member to be chosen by Parent (in its sole discretion), or,
to the extent any such person determines not to serve (or is
unable to serve) as a member of the board, another person
designated by Parent
Class III (which is up for election in 2010, subject to
the recital of this Schedule 5.13)
Joel Smith, or, to the extent such person determines not to
serve (or is unable to serve) as a member of the board, another
person designated by the Company
One member to be chosen by Parent (in its sole discretion), or,
to the extent any such person determines not to serve (or is
unable to serve) as a member of the board, another person
designated by Parent
Chairman of Parent Board Bernard Couillaud
(to the extent he becomes a director immediately following the
Effective Time)
Audit Committee of Parent Board shall consist of:
Lori Holland (Chair) (to the extent she becomes a director
immediately following the Effective Time)
Other members of the Audit Committee (one of which shall be
either Greg Dougherty or Joel Smith) will be appointed by the
Parent Board following the Effective Time
Compensation Committee of Parent Board shall consists of:
Greg Dougherty (Chair) (to the extent he becomes a director
immediately following the Effective Time)
Other members of the Compensation Committee will be appointed by
the Parent Board following the Effective Time
Nominating and Corporate Governance Committee of Parent Board
shall consists of:
Joel Smith (Chair) (to the extent he becomes a director
immediately following the Effective Time)
Other members of the Nominating and Corporate Governance
Committee will be appointed by the Parent Board following the
Effective Time
Annex A-80
Annex
B
VOTING
AGREEMENT
This Voting Agreement
(Voting Agreement) is entered into
as of January 27, 2009, by and between
Bookham,
Inc., a Delaware corporation
(Parent), and
(Stockholder).
Recitals
A. Stockholder is a holder of record and the
beneficial owner (within the meaning of
Rule 13d-3
under the Securities Exchange Act of 1934) of certain
shares of common stock of Avanex Corporation, a Delaware
corporation (the Company).
B. Parent, Ultraviolet Acquisition Sub, Inc., a Delaware
corporation (Merger Sub), and the Company are
entering into an Agreement and Plan of Merger and Reorganization
of even date herewith (the Merger Agreement),
which provides (subject to the conditions set forth therein) for
the merger of Merger Sub into the Company (the
Merger). Capitalized terms used but not
otherwise defined in this Voting Agreement have the meanings
assigned to such terms in the Merger Agreement.
C. In the Merger, each outstanding share of common stock of
the Company is to be converted into the right to receive
5.426 shares of Parent Common Stock.
D. Stockholder is entering into this Voting Agreement in
order to induce Parent to enter into the Merger Agreement and
cause the Merger to be consummated.
Agreement
The parties to this Voting Agreement, intending to be legally
bound, agree as follows:
Section 1. Certain
Definitions
For purposes of this Voting Agreement:
(a) Expiration Date shall mean
the earlier of: (i) the date on which the Merger Agreement
is validly terminated pursuant to Section 8 thereof;
(ii) the date upon which the Merger becomes effective; or
(iii) such date and time as any amendment or change to the
Merger Agreement is effected without the Stockholders
consent that (A) decreases the Exchange Ratio or
(B) materially and adversely affects the Stockholder.
(b) Stockholder shall be deemed to Own
or to have acquired Ownership of a
security if Stockholder: (i) is the record owner of such
security; or (ii) is the beneficial owner
(within the meaning of
Rule 13d-3
under the Securities Exchange Act of 1934) of such security.
(c) Subject Securities shall
mean: (i) all securities of the Company (including all
shares of Company Common Stock and all options, warrants and
other rights to acquire shares of Company Common Stock) Owned by
Stockholder as of the date of this Voting Agreement; and
(ii) all additional securities of the Company (including
all additional shares of Company Common Stock and all additional
options, warrants and other rights to acquire shares of Company
Common Stock) of which Stockholder acquires Ownership during the
Voting Period.
(d) A Person shall be deemed to have effected a
Transfer of a security if such Person
directly or indirectly: (i) sells, pledges, encumbers,
grants an option with respect to, transfers or disposes of such
security or any interest in such security to any Person other
than Parent; (ii) enters into an agreement or commitment
contemplating the possible sale of, pledge of, encumbrance of,
grant of an option with respect to, transfer of or disposition
of such security or any interest therein to any Person other
than Parent; or (iii) reduces such Persons beneficial
ownership of, interest in or risk relating to such security.
Annex B-1
(e) Voting Period shall mean the
period commencing on the date of this Voting Agreement and
ending on the earlier of: (i) the date on which the Merger
Agreement is validly terminated; and (ii) the date on which
a final vote is taken by the stockholders of the Company on a
proposal to adopt the Merger Agreement.
Section 2. Transfer
of Subject Securities and Voting Rights
2.1 Restriction on Transfer of Subject
Securities. Subject to Section 2.3, during
the Voting Period, Stockholder shall not, directly or
indirectly, cause or permit any Transfer of any of the Subject
Securities to be effected; provided, however, that
nothing contained in this Voting Agreement will be deemed to
restrict the ability of Stockholder to exercise any Company
Options held by Stockholder prior to the Expiration Date.
2.2 Restriction on Transfer of Voting
Rights. During the Voting Period, Stockholder
shall ensure that: (a) none of the Subject Securities is
deposited into a voting trust; and (b) no proxy is granted
inconsistent with this Voting Agreement, and no voting agreement
or similar agreement is entered into, with respect to any of the
Subject Securities.
2.3 Permitted
Transfers. Section 2.1 shall not prohibit a
transfer of Subject Securities by Stockholder: (a) if
Stockholder is an individual: (i) to any member of
Stockholders immediate family; or to a trust for the
benefit of Stockholder or any member of Stockholders
immediate family; or (ii) upon the death of Stockholder;
(b) if Stockholder is a partnership or limited liability
company, to one or more partners or members of Stockholder or to
an affiliated corporation under common control with Stockholder;
provided, however, that a transfer referred to in this
sentence shall be permitted only if, as a precondition to such
transfer, the transferee agrees in a writing, reasonably
satisfactory in form and substance to Parent, to be bound by all
of the terms of this Voting Agreement; or (c) pursuant to
any
Rule 10b5-1
plan in effect as of the date of this Voting Agreement.
Section 3. Voting
of Shares
3.1 Voting Covenant. Stockholder
hereby agrees that, prior to the Expiration Date, at any meeting
of the stockholders of the Company, however called, and in any
written action by consent of stockholders of the Company, unless
otherwise directed in writing by Parent, Stockholder shall cause
any issued and outstanding shares of Company Common Stock Owned
by Stockholder as of the record date with respect to such
meeting or consent:
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(a)
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in favor of the adoption of the Merger Agreement; and
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(b) against any Acquisition Proposal with respect to an
Avanex Corporation.
Prior to the Expiration Date, Stockholder shall not enter into
any agreement or understanding with any Person to vote or give
instructions in any manner inconsistent with clause
(a) or clause (b) of the preceding
sentence.
3.2 Proxy.
(a) Contemporaneously with the execution of this Voting
Agreement, Stockholder shall deliver to Parent a proxy in the
form attached to this Voting Agreement as Exhibit A,
which shall be irrevocable to the fullest extent permitted by
law (at all times during the Voting Period) with respect to the
shares referred to therein (the Proxy).
(b) Stockholder shall not enter into any tender, voting or
other agreement, or grant a proxy or power of attorney, with
respect to the Subject Securities that is inconsistent with this
Voting Agreement or otherwise take any other action with respect
to the Subject Securities that would in any way restrict, limit
or interfere with the performance of Stockholders
obligations hereunder or the transactions contemplated hereby.
Section 4. Representations
and Warranties of Stockholder
Stockholder hereby represents and warrants to Parent as follows:
4.1 Authorization, etc. Stockholder
has the power, authority and capacity to execute and deliver
this Voting Agreement and the Proxy and to perform
Stockholders obligations hereunder and thereunder. This
Annex B-2
Voting Agreement and the Proxy have been duly executed and
delivered by Stockholder and, assuming the due authorization,
execution and delivery of this Voting Agreement by Parent,
constitute legal, valid and binding obligations of Stockholder,
enforceable against Stockholder in accordance with their terms,
subject to: (a) laws of general application relating to
bankruptcy, insolvency and the relief of debtors; and
(b) rules of law governing specific performance, injunctive
relief and other equitable remedies.
4.2 No Conflicts or
Consents.
(a) The execution and delivery of this Voting Agreement and
the Proxy by Stockholder do not, and the performance of this
Voting Agreement and the Proxy by Stockholder will not:
(i) conflict with or violate any Legal Requirement or Order
applicable to Stockholder or by which Stockholder or any of
Stockholders properties is or may be bound or affected; or
(ii) result in or constitute (with or without notice or
lapse of time) any breach of or default under, or give to any
other Person (with or without notice or lapse of time) any right
of termination, amendment, acceleration or cancellation of, or
result (with or without notice or lapse of time) in the creation
of any Encumbrance on any of the Subject Securities pursuant to,
any Contract to which Stockholder is a party or by which
Stockholder or any of Stockholders affiliates or
properties is or may be bound or affected.
(b) The execution and delivery of this Voting Agreement and
the Proxy by Stockholder do not, and the performance of this
Voting Agreement and the Proxy by Stockholder will not, require
any Consent of any Person.
4.3 Title to Securities. As of the
date of this Voting Agreement: (a) Stockholder holds of
record (free and clear of any Encumbrances) the number of
outstanding shares of Company Common Stock set forth under the
heading Shares Held of Record on the signature page
hereof; (b) Stockholder holds (free and clear of any
Encumbrances) the options, warrants and other rights to acquire
shares of Company Common Stock set forth under the heading
Options and Other Rights on the signature page
hereof; (c) Stockholder Owns the additional securities of
the Company set forth under the heading Additional
Securities Beneficially Owned on the signature page
hereof; and (d) Stockholder does not directly or indirectly
Own any shares of capital stock or other securities of the
Company, or any option, warrant or other right to acquire (by
purchase, conversion or otherwise) any shares of capital stock
or other securities of the Company, other than the shares and
options, warrants and other rights set forth on the signature
page hereof.
4.4 Accuracy of
Representations. The representations and
warranties contained in this Voting Agreement are accurate in
all respects as of the date of this Voting Agreement, and will
be accurate in all respects at all times prior to the Expiration
Date as if made as of any such time or date.
Section 5. Miscellaneous
5.1 Stockholder
Information. Stockholder hereby agrees to permit
Parent, the Company and Merger Sub to publish and disclose in
the
Form S-4
Registration Statement and the Joint Proxy Statement/Prospectus
Stockholders identity and ownership of shares of Company
Common Stock and the nature of Stockholders commitments,
arrangements and understandings under this Voting Agreement.
5.2 Further Assurances. From time
to time and without additional consideration, Stockholder shall
execute and deliver, or cause to be executed and delivered, such
additional transfers, assignments, endorsements, proxies,
consents and other instruments, and shall take such further
actions, as Parent may reasonably request for the purpose of
carrying out and furthering the intent of this Voting Agreement.
5.3 Expenses. All costs and
expenses incurred in connection with the transactions
contemplated by this Voting Agreement shall be paid by the party
incurring such costs and expenses.
5.4 Notices. Any notice or other
communication under this Voting Agreement shall be in writing
and shall be deemed to have been duly given or made as follows:
(a) if sent by registered or certified mail in the United
States return receipt requested, upon receipt; (b) if sent
by nationally recognized overnight air courier (such as Federal
Express), one business day after mailing; (c) if sent by
facsimile transmission before 5:00 p.m., when transmitted
and receipt is confirmed; (d) if sent by facsimile
transmission after 5:00 p.m. and
Annex B-3
receipt is confirmed, on the following business day; and
(e) if otherwise actually personally delivered, when
delivered, provided that such notices, requests, demands and
other communications are delivered to the address set forth
below, or to such other address as any party shall provide by
like notice to the other parties to this Voting Agreement:
if to Stockholder:
at the address set forth on the signature page hereof; and
if to Parent:
Bookham, Inc.
2584 Junction Ave
San Jose, CA 95134
Tel: (408) 383-1400
Attention: Chief Executive Officer and General Counsel
Facsimile: (408) 904-4913
5.5 Severability. Any term or
provision of this Voting Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and
provisions of this Voting Agreement or the validity or
enforceability of the offending term or provision in any other
situation or in any other jurisdiction. Upon such determination
that any term or provision is invalid, illegal or incapable of
being enforced, the parties hereto shall negotiate in good faith
to modify this Voting Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable
manner to the end that the transactions contemplated hereby are
fulfilled to the fullest extent possible.
5.6 Entire Agreement. This Voting
Agreement, the Proxy, the Merger Agreement and any other
documents delivered by the parties in connection herewith
constitute the entire agreement between the parties with respect
to the subject matter hereof and thereof and supersede all prior
agreements and understandings between the parties with respect
thereto.
5.7 Amendments. This Voting
Agreement may not be amended, modified, altered or supplemented
other than by means of a written instrument duly executed and
delivered on behalf of Parent and Stockholder.
5.8 Assignment; Binding Effect; No Third Party
Rights. Except as provided herein, neither this
Voting Agreement nor any of the interests or obligations
hereunder may be assigned or delegated by Stockholder, and any
attempted or purported assignment or delegation of any of such
interests or obligations shall be void. Subject to the preceding
sentence, this Voting Agreement shall be binding upon
Stockholder and Stockholders heirs, estate, executors and
personal representatives and Stockholders successors and
assigns, and shall inure to the benefit of Parent and its
successors and assigns. Without limiting any of the restrictions
set forth in Section 2, Section 3 or elsewhere in this
Voting Agreement, this Voting Agreement shall be binding upon
any Person to whom any Subject Securities are transferred.
Nothing in this Voting Agreement is intended to confer on any
Person (other than Parent and its successors and assigns) any
rights or remedies of any nature.
5.9 Specific Performance. The
parties agree that irreparable damage would occur in the event
that any of the provisions of this Voting Agreement or the Proxy
were not performed in accordance with its specific terms or were
otherwise breached. Stockholder agrees that, in the event of any
breach or threatened breach by Stockholder of any covenant or
obligation contained in this Voting Agreement or in the Proxy,
Parent shall be entitled (in addition to any other remedy that
may be available to it, including monetary damages) to seek and
obtain: (a) a decree or order of specific performance to
enforce the observance and performance of such covenant or
obligation; and (b) an injunction restraining such breach
or threatened breach. Stockholder further agrees that neither
Parent nor any other Person shall be required to obtain, furnish
or post any bond or similar instrument in connection with or as
a condition to obtaining any remedy referred to in this
Section 5.9, and Stockholder irrevocably waives any right
he or it may have to require the obtaining, furnishing or
posting of any such bond or similar instrument.
5.10 Attorneys Fees. If any
Legal Proceeding relating to this Voting Agreement or the
enforcement of any provision of this Voting Agreement is brought
against Stockholder, the prevailing party shall be entitled to
Annex B-4
recover reasonable attorneys fees, costs and disbursements
(in addition to any other relief to which the prevailing party
may be entitled).
5.11 Non-Exclusivity. The rights
and remedies of Parent under this Voting Agreement are not
exclusive of or limited by any other rights or remedies which it
may have, whether at law, in equity, by contract or otherwise,
all of which shall be cumulative (and not alternative).
5.12 Governing Law; Jurisdiction; Waiver of Jury
Trial. This Voting Agreement and the Proxy shall
be governed by, and construed in accordance with, the laws of
the State of Delaware, regardless of the laws that might
otherwise govern under applicable principles of conflicts of
laws thereof. In any action between any of the parties arising
out of or relating to this Voting Agreement, the Proxy or any of
the transactions contemplated by this Voting Agreement or the
Proxy, each of the parties: (a) irrevocably and
unconditionally consents and submits to the exclusive
jurisdiction and venue of the Chancery Court of the State of
Delaware; (b) irrevocably waives the right to trial by
jury; and (c) irrevocably consents to service of process by
first class certified mail, return receipt requested, postage
prepared, to the address at which Stockholder or Parent, as the
case may be, is to receive notice in accordance with
Section 5.4.
5.13 Counterparts; Exchanges by Facsimile or
Electronic Delivery. This Voting Agreement may be
executed in separate counterparts, each of which when so
executed and delivered shall be an original, but all such
counterparts shall together constitute one and the same
instrument. The exchange of a fully executed Voting Agreement
(in counterparts or otherwise) by facsimile or electronic
delivery shall be sufficient to bind the parties to the terms
and conditions of this Voting Agreement.
5.14 Captions. The captions
contained in this Voting Agreement are for convenience of
reference only, shall not be deemed to be a part of this Voting
Agreement and shall not be referred to in connection with the
construction or interpretation of this Voting Agreement.
5.15 Waiver. Subject to the
remainder of this Section 5.15, at any time prior to the
Expiration Date, any party hereto may: (a) extend the time
for the performance of any of the obligations or other acts of
the other parties to this Voting Agreement; (b) waive any
inaccuracy in or breach of any representation, warranty,
covenant or obligation of the other party in this Voting
Agreement or in any document delivered pursuant to this Voting
Agreement; and (iii) waive compliance with any covenant,
obligation or condition for the benefit of such party contained
in this Voting Agreement. No failure on the part of Parent to
exercise any power, right, privilege or remedy under this Voting
Agreement, and no delay on the part of Parent in exercising any
power, right, privilege or remedy under this Voting Agreement,
shall operate as a waiver of such power, right, privilege or
remedy; and no single or partial exercise of any such power,
right, privilege or remedy shall preclude any other or further
exercise thereof or of any other power, right, privilege or
remedy. Parent shall not be deemed to have waived any claim
available to Parent arising out of this Voting Agreement, or any
power, right, privilege or remedy of Parent under this Voting
Agreement, unless the waiver of such claim, power, right,
privilege or remedy is expressly set forth in a written
instrument duly executed and delivered on behalf of Parent; and
any such waiver shall not be applicable or have any effect
except in the specific instance in which it is given.
5.16 Independence of
Obligations. The covenants and obligations of
Stockholder set forth in this Voting Agreement shall be
construed as independent of any other Contract between
Stockholder, on the one hand, and the Company or Parent, on the
other. The existence of any claim or cause of action by
Stockholder against the Company or Parent shall not constitute a
defense to the enforcement of any of such covenants or
obligations against Stockholder. Nothing in this Voting
Agreement shall limit any of the rights or remedies of Parent
under the Merger Agreement, or any of the rights or remedies of
Parent or any of the obligations of Stockholder under any
agreement between Stockholder and Parent or any certificate or
instrument executed by Stockholder in favor of Parent; and
nothing in the Merger Agreement or in any other such agreement,
certificate or instrument, shall limit any of the rights or
remedies of Parent or any of the obligations of Stockholder
under this Voting Agreement.
5.17 Other
Capacities. Notwithstanding any provision of this
Voting Agreement to the contrary, nothing in this Voting
Agreement shall limit or restrict Stockholder from acting in
good faith in
Annex B-5
Stockholders capacity as a director or officer of the
Company (it being understood that this Voting Agreement shall
apply to Stockholder solely in Stockholders capacity as a
stockholder of the Company).
5.18 Construction.
(a) For purposes of this Voting Agreement, whenever the
context requires: the singular number shall include the plural,
and vice versa; the masculine gender shall include the feminine
and neuter genders; the feminine gender shall include the
masculine and neuter genders; and the neuter gender shall
include masculine and feminine genders.
(b) The parties agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting
party shall not be applied in the construction or interpretation
of this Voting Agreement.
(c) As used in this Voting Agreement, the words
include and including, and variations
thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words without
limitation.
(d) Except as otherwise indicated, all references in this
Voting Agreement to Sections and
Exhibits are intended to refer to Sections of this
Voting Agreement and Exhibits to this Voting Agreement.
[Remainder of page intentionally left blank.]
Annex B-6
In Witness Whereof,
Parent and Stockholder have caused this Voting
Agreement to be executed as of the date first written above.
Bookham,
Inc.
Stockholder
Signature
Printed Name
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Additional Securities
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Shares Held of Record
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Options and Other Rights
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Beneficially Owned
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Signature
Page to Voting Agreement
Annex B-7
Exhibit A
Form of
Irrevocable Proxy
Annex B-8
Irrevocable
Proxy
The undersigned stockholder (the Stockholder)
of Avanex Corporation, a Delaware corporation (the
Company), hereby irrevocably (to the fullest
extent permitted by law) appoints and constitutes Kate Rundle,
Jerry Turin and Bookham, Inc., a Delaware corporation
(Parent), and each of them, the attorneys and
proxies of the Stockholder, with full power of substitution and
resubstitution, to the full extent of the Stockholders
rights with respect to the outstanding shares of capital stock
of the Company owned of record by the Stockholder as of the date
of this proxy, which shares are specified on the final page of
this proxy. (The shares of the capital stock of the Company
referred to in the immediately preceding sentence are referred
to as the Shares.) Upon the execution of this
proxy, all prior proxies given by the Stockholder with respect
to any of the Shares are hereby revoked, and the Stockholder
agrees that no subsequent proxies inconsistent with this Proxy
will be given with respect to any of the Shares.
This proxy is irrevocable, is coupled with an interest and is
granted in connection with, and as security for, the Voting
Agreement, dated as of the date hereof, between Parent and the
Stockholder (the Voting Agreement), and is
granted in consideration of Parent entering into the Agreement
and Plan of Merger and Reorganization, dated as of the date
hereof, among Parent, Ultraviolet Acquisition Sub, Inc., a
wholly-owned subsidiary of Parent, and the Company (the
Merger Agreement). This proxy will terminate
on the Expiration Date (as defined in the Voting Agreement).
Prior to the Expiration Date, the attorneys and proxies named
above will be empowered, and may exercise this proxy, to vote
any Shares owned by the undersigned, at any meeting of the
stockholders of the Company, however called, and in connection
with any written action by consent of stockholders of the
Company:
(a) in favor of the adoption of the Merger
Agreement; and
(b) against any Acquisition Proposal with respect to an
Avanex Corporation (as such terms are defined in the Merger
Agreement).
The Stockholder may vote the Shares on all other matters not
referred to in this proxy, and the attorneys and proxies named
above may not exercise this proxy with respect to such other
matters.
This proxy shall be binding upon the heirs, estate, executors,
personal representatives, successors and assigns of the
Stockholder (including any transferee of any of the Shares).
Any term or provision of this proxy that is invalid or
unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and
provisions of this proxy or the validity or enforceability of
the offending term or provision in any other situation or in any
other jurisdiction. Upon such determination that any term or
provision is invalid, illegal or incapable of being enforced,
the parties hereto shall negotiate in good faith to modify this
proxy so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the fullest
extent possible.
[Signature
page follows]
Proxy
Annex B-9
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Dated: ,
2009
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Stockholder
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Signature
Printed Name
Number of shares of common stock of the Company owned of record
as of the date
of this proxy:
Proxy
Annex B-10
Annex
C
VOTING
AGREEMENT
This Voting Agreement (Voting
Agreement) is entered into as of January 27,
2009, by and between
Avanex Corporation, a Delaware corporation (the
Company), and
(Stockholder).
Recitals
A. Stockholder is a holder of record and the
beneficial owner (within the meaning of
Rule 13d-3
under the Securities Exchange Act of 1934) of certain
shares of common stock of Bookham, Inc., a Delaware corporation
(the Parent).
B. Parent, Ultraviolet Acquisition Sub, Inc., a Delaware
corporation (Merger Sub), and the Company are
entering into an Agreement and Plan of Merger and Reorganization
of even date herewith (the Merger Agreement),
which provides (subject to the conditions set forth therein) for
the merger of Merger Sub into the Company (the
Merger). Capitalized terms used but not
otherwise defined in this Voting Agreement have the meanings
assigned to such terms in the Merger Agreement.
C. In the Merger, each outstanding share of common stock of
the Company is to be converted into the right to receive
5.426 shares of Parent Common Stock.
D. Stockholder is entering into this Voting Agreement in
order to induce the Company to enter into the Merger Agreement
and cause the Merger to be consummated.
Agreement
The parties to this Voting Agreement, intending to be legally
bound, agree as follows:
Section
1. Certain Definitions
For purposes of this Voting Agreement:
(a) Expiration Date shall mean the
earlier of: (i) the date on which the Merger Agreement is
validly terminated pursuant to Section 8 thereof;
(ii) the date upon which the Merger becomes effective; or
(iii) such date and time as any amendment or change to the
Merger Agreement is effected without the Stockholders
consent that (A) increases the Exchange Ratio or
(B) materially and adversely affects the Stockholder.
(b) Stockholder shall be deemed to Own
or to have acquired Ownership of a
security if Stockholder: (i) is the record owner of such
security; or (ii) is the beneficial owner
(within the meaning of
Rule 13d-3
under the Securities Exchange Act of 1934) of such security.
(c) Subject Securities shall mean:
(i) all securities of Parent (including all shares of
Parent Common Stock and all options, warrants and other rights
to acquire shares of Parent Common Stock) Owned by Stockholder
as of the date of this Voting Agreement; and (ii) all
additional securities of Parent (including all additional shares
of Parent Common Stock and all additional options, warrants and
other rights to acquire shares of Parent Common Stock) of which
Stockholder acquires Ownership during the Voting Period.
(d) A Person shall be deemed to have affected a
Transfer of a security if such Person
directly or indirectly: (i) sells, pledges, encumbers,
grants an option with respect to, transfers or disposes of such
security or any interest in such security to any Person other
than the Company; (ii) enters into an agreement or
commitment contemplating the possible sale of, pledge of,
encumbrance of, grant of an option with respect to, transfer of
or disposition of such security or any interest therein to any
Person other than the Company; or (iii) reduces such
Persons beneficial ownership of, interest in or risk
relating to such security.
(e) Voting Period shall mean the period
commencing on the date of this Voting Agreement and ending on
the earlier of: (i) the date on which the Merger Agreement
is validly terminated; and (ii) the date on which
Annex C-1
a final vote is taken by the stockholders of Parent on a
proposal to issue the Parent Common Stock pursuant to the Merger
Agreement.
Section
2. Transfer of Subject Securities and
Voting Rights
2.1 Restriction on Transfer of Subject
Securities. Subject to Section 2.3, during
the Voting Period, Stockholder shall not, directly or
indirectly, cause or permit any Transfer of any of the Subject
Securities to be effected; provided, however, that
nothing contained in this Voting Agreement will be deemed to
restrict the ability of Stockholder to exercise any Parent
Options held by Stockholder prior to the Expiration Date.
2.2 Restriction on Transfer of Voting
Rights. During the Voting Period, Stockholder
shall ensure that: (a) none of the Subject Securities is
deposited into a voting trust; and (b) no proxy is granted
inconsistent with this Voting Agreement, and no voting agreement
or similar agreement is entered into, with respect to any of the
Subject Securities.
2.3 Permitted
Transfers. Section 2.1 shall not prohibit a
transfer of Subject Securities by Stockholder: (a) if
Stockholder is an individual: (i) to any member of
Stockholders immediate family; or to a trust for the
benefit of Stockholder or any member of Stockholders
immediate family; or (ii) upon the death of Stockholder;
(b) if Stockholder is a partnership or limited liability
company, to one or more partners or members of Stockholder or to
an affiliated corporation under common control with Stockholder;
provided, however, that a transfer referred to in this
sentence shall be permitted only if, as a precondition to such
transfer, the transferee agrees in a writing, reasonably
satisfactory in form and substance to the Company, to be bound
by all of the terms of this Voting Agreement; or
(c) pursuant to any
Rule 10b5-1
plan in effect as of the date of this Voting Agreement.
Section 3. Voting
of Shares
3.1 Voting Covenant. Stockholder
hereby agrees that, prior to the Expiration Date, at any meeting
of the stockholders of Parent, however called, and in any
written action by consent of stockholders of Parent, unless
otherwise directed in writing by the Company, Stockholder shall
cause any issued and outstanding shares of Parent Common Stock
Owned by Stockholder as of the record date with respect to such
meeting or consent:
(a) in favor of the issuance of shares of Parent Common
Stock pursuant to the Merger Agreement; and
(b) against any Acquisition Proposal with respect to a
Bookham Corporation.
Prior to the Expiration Date, Stockholder shall not enter into
any agreement or understanding with any Person to vote or give
instructions in any manner inconsistent with clause
(a) or clause (b) of the preceding
sentence.
3.2 Proxy.
(a) Contemporaneously with the execution of this Voting
Agreement, Stockholder shall deliver to the Company a proxy in
the form attached to this Voting Agreement as
Exhibit A, which shall be irrevocable to the fullest
extent permitted by law (at all times during the Voting Period)
with respect to the shares referred to therein (the
Proxy).
(b) Stockholder shall not enter into any tender, voting or
other agreement, or grant a proxy or power of attorney, with
respect to the Subject Securities that is inconsistent with this
Voting Agreement or otherwise take any other action with respect
to the Subject Securities that would in any way restrict, limit
or interfere with the performance of Stockholders
obligations hereunder or the transactions contemplated hereby.
Section 4. Representations
and Warranties of Stockholder
Stockholder hereby represents and warrants to the Company as
follows:
4.1 Authorization, etc. Stockholder
has the power, authority and capacity to execute and deliver
this Voting Agreement and the Proxy and to perform
Stockholders obligations hereunder and thereunder. This
Voting Agreement and the Proxy have been duly executed and
delivered by Stockholder and, assuming the due
Annex C-2
authorization, execution and delivery of this Voting Agreement
by the Company, constitute legal, valid and binding obligations
of Stockholder, enforceable against Stockholder in accordance
with their terms, subject to: (a) laws of general
application relating to bankruptcy, insolvency and the relief of
debtors; and (b) rules of law governing specific
performance, injunctive relief and other equitable remedies.
4.2 No Conflicts or Consents.
(a) The execution and delivery of this Voting Agreement and
the Proxy by Stockholder do not, and the performance of this
Voting Agreement and the Proxy by Stockholder will not:
(i) conflict with or violate any Legal Requirement or Order
applicable to Stockholder or by which Stockholder or any of
Stockholders properties is or may be bound or affected; or
(ii) result in or constitute (with or without notice or
lapse of time) any breach of or default under, or give to any
other Person (with or without notice or lapse of time) any right
of termination, amendment, acceleration or cancellation of, or
result (with or without notice or lapse of time) in the creation
of any Encumbrance on any of the Subject Securities pursuant to,
any Contract to which Stockholder is a party or by which
Stockholder or any of Stockholders affiliates or
properties is or may be bound or affected.
(b) The execution and delivery of this Voting Agreement and
the Proxy by Stockholder do not, and the performance of this
Voting Agreement and the Proxy by Stockholder will not, require
any Consent of any Person.
4.3 Title to Securities. As of the
date of this Voting Agreement: (a) Stockholder holds of
record (free and clear of any Encumbrances) the number of
outstanding shares of Parent Common Stock set forth under the
heading Shares Held of Record on the signature page
hereof; (b) Stockholder holds (free and clear of any
Encumbrances) the options, warrants and other rights to acquire
shares of Parent Common Stock set forth under the heading
Options and Other Rights on the signature page
hereof; (c) Stockholder Owns the additional securities of
Parent set forth under the heading Additional Securities
Beneficially Owned on the signature page hereof; and
(d) Stockholder does not directly or indirectly Own any
shares of capital stock or other securities of Parent, or any
option, warrant or other right to acquire (by purchase,
conversion or otherwise) any shares of capital stock or other
securities of Parent, other than the shares and options,
warrants and other rights set forth on the signature page hereof.
4.4 Accuracy of
Representations. The representations and
warranties contained in this Voting Agreement are accurate in
all respects as of the date of this Voting Agreement, and will
be accurate in all respects at all times prior to the Expiration
Date as if made as of any such time or date.
Section 5. Miscellaneous
5.1 Stockholder
Information. Stockholder hereby agrees to permit
Parent, the Company and Merger Sub to publish and disclose in
the
Form S-4
Registration Statement and the Joint Proxy Statement/Prospectus
Stockholders identity and ownership of shares of Parent
Common Stock and the nature of Stockholders commitments,
arrangements and understandings under this Voting Agreement.
5.2 Further Assurances. From time
to time and without additional consideration, Stockholder shall
execute and deliver, or cause to be executed and delivered, such
additional transfers, assignments, endorsements, proxies,
consents and other instruments, and shall take such further
actions, as the Company may reasonably request for the purpose
of carrying out and furthering the intent of this Voting
Agreement.
5.3 Expenses. All costs and
expenses incurred in connection with the transactions
contemplated by this Voting Agreement shall be paid by the party
incurring such costs and expenses.
5.4 Notices. Any notice or other
communication under this Voting Agreement shall be in writing
and shall be deemed to have been duly given or made as follows:
(a) if sent by registered or certified mail in the United
States return receipt requested, upon receipt; (b) if sent
by nationally recognized overnight air courier (such as Federal
Express), one business day after mailing; (c) if sent by
facsimile transmission before 5:00 p.m., when transmitted
and receipt is confirmed; (d) if sent by facsimile
transmission after 5:00 p.m. and receipt is confirmed, on
the following business day; and (e) if otherwise actually
personally delivered, when delivered, provided that such
notices, requests, demands and other communications are
delivered to the address
Annex C-3
set forth below, or to such other address as any party shall
provide by like notice to the other parties to this Voting
Agreement:
if to Stockholder:
at the address set forth on the signature page hereof; and
if to the Company:
Avanex Corporation
40919 Encyclopedia Circle
Fremont, California 94538
Attention: Chief Executive Officer
Facsimile:
(510) 897-4345
5.5 Severability. Any term or
provision of this Voting Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and
provisions of this Voting Agreement or the validity or
enforceability of the offending term or provision in any other
situation or in any other jurisdiction. Upon such determination
that any term or provision is invalid, illegal or incapable of
being enforced, the parties hereto shall negotiate in good faith
to modify this Voting Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable
manner to the end that the transactions contemplated hereby are
fulfilled to the fullest extent possible.
5.6 Entire Agreement. This Voting
Agreement, the Proxy, the Merger Agreement and any other
documents delivered by the parties in connection herewith
constitute the entire agreement between the parties with respect
to the subject matter hereof and thereof and supersede all prior
agreements and understandings between the parties with respect
thereto.
5.7 Amendments. This Voting
Agreement may not be amended, modified, altered or supplemented
other than by means of a written instrument duly executed and
delivered on behalf of the Company and Stockholder.
5.8 Assignment; Binding Effect; No Third Party
Rights. Except as provided herein, neither this
Voting Agreement nor any of the interests or obligations
hereunder may be assigned or delegated by Stockholder, and any
attempted or purported assignment or delegation of any of such
interests or obligations shall be void. Subject to the preceding
sentence, this Voting Agreement shall be binding upon
Stockholder and Stockholders heirs, estate, executors and
personal representatives and Stockholders successors and
assigns, and shall inure to the benefit of the Company and its
successors and assigns. Without limiting any of the restrictions
set forth in Section 2, Section 3 or elsewhere in this
Voting Agreement, this Voting Agreement shall be binding upon
any Person to whom any Subject Securities are transferred.
Nothing in this Voting Agreement is intended to confer on any
Person (other than the Company and its successors and assigns)
any rights or remedies of any nature.
5.9 Specific Performance. The
parties agree that irreparable damage would occur in the event
that any of the provisions of this Voting Agreement or the Proxy
were not performed in accordance with its specific terms or were
otherwise breached. Stockholder agrees that, in the event of any
breach or threatened breach by Stockholder of any covenant or
obligation contained in this Voting Agreement or in the Proxy,
the Company shall be entitled (in addition to any other remedy
that may be available to it, including monetary damages) to seek
and obtain: (a) a decree or order of specific performance
to enforce the observance and performance of such covenant or
obligation; and (b) an injunction restraining such breach
or threatened breach. Stockholder further agrees that neither
the Company nor any other Person shall be required to obtain,
furnish or post any bond or similar instrument in connection
with or as a condition to obtaining any remedy referred to in
this Section 5.9, and Stockholder irrevocably waives any
right he or it may have to require the obtaining, furnishing or
posting of any such bond or similar instrument.
5.10 Attorneys Fees. If any
Legal Proceeding relating to this Voting Agreement or the
enforcement of any provision of this Voting Agreement is brought
against Stockholder, the prevailing party shall be entitled to
Annex C-4
recover reasonable attorneys fees, costs and disbursements
(in addition to any other relief to which the prevailing party
may be entitled).
5.11 Non-Exclusivity. The rights
and remedies of the Company under this Voting Agreement are not
exclusive of or limited by any other rights or remedies which it
may have, whether at law, in equity, by contract or otherwise,
all of which shall be cumulative (and not alternative).
5.12 Governing Law; Jurisdiction; Waiver of Jury
Trial. This Voting Agreement and the Proxy shall
be governed by, and construed in accordance with, the laws of
the State of Delaware, regardless of the laws that might
otherwise govern under applicable principles of conflicts of
laws thereof. In any action between any of the parties arising
out of or relating to this Voting Agreement, the Proxy or any of
the transactions contemplated by this Voting Agreement or the
Proxy, each of the parties: (a) irrevocably and
unconditionally consents and submits to the exclusive
jurisdiction and venue of the Chancery Court of the State of
Delaware; (b) irrevocably waives the right to trial by
jury; and (c) irrevocably consents to service of process by
first class certified mail, return receipt requested, postage
prepared, to the address at which Stockholder or the Company, as
the case may be, is to receive notice in accordance with
Section 5.4.
5.13 Counterparts; Exchanges by Facsimile or
Electronic Delivery. This Voting Agreement may be
executed in separate counterparts, each of which when so
executed and delivered shall be an original, but all such
counterparts shall together constitute one and the same
instrument. The exchange of a fully executed Voting Agreement
(in counterparts or otherwise) by facsimile or electronic
delivery shall be sufficient to bind the parties to the terms
and conditions of this Voting Agreement.
5.14 Captions. The captions
contained in this Voting Agreement are for convenience of
reference only, shall not be deemed to be a part of this Voting
Agreement and shall not be referred to in connection with the
construction or interpretation of this Voting Agreement.
5.15 Waiver. Subject to the
remainder of this Section 5.15, at any time prior to the
Expiration Date, any party hereto may: (a) extend the time
for the performance of any of the obligations or other acts of
the other parties to this Voting Agreement; (b) waive any
inaccuracy in or breach of any representation, warranty,
covenant or obligation of the other party in this Voting
Agreement or in any document delivered pursuant to this Voting
Agreement; and (iii) waive compliance with any covenant,
obligation or condition for the benefit of such party contained
in this Voting Agreement. No failure on the part of the Company
to exercise any power, right, privilege or remedy under this
Voting Agreement, and no delay on the part of the Company in
exercising any power, right, privilege or remedy under this
Voting Agreement, shall operate as a waiver of such power,
right, privilege or remedy; and no single or partial exercise of
any such power, right, privilege or remedy shall preclude any
other or further exercise thereof or of any other power, right,
privilege or remedy. The Company shall not be deemed to have
waived any claim available to the Company arising out of this
Voting Agreement, or any power, right, privilege or remedy of
the Company under this Voting Agreement, unless the waiver of
such claim, power, right, privilege or remedy is expressly set
forth in a written instrument duly executed and delivered on
behalf of the Company; and any such waiver shall not be
applicable or have any effect except in the specific instance in
which it is given.
5.16 Independence of
Obligations. The covenants and obligations of
Stockholder set forth in this Voting Agreement shall be
construed as independent of any other Contract between
Stockholder, on the one hand, and Parent or the Company, on the
other. The existence of any claim or cause of action by
Stockholder against Parent or the Company shall not constitute a
defense to the enforcement of any of such covenants or
obligations against Stockholder. Nothing in this Voting
Agreement shall limit any of the rights or remedies of the
Company under the Merger Agreement, or any of the rights or
remedies of the Company or any of the obligations of Stockholder
under any agreement between Stockholder and the Company or any
certificate or instrument executed by Stockholder in favor of
the Company; and nothing in the Merger Agreement or in any other
such agreement, certificate or instrument, shall limit any of
the rights or remedies of the Company or any of the obligations
of Stockholder under this Voting Agreement.
5.17 Other
Capacities. Notwithstanding any provision of this
Voting Agreement to the contrary, nothing in this Voting
Agreement shall limit or restrict Stockholder from acting in
good faith in Stockholders
Annex C-5
capacity as a director or officer of Parent (it being understood
that this Voting Agreement shall apply to Stockholder solely in
Stockholders capacity as a stockholder of Parent).
5.18 Construction.
(a) For purposes of this Voting Agreement, whenever the
context requires: the singular number shall include the plural,
and vice versa; the masculine gender shall include the feminine
and neuter genders; the feminine gender shall include the
masculine and neuter genders; and the neuter gender shall
include masculine and feminine genders.
(b) The parties agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting
party shall not be applied in the construction or interpretation
of this Voting Agreement.
(c) As used in this Voting Agreement, the words
include and including, and variations
thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words without
limitation.
(d) Except as otherwise indicated, all references in this
Voting Agreement to Sections and
Exhibits are intended to refer to Sections of this
Voting Agreement and Exhibits to this Voting Agreement.
[Remainder of page intentionally left blank.]
Annex C-6
In Witness Whereof,
the Company and Stockholder have caused this Voting
Agreement to be executed as of the date first written above.
Avanex
Corporation
Stockholder
Signature
Printed Name
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Additional Securities
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Shares Held of Record
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Options and Other Rights
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Beneficially Owned
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Signature
Page to Voting Agreement
Annex C-7
Exhibit A
Form
of Irrevocable Proxy
Proxy
Annex C-8
Irrevocable
Proxy
The undersigned stockholder (the Stockholder)
of Bookham, Inc., a Delaware corporation
(Parent), hereby irrevocably (to the fullest
extent permitted by law) appoints and constitutes Giovanni
Barbarossa, Mark Weinswig and Avanex Corporation, a
Delaware corporation (the Company), and each
of them, the attorneys and proxies of the Stockholder, with full
power of substitution and resubstitution, to the full extent of
the Stockholders rights with respect to the outstanding
shares of capital stock of Parent owned of record by the
Stockholder as of the date of this proxy, which shares are
specified on the final page of this proxy. (The shares of the
capital stock of Parent referred to in the immediately preceding
sentence are referred to as the Shares.) Upon
the execution of this proxy, all prior proxies given by the
Stockholder with respect to any of the Shares are hereby
revoked, and the Stockholder agrees that no subsequent proxies
inconsistent with this Proxy will be given with respect to any
of the Shares.
This proxy is irrevocable, is coupled with an interest and is
granted in connection with, and as security for, the Voting
Agreement, dated as of the date hereof, between the Company and
the Stockholder (the Voting Agreement), and
is granted in consideration of the Company entering into the
Agreement and Plan of Merger and Reorganization, dated as of the
date hereof, among Parent, Ultraviolet Acquisition Sub, Inc., a
wholly-owned subsidiary of Parent, and the Company (the
Merger Agreement). This proxy will terminate
on the Expiration Date (as defined in the Voting Agreement).
Prior to the Expiration Date, the attorneys and proxies named
above will be empowered, and may exercise this proxy, to vote
any Shares owned by the undersigned, at any meeting of the
stockholders of Parent, however called, and in connection with
any written action by consent of stockholders of Parent:
(a) in favor of the issuance of shares of Parent Common
Stock (as defined in the Merger Agreement) pursuant to the
Merger Agreement; and
(b) against any Acquisition Proposal with respect to a
Bookham Corporation (as such terms are defined in the Merger
Agreement).
The Stockholder may vote the Shares on all other matters not
referred to in this proxy, and the attorneys and proxies named
above may not exercise this proxy with respect to such other
matters.
This proxy shall be binding upon the heirs, estate, executors,
personal representatives, successors and assigns of the
Stockholder (including any transferee of any of the Shares).
Any term or provision of this proxy that is invalid or
unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and
provisions of this proxy or the validity or enforceability of
the offending term or provision in any other situation or in any
other jurisdiction. Upon such determination that any term or
provision is invalid, illegal or incapable of being enforced,
the parties hereto shall negotiate in good faith to modify this
proxy so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the fullest
extent possible.
Proxy
Dated: ,
2009 Stockholder
Signature
Printed Name
Number of shares of common stock of Parent owned of record as of
the date of this proxy:
Annex C-9
Annex D
Board of Directors
Bookham, Inc.
2584 Junction Avenue
San Jose, California 95134
|
|
Members of
the Board:
|
January 27, 2009
|
You have requested our opinion as to the fairness, from a
financial point of view, to Bookham, Inc. (Bookham)
of the Exchange Ratio (defined below) set forth in the Agreement
and Plan of Merger and Reorganization, dated as of
January 27, 2009 (the Merger Agreement), among
Bookham, Avanex Corporation (Avanex) and Ultraviolet
Acquisition Sub, Inc., a wholly owned subsidiary of Bookham
(Acquisition Sub). As more fully described in the
Merger Agreement, (i) Acquisition Sub will be merged with
and into Avanex (the Merger), (ii) Avanex will
become a wholly owned subsidiary of Bookham, and (iii) each
outstanding share of the common stock, par value $0.001 per
share, of Avanex (Avanex Common Stock) will be
converted into the right to receive 5.426 shares (the
Exchange Ratio) of the common stock, par value
$0.0001 per share, of Bookham (Bookham Common Stock).
In arriving at our opinion, we reviewed the Merger Agreement and
held discussions with certain senior officers, directors and
other representatives and advisors of Bookham and certain senior
officers and other representatives and advisors of Avanex
concerning the businesses, operations and prospects of Bookham
and Avanex. We examined certain publicly available business and
financial information relating to Bookham and Avanex as well as
certain financial forecasts and other information and data
relating to Bookham and Avanex which were provided to or
discussed with us by the respective managements of Bookham and
Avanex, including information relating to the potential
strategic implications and operational benefits (including the
amount, timing and achievability thereof) anticipated by the
managements of Bookham and Avanex to result from the Merger. We
reviewed the financial terms of the Merger as set forth in the
Merger Agreement in relation to, among other things: current and
historical market prices and trading volumes of Bookham Common
Stock and Avanex Common Stock; the historical and projected
earnings and other operating data of Bookham and Avanex; and the
capitalization and financial condition of Bookham and Avanex. We
considered, to the extent publicly available, the financial
terms of certain other transactions which we considered relevant
in evaluating the Merger and analyzed certain financial, stock
market and other publicly available information relating to the
businesses of other companies whose operations we considered
relevant in evaluating those of Bookham and Avanex. In addition
to the foregoing, we conducted such other analyses and
examinations and considered such other information and
financial, economic and market criteria as we deemed appropriate
in arriving at our opinion. The issuance of our opinion has been
authorized by our fairness opinion committee.
In rendering our opinion, we have assumed and relied, without
independent verification, upon the accuracy and completeness of
all financial and other information and data publicly available
or provided to or otherwise reviewed by or discussed with us and
upon the assurances of the managements of Bookham and Avanex
that they are not aware of any relevant information that has
been omitted or that remains undisclosed to us. With respect to
financial forecasts and other information and data relating to
Bookham and Avanex provided to or otherwise reviewed by or
discussed with us, we have been advised by the respective
managements of Bookham and Avanex that such forecasts and other
information and data were reasonably prepared on bases
reflecting the best currently available estimates and judgments
of the managements of Bookham and Avanex as to the future
financial performance of Bookham and Avanex, the potential
strategic implications and operational benefits anticipated to
result from the Merger and the other matters covered thereby,
and we have assumed, with your consent, that the financial
results (including the potential strategic implications and
operational benefits anticipated to result from the Merger)
reflected in such forecasts and other information and data will
be realized in the amounts and at the times projected. We were
informed by the respective managements of Bookham and Avanex
that financial projections did not exist for any period after
March 31, 2010 and therefore, with the consent of the
management of Bookham, we did not perform discounted cash flow
analyses with respect to Bookham or Avanex.
Annex D-1
We have assumed, with your consent, that the Merger will be
consummated in accordance with its terms, without waiver,
modification or amendment of any material term, condition or
agreement and that, in the course of obtaining the necessary
regulatory or third party approvals, consents and releases for
the Merger, no delay, limitation, restriction or condition will
be imposed that would have an adverse effect on Bookham, Avanex
or the contemplated benefits of the Merger. We also have
assumed, with your consent, that the Merger will be treated as a
tax-free reorganization for federal income tax purposes. Our
opinion, as set forth herein, relates to the relative values of
Bookham and Avanex. We are not expressing any opinion as to what
the value of the Bookham Common Stock actually will be when
issued pursuant to the Merger or the price at which the Bookham
Common Stock will trade at any time. We have not made or been
provided with an independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of Bookham or
Avanex nor have we made any physical inspection of the
properties or assets of Bookham or Avanex. We were not requested
to, and we did not, solicit third party indications of interest
in the possible acquisition of all or a part of Bookham, nor
were we requested to consider, and our opinion does not address,
the underlying business decision of Bookham to effect the
Merger, the relative merits of the Merger as compared to any
alternative business strategies that might exist for Bookham or
the effect of any other transaction in which Bookham might
engage. We also express no view as to, and our opinion does not
address, the fairness (financial or otherwise) of the amount or
nature or any other aspect of any compensation to any officers,
directors or employees of any parties to the Merger, or any
class of such persons, relative to the Exchange Ratio. Our
opinion is necessarily based upon information available to us,
and financial, stock market and other conditions and
circumstances existing, as of the date hereof.
Citigroup Global Markets Inc. has acted as financial advisor to
Bookham in connection with the proposed Merger and will receive
a fee for such services, a significant portion of which is
contingent upon the consummation of the Merger. We also will
receive a fee in connection with the delivery of this opinion.
We and our affiliates in the past have provided services to
Bookham unrelated to the proposed Merger, for which services we
and such affiliates have received compensation, including,
without limitation, acting as sole bookrunner of Bookhams
offering of Bookham Common Stock in November 2007. In the
ordinary course of our business, we and our affiliates may
actively trade or hold the securities of Bookham and Avanex for
our own account or for the account of our customers and,
accordingly, may at any time hold a long or short position in
such securities. In addition, we and our affiliates (including
Citigroup Inc. and its affiliates) may maintain relationships
with Bookham, Avanex and their respective affiliates.
Our advisory services and the opinion expressed herein are
provided for the information of the Board of Directors of
Bookham in its evaluation of the proposed Merger, and our
opinion is not intended to be and does not constitute a
recommendation to any stockholder as to how such stockholder
should vote or act on any matters relating to the proposed
Merger.
Based upon and subject to the foregoing, our experience as
investment bankers, our work as described above and other
factors we deemed relevant, we are of the opinion that, as of
the date hereof, the Exchange Ratio is fair, from a financial
point of view, to Bookham.
Very truly yours,
/s/ Citigroup
Global Markets Inc.
CITIGROUP GLOBAL MARKETS INC.
Annex D-2
Annex E
[LETTERHEAD
OF BANC OF AMERICA SECURITIES LLC]
January 27, 2009
The Board of Directors
Avanex Corporation
40919 Encyclopedia Circle
Fremont, California 94538
Members of
the Board of Directors:
We understand that Avanex Corporation (Avanex)
proposes to enter into the Agreement and Plan of Merger and
Reorganization, dated as of January 27, 2009 (the
Agreement), among Bookham, Inc.
(Bookham), Ultraviolet Acquisition Sub, Inc., a
wholly owned subsidiary of Bookham (Merger Sub), and
Avanex, pursuant to which, among other things, Merger Sub will
merge with and into Avanex (the Merger) and each
outstanding share of the common stock, par value $0.001 per
share, of Avanex (Avanex Common Stock) will be
converted into the right to receive 5.426 (the Exchange
Ratio) shares of the common stock, par value $0.01 per
share, of Bookham (Bookham Common Stock). The terms
and conditions of the Merger are more fully set forth in the
Agreement.
You have requested our opinion as to the fairness, from a
financial point of view, to the holders of Avanex Common Stock
of the Exchange Ratio provided for in the Merger.
In connection with this opinion, we have, among other things:
(i) reviewed certain publicly available business and
financial information relating to Avanex and Bookham;
(ii) reviewed certain internal financial and operating
information with respect to the business, operations and
prospects of Avanex furnished to or discussed with us by the
management of Avanex, including certain financial forecasts
relating to Avanex prepared by the management of Avanex through
the period ending March 31, 2010 (such forecasts, the
Avanex Forecasts) and an alternative version thereof
prepared by the management of Avanex reflecting lower growth
assumptions (such adjusted forecasts, the Adjusted Avanex
Forecasts), and discussed with the management of Avanex
its assessments as to the relative likelihood of achieving the
future financial results reflected in the Avanex Forecasts and
the Adjusted Avanex Forecasts;
(iii) reviewed certain internal financial and operating
information with respect to the business, operations and
prospects of Bookham furnished to or discussed with us by the
management of Bookham, including certain financial forecasts
relating to Bookham prepared by the management of Bookham
through the period ending March 31, 2010 (such forecasts,
the Bookham Forecasts) and an alternative version
thereof prepared by the management of Bookham reflecting lower
growth assumptions (such adjusted forecasts, the Adjusted
Bookham Forecasts), and discussed with the management of
Bookham its assessments as to the relative likelihood of
achieving the future financial results reflected in the Bookham
Forecasts and the Adjusted Bookham Forecasts;
(iv) discussed with members of senior managements of, and
representatives of legal, bankruptcy and accounting advisors to,
Avanex and Bookham certain matters pertaining to the bankruptcy
filing of Nortel Networks Corporation (Nortel and,
such filing, the Nortel Bankruptcy), including,
without limitation, their assessments as to the potential impact
of the Nortel Bankruptcy on Avanex, Bookham and the combined
company;
(v) reviewed certain sensitivities to the Avanex Forecasts
prepared by the management of Avanex and certain sensitivities
to the Bookham Forecasts prepared by the managements of Bookham
and Avanex, in each case excluding, in light of the Nortel
Bankruptcy, revenues, accounts receivables and certain other
items attributable to Nortel (collectively, the Nortel
Sensitivities);
Annex E-1
The Board of Directors
Avanex Corporation
Page 2
(vi) reviewed certain estimates as to the amount and timing
of cost savings (Cost Savings) anticipated by the
managements of Avanex and Bookham to result from the Merger;
(vii) discussed the past and current business, operations,
financial condition and prospects of Avanex and Bookham with
members of senior managements of Avanex and Bookham;
(viii) discussed with members of senior managements of
Avanex and Bookham their assessments as to (a) existing and
future relationships, agreements and arrangements with, and the
combined companys ability to retain, key employees,
suppliers and customers of Avanex and Bookham (including,
without limitation, Nortel) and (b) the products and
technology of Avanex and Bookham (including, without limitation,
the validity of, risks associated with, and integration by the
combined company of, such products and technology);
(ix) reviewed the trading histories for Avanex Common Stock
and Bookham Common Stock and a comparison of such trading
histories with each other and with the trading histories of
other companies we deemed relevant;
(x) compared certain financial and stock market information
of Avanex and Bookham with similar information of other
companies we deemed relevant;
(xi) compared certain financial terms of the Merger to
financial terms, to the extent publicly available, of other
transactions we deemed relevant;
(xii) reviewed the relative financial contributions of
Avanex and Bookham to the future financial performance of the
combined company on a pro forma basis;
(xiii) reviewed certain financial data of Avanex on a
standalone basis relative to that of the combined company after
giving effect to potential Cost Savings based on the pro forma
equity ownership of Avanexs stockholders upon consummation
of the Merger;
(xiv) reviewed various public filings and announcements of
Bookham with respect to, and discussed with senior management of
Bookham its assessments regarding, outstanding patent
infringement litigation pertaining to certain of Bookhams
products, including the status and possible consequences thereof;
(xv) considered the results of our efforts to solicit, at
the direction of Avanex, indications of interest from third
parties with respect to a possible transaction with Avanex;
(xvi) reviewed the Agreement; and
(xvii) performed such other analyses and studies and
considered such other information and factors as we deemed
appropriate.
In arriving at our opinion, we have assumed and relied upon,
without independent verification, the accuracy and completeness
of the financial and other information and data publicly
available or provided to or otherwise reviewed by or discussed
with us and have relied upon the assurances of the managements
of Avanex and Bookham that they are not aware of any facts or
circumstances that would make such information or data
inaccurate or misleading in any material respect. As you are
aware, although we have requested financial forecasts with
respect to Avanex and Bookham, we have been advised by the
managements of Avanex and Bookham that such managements have not
prepared, and are unable to prepare, current and reliable
financial forecasts beyond March 31, 2010 and that there
are no publicly available financial forecasts with respect to
Avanex or Bookham beyond June 30, 2010. Accordingly, upon
the advice of Avanex and Bookham, we have not performed a
financial analysis of the future cash flows of either Avanex or
Bookham in connection with this opinion. With respect to the
Avanex Forecasts and the Adjusted Avanex Forecasts, we have been
advised by Avanex, and have assumed, that such forecasts have
been reasonably prepared on bases reflecting the best currently
available estimates and good faith judgments of the management
of Avanex as to
Annex E-2
The Board of Directors
Avanex Corporation
Page 3
the future financial performance of Avanex under the alternative
growth scenarios reflected therein and, based on the assessments
of the management of Avanex as to the relative likelihood of
achieving the future financial results reflected in the Avanex
Forecasts and the Adjusted Avanex Forecasts, we have relied, at
the direction of Avanex, on the Avanex Forecasts for purposes of
our opinion. With respect to the Bookham Forecasts and the
Adjusted Bookham Forecasts, we have been advised by Bookham and
have assumed, with the consent of Avanex, that such forecasts
have been reasonably prepared on bases reflecting the best
currently available estimates and good faith judgments of the
management of Bookham as to the future financial performance of
Bookham under the alternative growth scenarios reflected therein
and, based on the assessments of the management of Bookham as to
the relative likelihood of achieving the future financial
results reflected in the Bookham Forecasts and the Adjusted
Bookham Forecasts, we have relied, at the direction of Bookham
and with the consent of Avanex, on the Bookham Forecasts for
purposes of our opinion. With respect to the Nortel
Sensitivities and Cost Savings, we have been advised by Avanex
and Bookham, and have assumed, with the consent of Avanex, that
such forecasts have been reasonably prepared on bases reflecting
the best currently available estimates and good faith judgments
of the managements of Avanex and Bookham as to such Nortel
Sensitivities and Cost Savings and that the Cost Savings will be
realized in the amounts and at the times projected.
We have relied, at the direction of Avanex, upon the assessments
of senior managements of Avanex and Bookham as to existing and
future relationships, agreements and arrangements with, and the
combined companys ability to retain, key employees,
suppliers and customers of Avanex and Bookham (including,
without limitation, Nortel) and have assumed, at the direction
of Avanex, that such relationships, agreements or arrangements
with such employees, suppliers and customers will not be
adversely impacted by the Merger. We also have relied, at the
direction of Avanex, upon the assessments of senior managements
of Avanex and Bookham as to the products and technology of
Avanex and Bookham, including, without limitation, the validity
of, risks associated with, and integration by the combined
company of, such products and technology. We further have
relied, at the direction of Avanex, upon the assessments of
senior managements of, and legal, bankruptcy and accounting
advisors to, Avanex and Bookham as to the potential impact of
the Nortel Bankruptcy on Avanex, Bookham and the combined
company and have assumed, at the direction of Avanex, that the
Nortel Bankruptcy will not adversely impact our opinion. With
respect to outstanding patent infringement litigation pertaining
to certain of Bookhams products, we have assumed, with the
consent of Avanex and without independent verification, that
such litigation will not adversely affect Bookham or the
combined company. We have not made or been provided with any
independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of Avanex or Bookham, nor have we made
any physical inspection of the properties or assets of Avanex or
Bookham. We have not evaluated the solvency of Avanex or Bookham
under any state, federal or other laws relating to bankruptcy,
insolvency or similar matters. We have assumed, at Avanexs
direction, that the Merger will be consummated in accordance
with its terms, without waiver, modification or amendment of any
material term, condition or agreement and that, in the course of
obtaining the necessary governmental, regulatory and other
approvals, consents, releases and waivers for the Merger, no
delay, limitation, restriction or condition will be imposed that
would have an adverse effect on Avanex, Bookham or the
contemplated benefits of the Merger. We also have assumed, at
the direction of Avanex, that the Merger will qualify for
federal income tax purposes as a reorganization under the
provisions of Section 368(a) of the Internal Revenue Code
of 1986, as amended.
We express no view or opinion as to any terms or other aspects
of the Merger (other than the Exchange Ratio to the extent
expressly specified herein), including, without limitation, the
form or structure of the Merger. Our opinion is limited to the
fairness, from a financial point of view, of the Exchange Ratio
to the holders of Avanex Common Stock and no opinion or view is
expressed with respect to any consideration received in
connection with the by the holders of any other class of
securities, creditors or other constituencies of Avanex. In
addition, no opinion or view is expressed with respect to the
fairness of the amount, nature or any other aspect of any
compensation to any of the officers, directors or employees of
any party to the Merger,
Annex E-3
The Board of Directors
Avanex Corporation
Page 4
or class of such persons, relative to the Exchange Ratio.
Furthermore, no opinion or view is expressed as to the relative
merits of the Merger in comparison to other strategies or
transactions that might be available to Avanex or in which
Avanex might engage or as to the underlying business decision of
Avanex to proceed with or effect the Merger. We are not
expressing any opinion as to what the value of Bookham Common
Stock actually will be when issued or the prices at which
Bookham Common Stock or Avanex Common Stock will trade at any
time. In addition, we express no opinion or recommendation as to
how any stockholder should vote or act in connection with the
Merger.
We have acted as financial advisor to Avanex in connection with
the Merger and will receive a fee for our services, a portion of
which is payable upon the rendering of this opinion and a
significant portion of which is contingent upon consummation of
the Merger. In addition, Avanex has agreed to reimburse our
expenses and indemnify us against certain liabilities arising
out of our engagement.
We and our affiliates comprise a full service securities firm
and commercial bank engaged in securities trading and brokerage
activities and principal investing as well as providing
investment, corporate and private banking, asset and investment
management, financing and financial advisory services and other
commercial services and products to a wide range of corporations
and individuals. In the ordinary course of our businesses, we
and our affiliates may actively trade the debt, equity or other
securities or financial instruments (including bank loans or
other obligations) of Avanex, Bookham and certain of their
respective affiliates for our own account or for the accounts of
customers and, accordingly, we or our affiliates may at any time
hold long or short positions in such securities or financial
instruments.
We and our affiliates in the past have provided, currently are
providing, and in the future may provide investment banking,
commercial banking and other financial services to Avanex and
have received or in the future may receive compensation for the
rendering of these services, including (i) having acted or
acting as a lender under certain credit facilities of Avanex,
(ii) having acted as agent and book runner in connection
with certain equity offerings of Avanex, (iii) having
provided or providing certain foreign exchange derivative
trading services to Avanex and (iv) having provided or
providing certain treasury management services to Avanex.
It is understood that this letter is for the benefit and use of
the Board of Directors of Avanex in connection with and for
purposes of its evaluation of the Merger.
Our opinion is necessarily based on financial, economic,
monetary, market and other conditions and circumstances as in
effect on, and the information made available to us as of, the
date hereof. It should be understood that subsequent
developments may affect this opinion, and we do not have any
obligation to update, revise, or reaffirm this opinion. The
issuance of this opinion was approved by our Fairness Opinion
Review Committee.
Based upon and subject to the foregoing, including the various
assumptions and limitations set forth herein, we are of the
opinion on the date hereof that the Exchange Ratio provided for
in the Merger is fair, from a financial point of view, to the
holders of Avanex Common Stock.
Very truly yours,
/s/ Banc
of America Securities LLC
BANC OF AMERICA SECURITIES LLC
Annex E-4
Annex F
FORM OF
CERTIFICATE OF AMENDMENT
CERTIFICATE OF AMENDMENT TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF BOOKHAM, INC.
A
Delaware Corporation
Bookham, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware, does hereby
certify as follows:
First: The
name of the Corporation is Bookham, Inc.
Second: The
date of filing the original Certificate of Incorporation of this
company with the Secretary of State of the State of Delaware was
June 29, 2004, as restated on September 9, 2004.
Third: The
Board of Directors of the Corporation, acting in accordance with
provisions of Sections 141 and 242 of the General
Corporation Law of the State of Delaware, adopted resolutions
amending its Certificate of Incorporation as follows:
The first paragraph of Article FOURTH is hereby deleted in
its entirety and replaced as follows:
FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is
455,000,000, consisting of (i) 450,000,000 shares of
Common Stock, $0.01 par value per share (Common
Stock), and (ii) 5,000,000 shares of Preferred
Stock, $0.01 par value per share (Preferred
Stock).
Fourth: The
foregoing amendment was submitted to the stockholders of the
Corporation for their approval, and was duly adopted in
accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware.
In Witness
Whereof, Bookham, Inc. has caused this Certificate of
Amendment to be signed by its President and Chief Executive
Officer and attested by its Secretary this day
of ,
2009.
Bookham, Inc.
Alain Couder
President and Chief Executive Officer
ATTEST:
,
Secretary
Annex F-1
Annex G
FORM OF
CERTIFICATE OF AMENDMENT
CERTIFICATE OF AMENDMENT
TO THE RESTATED CERTIFICATE OF INCORPORATION
OF BOOKHAM, INC.
A
Delaware Corporation
Bookham, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware, does hereby
certify as follows:
First: The
name of the Corporation is Bookham, Inc.
Second: The
date of filing the original Certificate of Incorporation of this
company with the Secretary of State of the State of Delaware was
June 29, 2004, as restated on September 9, 2004.
Third: The
Board of Directors of the Corporation, acting in accordance with
provisions of Sections 141 and 242 of the General
Corporation Law of the State of Delaware, adopted resolutions
amending its Certificate of Incorporation as follows:
The first paragraph of Article FOURTH is hereby deleted in
its entirety and replaced as
follows:1
FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is
[ ]2
shares, consisting of (i)
[ ]2 shares
of Common Stock, $0.01 par value per share (Common
Stock), and (ii)
[ ]2 shares
of Preferred Stock, $0.01 par value per share
(Preferred Stock). Effective as of 5:00 p.m.,
Eastern time, on the date this Certificate of Amendment to the
Restated Certificate of Incorporation is filed with the
Secretary of State of the State of Delaware (the Effective
Time), each [five (5), six (6), seven (7), eight
(8), nine (9), ten (10), eleven (11), twelve (12), thirteen
(13), fourteen (14), fifteen (15), sixteen (16), seventeen (17),
eighteen (18), nineteen (19), twenty (20), twenty-one (21),
twenty-two (22), twenty-three (23), twenty-four (24),
twenty-five (25), twenty-six (26), twenty-seven (27),
twenty-eight (28), twenty-nine (29), thirty
(30)]1 shares
of the
1 These
amendments approve the combination and reclassification of any
whole number of shares of Bookham common stock between and
including five (5) and thirty (30) into one
(1) share of Bookham common stock, and approve a
proportionate reduction in the total number of shares of Bookham
common stock and preferred stock that Bookham is authorized to
issue (with respect to such proportionate reduction, see
note 2 below). By these amendments, the stockholders would
approve each of the twenty-six (26) amendments proposed by
the Bookham board of directors. The Certificate of Amendment
filed with the Secretary of State of the State of Delaware will
include only that amendment determined by the Bookham board of
directors to be in the best interests of Bookham and its
stockholders. The other twenty-five (25) amendments will be
abandoned pursuant to Section 242(c) of the Delaware
General Corporation Law. The Bookham board of directors may also
elect not to effect any reverse stock split and proportionate
reduction in the total number of shares of Bookham common stock
and preferred stock that Bookham is authorized to issue, in
which case all twenty-six (26) proposed amendments will be
abandoned.
2 The
number shares of each of (i) Bookhams total
authorized capital stock, (ii) Bookhams total
authorized common stock and (iii) Bookhams total
authorized preferred stock would each be reduced on a
proportionate basis assuming that the Bookham board of directors
elects to effect a reverse stock split, which proportionate
reduction will be based on the whole number of shares of Bookham
common stock between and including five (5) and thirty
(30) that will be combined and reclassified into one
(1) share of Bookham common stock in the reverse stock
split, as illustrated in the tables under the caption
Effects of the Reverse Stock Split in the section of
the accompanying joint proxy statement/prospectus entitled
Bookham Proposal No. 3 Amendments
to Bookhams Restated Certificate of Incorporation to
Effect a Reverse Stock Split and to Reduce the Number of
Authorized Shares of Bookham Common Stock and Preferred
Stock.
Annex G-1
Corporations Common Stock, par value $0.01 per share,
issued and outstanding immediately prior to the Effective Time
(Old Common Stock) shall, automatically and without
any action on the part of the respective holders thereof, be
combined and reclassified into one (1) share of Common
Stock, par value $0.01 per share, of the Corporation (New
Common Stock). Notwithstanding the immediately preceding
sentence, no fractional shares of New Common Stock shall be
issued and, in lieu thereof, upon receipt after the Effective
Time by the exchange agent selected by the Corporation of a
properly completed and duly executed transmittal letter and,
where shares are held in certificated form, the surrender of the
stock certificate(s) formerly representing shares of Old Common
Stock, any stockholder who would otherwise be entitled to a
fractional share of New Common Stock as a result of the
foregoing combination and reclassification of the Old Common
Stock (such combination and reclassification, the Reverse
Stock Split), following the Effective Time (after taking
into account all fractional shares of New Common Stock otherwise
issuable to such stockholder), shall be entitled to receive a
cash payment (without interest) equal to the fractional share of
New Common Stock to which such stockholder would otherwise be
entitled multiplied by the closing sales price (as adjusted to
give effect to the Reverse Stock Split) of a share of the
Corporations Common Stock on the NASDAQ Global Market (or,
if the Corporations Common Stock is not then listed on the
NASDAQ Global Market, any other national securities exchange,
market or trading or quotation facility on which the
Corporations Common Stock is then listed or quoted) on the
date this Certificate of Amendment to the Restated Certificate
of Incorporation is filed with the Secretary of State of the
State of Delaware. Each stock certificate that, immediately
prior to the Effective Time, represented shares of Old Common
Stock shall, from and after the Effective Time, automatically
and without any action on the part of the respective holders
thereof, represent that number of whole shares of New Common
Stock into which the shares of Old Common Stock represented by
such certificate shall have been combined and reclassified (as
well as the right to receive cash in lieu of any fractional
shares of New Common Stock as set forth above); provided,
however, that each holder of record of a certificate that
represented shares of Old Common Stock shall receive, upon
surrender of such certificate, a new certificate representing
the number of whole shares of New Common Stock into which the
shares of Old Common Stock represented by such certificate shall
have been combined and reclassified, as well as any cash in lieu
of fractional shares of New Common Stock to which such holder
may be entitled as set forth above.
Fourth: The
foregoing amendment was submitted to the stockholders of the
Corporation for their approval, and was duly adopted in
accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware.
In Witness
Whereof, Bookham, Inc. has caused this Certificate of
Amendment to be signed by its President and Chief Executive
Officer and attested by its Secretary this day
of ,
2009.
Bookham,
Inc.
Alain Couder
President and Chief Executive Officer
ATTEST:
,
Secretary
Annex G-2
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
|
|
Item 20.
|
Indemnification
of Directors and Officers
|
Article SEVENTH and Article EIGHTH, of the
Registrants Restated Certificate of Incorporation,
Section 145 of the Delaware General Corporation Law and
indemnification agreements entered into by the Registrant with
its directors and officers provide for the indemnification or
limitation of liability of officers, directors, employees and
agents under certain circumstances.
Article SEVENTH of the Registrants Restated
Certificate of Incorporation provides that no director of the
Registrant shall be personally liable for any monetary damages
for any breach of fiduciary duty as a director, except to the
extent that the General Corporation Law of the State of Delaware
prohibits the elimination or limitation of liability of
directors for breach of fiduciary duty.
Section 102 of the General Corporation Law of the State of
Delaware allows a corporation to eliminate the personal
liability of directors of a corporation to the corporation or
its stockholders for monetary damages for a breach of fiduciary
duty as a director, except where the director breached his duty
of loyalty, failed to act in good faith, engaged in intentional
misconduct or knowingly violated a law, authorized the payment
of a dividend or approved a stock repurchase in violation of
Delaware law or obtained an improper personal benefit.
Article EIGHTH of the Registrants Restated
Certificate of Incorporation provides that a director or officer
of the Registrant (a) shall be indemnified by the
Registrant against all expenses (including attorneys
fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred in connection with any threatened,
pending or completed action, suit or proceeding (other than an
action by or in the right of the Registrant) brought against him
by virtue of his position as a director or officer of the
Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best
interests of the Registrant, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his
conduct was unlawful and (b) shall be indemnified by the
Registrant against all expenses (including attorneys fees)
and, to the extent permitted by law, amounts paid in settlement
actually and reasonably incurred in connection with any
threatened, pending or completed action or suit by or in the
right of the Registrant brought against him by virtue of his
position as a director or officer of the Registrant if he acted
in good faith and in a manner he reasonably believed to be in,
or not opposed to, the best interests of the Registrant, except
that no indemnification shall be made with respect to any matter
as to which such person shall have been adjudged to be liable to
the Registrant, unless the Court of Chancery of Delaware
determines that, despite such adjudication but in view of all of
the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a
director or officer has been successful, on the merits or
otherwise, including, without limitation, the dismissal of an
action without prejudice, he is required to be indemnified by
the Registrant against all expenses (including attorneys
fees) actually and reasonably incurred in connection therewith.
Expenses shall be advanced to a director or officer at his
request, provided that he undertakes to repay the amount
advanced if it is ultimately determined that he is not entitled
to indemnification for such expenses.
Indemnification shall be made upon a determination by the
Registrant that indemnification is proper because the applicable
standard of conduct for indemnification has been met. As a
condition precedent to the right of indemnification, the
director or officer must give the Registrant notice of the
action for which indemnity is sought and the Registrant has the
right to participate in such action or assume the defense
thereof.
Article EIGHTH of the Registrants Restated
Certificate of Incorporation further provides that the
indemnification provided therein is not exclusive.
Section 145 of the General Corporation Law of the State of
Delaware provides that a corporation has the power to indemnify
a director, officer, employee or agent of the corporation and
certain other persons serving at the request of the corporation
in related capacities against amounts paid and expenses incurred
in connection
II-1
with an action or proceeding to which he is or is threatened to
be made a party by reason of such position, if such person shall
have acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the
corporation, and, in any criminal proceeding, if such person had
no reasonable cause to believe his conduct was unlawful;
provided that, in the case of actions brought by or in the right
of the corporation, no indemnification shall be made with
respect to any matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such
indemnification is proper under the circumstances.
The Registrant has entered into indemnification agreements with
each of its directors to give such directors additional
contractual assurances regarding the indemnification provisions
set forth in the Registrants certificate of incorporation
and to provide additional procedural protections.
The Registrant has purchased directors and officers
liability insurance which would indemnify its directors and
officers against damages arising out of certain kinds of claims
which might be made against them based on their negligent acts
or omissions while acting in their capacity as such.
|
|
Item 21.
|
Exhibits
and Financial Statement Schedules
|
Exhibits
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger and Reorganization, dated as of
January 27, 2009, among Bookham, Inc., Ultraviolet
Acquisition Sub, Inc. and Avanex Corporation (included as
Annex A to the joint proxy statement/prospectus).
|
|
2
|
.2
|
|
Form of Voting Agreement between Bookham, Inc. and certain
stockholders of Avanex Corporation (included as Annex B to
the joint proxy statement/prospectus).
|
|
2
|
.3
|
|
Form of Voting Agreement between Avanex Corporation and certain
stockholders of Bookham, Inc. (included as Annex C to the
joint proxy statement/prospectus).
|
|
3
|
.1
|
|
Amended and Restated Bylaws of Bookham, Inc., as amended
(previously filed as Exhibit 3.1 to Annual Report on
Form 10-K
(file No. 30684) for the year ended June 30, 2007
and incorporated herein by reference).
|
|
3
|
.2
|
|
Restated Certificate of Incorporation of Bookham, Inc.
(previously filed as Exhibit 3.1 to Current Report on
Form 8-K
(file
no. 000-30684)
dated September 10, 2004, and incorporated herein by
reference).
|
|
5
|
.1
|
|
Opinion of Cooley Godward Kronish LLP regarding the legality of
the securities.
|
|
8
|
.1
|
|
Opinion of Cooley Godward Kronish LLP regarding tax matters.
|
|
8
|
.2
|
|
Opinion of Wilson Sonsini Goodrich & Rosati regarding
tax matters.
|
|
10
|
.1
|
|
Agreement and Plan of Merger, dated September 21, 2003, by
and among Bookham Technology plc, Budapest Acquisition Corp. and
New Focus, Inc. (previously filed as Appendix A to
Registration Statement on
Form F-4,
as amended (file
no. 333-109904)
dated February 3, 2004, and incorporated herein by
reference).
|
|
10
|
.2
|
|
Acquisition Agreement dated as of October 7, 2002 between
Nortel Networks Corporation and Bookham Technology plc
(previously filed as Exhibit 1 to Schedule 13D filed
by Nortel Networks Corporation on October 17, 2002, and
incorporated herein by reference).
|
|
10
|
.3*
|
|
Letter Agreement dated November 8, 2002 between Nortel
Networks Corporation and Bookham Technology plc amending the
Acquisition Agreement referred to in Exhibit 10.2
(previously filed as Exhibit 4.2 to Amendment No. 2 to
Annual Report on
Form 20-F
(file
no. 000-30684)
for the year ended December 31, 2002, and incorporated
herein by reference).
|
|
10
|
.4*
|
|
Optical Components Supply Agreement dated November 8, 2002,
by and between Nortel Networks Limited and Bookham Technology
plc (previously filed as Exhibit 4.3 to Amendment
No. 1 to Annual Report on
Form 20-F
(file
no. 000-30684)
for the year ended December 31, 2002, and incorporated
herein by reference).
|
|
10
|
.5
|
|
Relationship Deed dated November 8, 2002 between Nortel
Networks Corporation and Bookham Technology plc (previously
filed as Exhibit 4.4 to Annual Report on
Form 20-F
(file
no. 000-30684)
for the year ended December 31, 2002, and incorporated
herein by reference).
|
II-2
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
10
|
.6
|
|
Registration Rights Agreement dated as of November 8, 2002
among Nortel Networks Corporation, the Nortel Subsidiaries
listed on the signature pages and Bookham Technology plc
(previously filed as Exhibit 4.5 to Annual Report on
Form 20-F
(file
no. 000-30684)
for the year ended December 31, 2002, and incorporated
herein by reference).
|
|
10
|
.7
|
|
Agreement relating to the Sale and Purchase of the Business of
Marconi Optical Components Limited, dated December 17,
2001, among Bookham Technology plc, Marconi Optical Components
Limited and Marconi Corporation plc (previously filed as
Exhibit 4.1 to Annual Report on
Form 20-F
(file
no. 000-30684)
for the year ended December 31, 2001, and incorporated
herein by reference).
|
|
10
|
.8
|
|
Supplemental Agreement to the Agreement relating to the Sale and
Purchase of the Business of Marconi Optical Components Limited,
dated January 31, 2002, among Bookham Technology plc,
Marconi Optical Components Limited and Marconi Corporation plc
(previously filed as Exhibit 4.2 to Annual Report on
Form 20-F
(file
no. 000-30684)
for the year ended December 31, 2001, and incorporated
herein by reference).
|
|
10
|
.11
|
|
Lease dated December 23, 1999 by and between Silicon Valley
Properties, LLC and New Focus, Inc., with respect to 2580
Junction Avenue, San Jose, California (previously filed as
Exhibit 10.32 to Amendment No. 1 to Transition Report
on
Form 10-K
(file
no. 000-30684)
for the for the transition period from January 1, 2004 to
July 3, 2004, and incorporated herein by reference).
|
|
10
|
.12(1)
|
|
2004 Employee Stock Purchase Plan (previously filed as
Exhibit 10.18 to Transition Report on
Form 10-K
(file
no. 000-30684)
for the transition period from January 1, 2004 to
July 3, 2004, and incorporated herein by reference).
|
|
10
|
.13(1)
|
|
2004 Sharesave Scheme (previously filed as
Exhibit 10.20 to Transition Report on
Form 10-K
(file
no. 000-30684)
for the transition period from January 1, 2004 to
July 3, 2004, and incorporated herein by reference).
|
|
10
|
.18(1)
|
|
Principal Statement of Terms and Conditions dated
September 13, 2001 between Bookham Technology plc and
Stephen Abely, as amended on July 1, 2003 (previously filed
as Exhibit 10.29 to Transition Report on
Form 10-K
(file
no. 000-30684)
for the transition period from January 1, 2004 to
July 3, 2004, and incorporated herein by reference).
|
|
10
|
.20
|
|
Securities Purchase Agreement, dated as of December 20,
2004, by and between Bookham, Inc. and the Investors (as such
term is defined therein) (previously filed as Exhibit 99.1
to Current Report on
Form 8-K
(file
no. 000-30684)
dated December 10, 2004, and incorporated herein by
reference).
|
|
10
|
.21
|
|
Registration Rights Agreement, dated as of December 20,
2004, by and between Bookham, Inc. and the Investors (as such
term is defined therein) (previously filed as Exhibit 99.2
to Current Report on
Form 8-K
(file
no. 000-30684)
dated December 10, 2004, and incorporated herein by
reference).
|
|
10
|
.22
|
|
Form of Warrant (previously filed as Exhibit 99.4 to
Current Report on
Form 8-K
(file
no. 000-30684)
dated December 10, 2004, and incorporated herein by
reference).
|
|
10
|
.23*
|
|
Addendum to Optical Components Supply Agreement, dated as of
February 7, 2005, by and between Bookham Technology plc and
Nortel Networks Limited (previously filed as Exhibit 10.1
to Quarterly Report on
Form 10-Q
(file
no. 000-30684)
for the quarter ended April 2, 2005, and incorporated
herein by reference).
|
|
10
|
.24(1)
|
|
UK Subplan to the 2004 Stock Incentive Plan (previously filed as
Exhibit 10.4 to Quarterly Report on
Form 10-Q
(file
no. 000-30684)
for the quarter ended April 2, 2005, and incorporated
herein by reference).
|
|
10
|
.29*
|
|
Addendum to Optical Components Supply Agreement, dated as of
April 1, 2005, by and between Bookham Technology plc and
Nortel Networks Limited (previously filed as Exhibit 10.36
to Annual Report on
Form 10-K
(file
no. 000-30684)
for the year ended July 2, 2005, and incorporated herein by
reference).
|
|
10
|
.30(1)
|
|
Contract of Employment between Bookham Technology plc and Jim
Haynes (previously filed as Exhibit 10.38 to Annual Report
on
Form 10-K
(file
no. 000-30684)
for the year ended July 2, 2005, and incorporated herein by
reference).
|
II-3
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
10
|
.31
|
|
Share Purchase Agreement dated August 10, 2005 among London
Industrial Leasing Limited, Deutsche Bank AG (acting through its
London Branch) and Bookham Technology plc (previously filed as
Exhibit 10.1 to Quarterly Report on
Form 10-Q
(file
no. 000-30684)
for the quarter ended October 1, 2005, and incorporated
herein by reference).
|
|
10
|
.32
|
|
Loan Facility Agreement dated August 10, 2005 between City
Leasing (Creekside) Limited and Deutsche Bank AG, Limited, for a
facility of up to £18,348,132.33 (previously filed as
Exhibit 10.2 to Quarterly Report on
Form 10-Q
(file
no. 000-30684)
for the quarter ended October 1, 2005, and incorporated
herein by reference).
|
|
10
|
.33
|
|
Loan Facility Agreement dated August 10, 2005 between City
Leasing (Creekside) Limited and Deutsche Bank AG, Limited for a
facility of up to £42,500,000.00 (previously filed as
Exhibit 10.3 to Quarterly Report on
Form 10-Q
(file
no. 000-30684)
for the quarter ended October 1, 2005, and incorporated
herein by reference).
|
|
10
|
.34
|
|
Amended and Restated 2004 Stock Incentive Plan (previously filed
as Exhibit 10.1 to Quarterly Report on
Form 10-Q
(file
no. 000-30684)
for the quarter ended December 29, 2007, and incorporated
herein by reference).
|
|
10
|
.35(1)
|
|
Form of Incentive Stock Option, Form of Non-Statutory Stock
Option, Form of Restricted Stock Unit Agreement and Form of
Restricted Stock Agreement (previously filed as part of
Exhibit 10.1 to Quarterly Report on
Form 10-Q
(file
no. 000-30684)
for the quarter ended December 31, 2005 and incorporated
herein by reference).
|
|
10
|
.38(1)
|
|
Restricted Stock Agreement dated November 11, 2005 between
Bookham, Inc. and Jim Haynes (previously filed as
Exhibit 10.5 to Quarterly Report on
Form 10-Q
(file
no. 000-30684)
for the quarter ended December 31, 2005, and incorporated
herein by reference).
|
|
10
|
.42(1)
|
|
Form of Indemnification Agreement, dated October 26, 2005,
between Bookham, Inc. and each of Giorgio Anania and Liam Nagle,
(previously filed as Exhibit 99.1 to Current Report on
Form 8-K
(file
no. 000-30684)
filed on November 1, 2005, and incorporated herein by
reference).
|
|
10
|
.43*
|
|
Addendum and Amendment to Optical Components Supply Agreement,
dated January 13, 2006, between Nortel Networks Limited and
Bookham Technology plc (previously filed as Exhibit 10.1 to
Quarterly Report on
Form 10-Q
(file
no. 000-30684)
for the quarter ended April 1, 2006, and incorporated
herein by reference).
|
|
10
|
.44
|
|
Registration and
Lock-Up
Agreement, dated as of January 13, 2006, among Bookham
Technology plc, Bookham, Inc. and Nortel Networks Corporation
(previously filed as Exhibit 10.2 to Quarterly Report on
Form 10-Q
(file
no. 000-30684)
for the quarter ended April 1, 2006, and incorporated
herein by reference).
|
|
10
|
.45
|
|
Agreement for Sale and Leaseback dated as of March 10,
2006, by and among Bookham Technology plc, Coleridge
(No. 24) Limited and Bookham, Inc. (previously filed
as Exhibit 10.3 to Quarterly Report on
Form 10-Q
(file
no. 000-30684)
for the quarter ended April 1, 2006, and incorporated
herein by reference).
|
|
10
|
.46
|
|
Pre-emption Agreement dated as of March 10, 2006, by and
among Bookham Technology plc, Coleridge
(No. 24) Limited and Bookham, Inc. (previously filed
as Exhibit 10.4 to Quarterly Report on
Form 10-Q
(file
no. 000-30684)
for the quarter ended April 1, 2006, and incorporated
herein by reference).
|
|
10
|
.47
|
|
Lease dated as of March 10, 2006, by and among Bookham
Technology plc, Coleridge (No. 24) Limited and
Bookham, Inc. (previously filed as Exhibit 10.5 to
Quarterly Report on
Form 10-Q
(file
no. 000-30684)
for the quarter ended April 1, 2006, and incorporated
herein by reference).
|
|
10
|
.48
|
|
Exchange Agreement, dated as of January 13, 2006, by and
among Bookham, Inc., Bookham Technology plc and the Investors
(as defined therein) (previously filed as Exhibit 99.1 to
Current Report on
Form 8-K
(file
no. 000-30684)
filed on January 17, 2006, and incorporated herein by
reference).
|
|
10
|
.49
|
|
Form of Warrant (previously filed as Exhibit 99.2 to
Current Report on
Form 8-K
(file
no. 000-30684)
filed on January 17, 2006, and incorporated herein by
reference).
|
II-4
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
10
|
.50
|
|
Securities Exchange Agreement, dated as of January 13,
2006, by and between Bookham, Inc. and the Investors (as such
term is defined therein) (previously filed as Exhibit 99.3
to Current Report on
Form 8-K
(file
no. 000-30684)
filed on January 17, 2006, and incorporated herein by
reference).
|
|
10
|
.51
|
|
Registration Rights Agreement, dated as of January 13,
2006, by and between Bookham, Inc. and the Investors (as such
term is defined therein) (previously filed as Exhibit 99.4
to Current Report on
Form 8-K
(file
no. 000-30684)
filed on January 17, 2006, and incorporated herein by
reference).
|
|
10
|
.52
|
|
Form of Warrant (previously filed as Exhibit 99.5 to
Current Report on
Form 8-K
(file
no. 000-30684)
filed on January 17, 2006, and incorporated herein by
reference).
|
|
10
|
.53
|
|
Credit Agreement, dated as of August 2, 2006, among
Bookham, Inc., Bookham Technology plc, New Focus, Inc. and
Bookham (US), Inc., Wells Fargo Foothill, Inc. and other lenders
party thereto. (previously filed as Exhibit 10.53 to Annual
Report on
Form 10-K
(file
no. 000-30684)
for the year ended July 1, 2006, and incorporated herein by
reference).
|
|
10
|
.54
|
|
Security Agreement, dated as of August 2, 2006, among
Bookham, Inc., Onetta, Inc., Focused Research, Inc., Globe Y.
Technology, Inc., Ignis Optics, Inc., Bookham (Canada) Inc.,
Bookham Nominees Limited and Bookham International Ltd., Wells
Fargo Foothill, Inc. and other secured parties party thereto.
(previously filed as Exhibit 10.54 to Annual Report on
Form 10-K
(file
no. 000-30684)
for the year ended July 1, 2006, and incorporated herein by
reference).
|
|
10
|
.55
|
|
Securities Purchase Agreement, dated as of August 31, 2006,
by and among Bookham, Inc. and the Investors (as defined
therein) (previously filed as Exhibit 99.1 to Current
Report on
Form 8-K
(file
no. 000-30684)
filed on September 5, 2006 and incorporated herein by
reference).
|
|
10
|
.56
|
|
Registration Rights Agreement, dated as of August 31, 2006,
by and among Bookham, Inc. and the Holders (as defined therein)
(previously filed as Exhibit 99.2 to Current Report on
Form 8-K
(file
no. 000-30684)
filed on September 5, 2006 and incorporated herein by
reference).
|
|
10
|
.57
|
|
Form of Warrant (previously filed as Exhibit 99.3 to
Current Report on
Form 8-K
(file
no. 000-30684)
filed on September 5, 2006 and incorporated herein by
reference).
|
|
10
|
.58
|
|
Securities Purchase Agreement, dated as of March 22, 2007,
by and among Bookham, Inc. and the Investors (as such term is
defined therein) (previously filed as Exhibit 99.1 to
Current Report on
Form 8-K
(file
no. 000-30684)
filed on March 26, 2007 and incorporated herein by
reference).
|
|
10
|
.59
|
|
Registration Rights Agreement, dated as of March 22, 2007,
by and among Bookham, Inc. and the Investors (as such term is
defined therein) (previously filed as Exhibit 99.2 to
Current Report on
Form 8-K
(file
no. 000-30684)
filed on March 26, 2007 and incorporated herein by
reference).
|
|
10
|
.60
|
|
Form of Warrant (previously filed as Exhibit 99.3 to
Current Report on
Form 8-K
(file
no. 000-30684)
filed on March 26, 2007 and incorporated herein by
reference).
|
|
10
|
.61
|
|
Letter Agreement, dated May 7, 2007, between Bookham, Inc.
and Peter Bordui (previously filed as Exhibit 99.1 to
Current Report on
Form 8-K
(file
no. 000-30684)
filed on May 11, 2007 and incorporated herein by reference).
|
|
10
|
.62(1)
|
|
Employment Agreement, dated July 10, 2007, between the
Bookham, Inc. and Alain Couder (previously filed as
Exhibit 99.1 to Current Report on
Form 8-K
(file
no. 000-30684)
filed on July 11, 2007 and incorporated herein by
reference).
|
|
10
|
.63(1)
|
|
Form of Indemnification Agreement, between Bookham, Inc. and
directors and executive officers (previously filed as
Exhibit 10.2 to Quarterly Report on
Form 10-Q
(file
no. 000-30684)
for the quarter ended December 29, 2007 and incorporated
herein by reference).
|
|
10
|
.64(1)
|
|
Form of Executive Severance and Retention Agreement, between
Bookham, Inc. and its executive officers (previously filed as
Exhibit 10.1 to Quarterly Report on
Form 10-Q
(file
no. 000-30684)
for the quarter ended March 29, 2008 and incorporated
herein by reference)
|
|
10
|
.65(1)
|
|
Summary of cash bonus plan (previously provided in Current
Report on
Form 8-K
(file
no. 000-30684)
filed on October 29, 2007 and incorporated herein by
reference).
|
|
10
|
.66(1)
|
|
Summary of cash bonus plan (previously provided in Current
Report on
Form 8-K
(file
no. 000-30684)
filed on January 25, 2008 and, with respect to the summary
to the cash bonus plan, is incorporated herein).
|
II-5
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
10
|
.67(1)
|
|
Summary of cash bonus plan (previously provided in Current
Report on
Form 8-K
(file
no. 000-30684)
filed on July 25, 2008 and, with respect to the summary of
the cash bonus plan, is incorporated herein by reference).
|
|
10
|
.68(1)
|
|
Summary of cash bonus plan (previously provided in Current
Report on Form 8-K (file
no. 000-30684)
filed on February 24, 2009 and, with respect to the summary
of the cash bonus plan, is incorporated herein by reference).
|
|
16
|
.1
|
|
Letter from Ernst & Young LLP to the Securities and
Exchange Commission dated February 13, 2008 (previously
filed as Exhibit 16.1 to Current Report on
Form 8-K
(file
no. 000-30684)
filed on February 14, 2008 and incorporated herein by
reference).
|
|
21
|
.1
|
|
List of Bookham, Inc. subsidiaries.
|
|
23
|
.1
|
|
Consent of Grant Thornton LLP, independent registered public
accounting firm, with respect to Bookham, Inc.
|
|
23
|
.2
|
|
Consent of Ernst & Young LLP, independent registered
public accounting firm, with respect to Bookham, Inc.
|
|
23
|
.3
|
|
Consent of Deloitte & Touche LLP, independent
registered public accounting firm, with respect to Avanex
Corporation.
|
|
23
|
.4
|
|
Consent of Cooley Godward Kronish LLP (set forth in
Exhibit 5.1).
|
|
23
|
.5
|
|
Consent of Cooley Godward Kronish LLP (set forth in
Exhibit 8.1).
|
|
23
|
.6
|
|
Consent of Wilson Sonsini Goodrich & Rosati (set forth
in Exhibit 8.2).
|
|
24
|
.1
|
|
Powers of Attorney (see page II-8 to the Registration
Statement on Form S-4 (File
No. 333-157528)
filed with the SEC on February 26, 2009).
|
|
99
|
.1
|
|
Form of Bookham Proxy.
|
|
99
|
.2
|
|
Form of Avanex Proxy.
|
|
99
|
.3
|
|
Consent of Citigroup Global Markets Inc.
|
|
99
|
.4
|
|
Consent of Banc of America Securities LLC
|
|
99
|
.5
|
|
Consent of Giovanni Barbarossa, to be named as a director of the
combined company.
|
|
99
|
.6
|
|
Consent of Greg Dougherty, to be named as a director of the
combined company
|
|
99
|
.7
|
|
Consent of Joel A. Smith III, to be named as a director of the
combined company
|
|
|
|
* |
|
Confidential treatment requested as to certain portions, which
portions have been omitted and filed separately with the
Commission. |
|
** |
|
The exhibits and schedules to this agreement were omitted by
Bookham, Inc. Bookham, Inc. agrees to furnish any exhibit or
schedule to this agreement supplementally to the Securities and
Exchange Commission upon written request. |
|
|
|
Previously filed. |
|
|
|
(1) |
|
Management contract or compensatory plan or arrangement. |
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration
II-6
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Securities and Exchange Commission
pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the
Calculation of Registration Fee table in the
effective registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof;
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering;
(4) That, prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part
of this registration statement, by any person or party who is
deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the
applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form;
(5) That every prospectus (i) that is filed pursuant
to paragraph (4) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of
the Securities Act of 1933 and is used in connection with an
offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities
offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering
thereof; and
(6) To supply by means of a post-effective amendment all
information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act, the
registrant has duly caused this Amendment No. 2 to the
registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of
San Jose, State of California, on March 23, 2009.
BOOKHAM, INC.
Alain Couder
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment No. 2 to the registration statement
has been signed by the following persons in the capacities and
on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Alain
Couder
Alain
Couder
|
|
Chief Executive Officer, President and Director (Principal
Executive Officer )
|
|
March 23, 2009
|
|
|
|
|
|
/s/ Jerry
Turin
Jerry
Turin
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
March 23, 2009
|
|
|
|
|
|
*
Peter
Bordui
|
|
Director
|
|
March 23, 2009
|
|
|
|
|
|
*
David
Simpson
|
|
Director
|
|
March 23, 2009
|
|
|
|
|
|
*
Lori
Holland
|
|
Director
|
|
March 23, 2009
|
|
|
|
|
|
*
W.
Arthur Porter
|
|
Director
|
|
March 23, 2009
|
|
|
|
|
|
*
Joseph
Cook
|
|
Director
|
|
March 23, 2009
|
|
|
|
|
|
*
Edward
B. Collins
|
|
Director
|
|
March 23, 2009
|
|
|
|
|
|
*
Bernard
J. Couillaud
|
|
Director
|
|
March 23, 2009
|
Jerry Turin
Attorney-in-fact
II-8
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger and Reorganization, dated as of
January 27, 2009, among Bookham, Inc., Ultraviolet
Acquisition Sub, Inc. and Avanex Corporation (included as
Annex A to the joint proxy statement/prospectus).
|
|
2
|
.2
|
|
Form of Voting Agreement between Bookham, Inc. and certain
stockholders of Avanex Corporation (included as Annex B to
the joint proxy statement/prospectus).
|
|
2
|
.3
|
|
Form of Voting Agreement between Avanex Corporation and certain
stockholders of Bookham, Inc. (included as Annex C to the
joint proxy statement/prospectus).
|
|
3
|
.1
|
|
Amended and Restated Bylaws of Bookham, Inc., as amended
(previously filed as Exhibit 3.1 to Annual Report on
Form 10-K
(file No. 30684) for the year ended June 30, 2007
and incorporated herein by reference).
|
|
3
|
.2
|
|
Restated Certificate of Incorporation of Bookham, Inc.
(previously filed as Exhibit 3.1 to Current Report on
Form 8-K
(file
no. 000-30684)
dated September 10, 2004, and incorporated herein by
reference).
|
|
5
|
.1
|
|
Opinion of Cooley Godward Kronish LLP regarding the legality of
the securities.
|
|
8
|
.1
|
|
Opinion of Cooley Godward Kronish LLP regarding tax matters.
|
|
8
|
.2
|
|
Opinion of Wilson Sonsini Goodrich & Rosati regarding
tax matters.
|
|
10
|
.1
|
|
Agreement and Plan of Merger, dated September 21, 2003, by
and among Bookham Technology plc, Budapest Acquisition Corp. and
New Focus, Inc. (previously filed as Appendix A to
Registration Statement on
Form F-4,
as amended (file
no. 333-109904)
dated February 3, 2004, and incorporated herein by
reference).
|
|
10
|
.2
|
|
Acquisition Agreement dated as of October 7, 2002 between
Nortel Networks Corporation and Bookham Technology plc
(previously filed as Exhibit 1 to Schedule 13D filed
by Nortel Networks Corporation on October 17, 2002, and
incorporated herein by reference).
|
|
10
|
.3*
|
|
Letter Agreement dated November 8, 2002 between Nortel
Networks Corporation and Bookham Technology plc amending the
Acquisition Agreement referred to in Exhibit 10.2
(previously filed as Exhibit 4.2 to Amendment No. 2 to
Annual Report on
Form 20-F
(file
no. 000-30684)
for the year ended December 31, 2002, and incorporated
herein by reference).
|
|
10
|
.4*
|
|
Optical Components Supply Agreement dated November 8, 2002,
by and between Nortel Networks Limited and Bookham Technology
plc (previously filed as Exhibit 4.3 to Amendment
No. 1 to Annual Report on
Form 20-F
(file
no. 000-30684)
for the year ended December 31, 2002, and incorporated
herein by reference).
|
|
10
|
.5
|
|
Relationship Deed dated November 8, 2002 between Nortel
Networks Corporation and Bookham Technology plc (previously
filed as Exhibit 4.4 to Annual Report on
Form 20-F
(file
no. 000-30684)
for the year ended December 31, 2002, and incorporated
herein by reference).
|
|
10
|
.6
|
|
Registration Rights Agreement dated as of November 8, 2002
among Nortel Networks Corporation, the Nortel Subsidiaries
listed on the signature pages and Bookham Technology plc
(previously filed as Exhibit 4.5 to Annual Report on
Form 20-F
(file
no. 000-30684)
for the year ended December 31, 2002, and incorporated
herein by reference).
|
|
10
|
.7
|
|
Agreement relating to the Sale and Purchase of the Business of
Marconi Optical Components Limited, dated December 17,
2001, among Bookham Technology plc, Marconi Optical Components
Limited and Marconi Corporation plc (previously filed as
Exhibit 4.1 to Annual Report on
Form 20-F
(file
no. 000-30684)
for the year ended December 31, 2001, and incorporated
herein by reference).
|
|
10
|
.8
|
|
Supplemental Agreement to the Agreement relating to the Sale and
Purchase of the Business of Marconi Optical Components Limited,
dated January 31, 2002, among Bookham Technology plc,
Marconi Optical Components Limited and Marconi Corporation plc
(previously filed as Exhibit 4.2 to Annual Report on
Form 20-F
(file
no. 000-30684)
for the year ended December 31, 2001, and incorporated
herein by reference).
|
|
10
|
.11
|
|
Lease dated December 23, 1999 by and between Silicon Valley
Properties, LLC and New Focus, Inc., with respect to 2580
Junction Avenue, San Jose, California (previously filed as
Exhibit 10.32 to Amendment No. 1 to Transition Report
on
Form 10-K
(file
no. 000-30684)
for the for the transition period from January 1, 2004 to
July 3, 2004, and incorporated herein by reference).
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
10
|
.12(1)
|
|
2004 Employee Stock Purchase Plan (previously filed as
Exhibit 10.18 to Transition Report on
Form 10-K
(file
no. 000-30684)
for the transition period from January 1, 2004 to
July 3, 2004, and incorporated herein by reference).
|
|
10
|
.13(1)
|
|
2004 Sharesave Scheme (previously filed as
Exhibit 10.20 to Transition Report on
Form 10-K
(file
no. 000-30684)
for the transition period from January 1, 2004 to
July 3, 2004, and incorporated herein by reference).
|
|
10
|
.18(1)
|
|
Principal Statement of Terms and Conditions dated
September 13, 2001 between Bookham Technology plc and
Stephen Abely, as amended on July 1, 2003 (previously filed
as Exhibit 10.29 to Transition Report on
Form 10-K
(file
no. 000-30684)
for the transition period from January 1, 2004 to
July 3, 2004, and incorporated herein by reference).
|
|
10
|
.20
|
|
Securities Purchase Agreement, dated as of December 20,
2004, by and between Bookham, Inc. and the Investors (as such
term is defined therein) (previously filed as Exhibit 99.1
to Current Report on
Form 8-K
(file
no. 000-30684)
dated December 10, 2004, and incorporated herein by
reference).
|
|
10
|
.21
|
|
Registration Rights Agreement, dated as of December 20,
2004, by and between Bookham, Inc. and the Investors (as such
term is defined therein) (previously filed as Exhibit 99.2
to Current Report on
Form 8-K
(file
no. 000-30684)
dated December 10, 2004, and incorporated herein by
reference).
|
|
10
|
.22
|
|
Form of Warrant (previously filed as Exhibit 99.4 to
Current Report on
Form 8-K
(file
no. 000-30684)
dated December 10, 2004, and incorporated herein by
reference).
|
|
10
|
.23*
|
|
Addendum to Optical Components Supply Agreement, dated as of
February 7, 2005, by and between Bookham Technology plc and
Nortel Networks Limited (previously filed as Exhibit 10.1
to Quarterly Report on
Form 10-Q
(file
no. 000-30684)
for the quarter ended April 2, 2005, and incorporated
herein by reference).
|
|
10
|
.24(1)
|
|
UK Subplan to the 2004 Stock Incentive Plan (previously filed as
Exhibit 10.4 to Quarterly Report on
Form 10-Q
(file
no. 000-30684)
for the quarter ended April 2, 2005, and incorporated
herein by reference).
|
|
10
|
.29*
|
|
Addendum to Optical Components Supply Agreement, dated as of
April 1, 2005, by and between Bookham Technology plc and
Nortel Networks Limited (previously filed as Exhibit 10.36
to Annual Report on
Form 10-K
(file
no. 000-30684)
for the year ended July 2, 2005, and incorporated herein by
reference).
|
|
10
|
.30(1)
|
|
Contract of Employment between Bookham Technology plc and Jim
Haynes (previously filed as Exhibit 10.38 to Annual Report
on
Form 10-K
(file
no. 000-30684)
for the year ended July 2, 2005, and incorporated herein by
reference).
|
|
10
|
.31
|
|
Share Purchase Agreement dated August 10, 2005 among London
Industrial Leasing Limited, Deutsche Bank AG (acting through its
London Branch) and Bookham Technology plc (previously filed as
Exhibit 10.1 to Quarterly Report on
Form 10-Q
(file
no. 000-30684)
for the quarter ended October 1, 2005, and incorporated
herein by reference).
|
|
10
|
.32
|
|
Loan Facility Agreement dated August 10, 2005 between City
Leasing (Creekside) Limited and Deutsche Bank AG, Limited, for a
facility of up to £18,348,132.33 (previously filed as
Exhibit 10.2 to Quarterly Report on
Form 10-Q
(file
no. 000-30684)
for the quarter ended October 1, 2005, and incorporated
herein by reference).
|
|
10
|
.33
|
|
Loan Facility Agreement dated August 10, 2005 between City
Leasing (Creekside) Limited and Deutsche Bank AG, Limited for a
facility of up to £42,500,000.00 (previously filed as
Exhibit 10.3 to Quarterly Report on
Form 10-Q
(file
no. 000-30684)
for the quarter ended October 1, 2005, and incorporated
herein by reference).
|
|
10
|
.34
|
|
Amended and Restated 2004 Stock Incentive Plan (previously filed
as Exhibit 10.1 to Quarterly Report on
Form 10-Q
(file
no. 000-30684)
for the quarter ended December 29, 2007, and incorporated
herein by reference).
|
|
10
|
.35(1)
|
|
Form of Incentive Stock Option, Form of Non-Statutory Stock
Option, Form of Restricted Stock Unit Agreement and Form of
Restricted Stock Agreement (previously filed as part of
Exhibit 10.1 to Quarterly Report on
Form 10-Q
(file
no. 000-30684)
for the quarter ended December 31, 2005 and incorporated
herein by reference).
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
10
|
.38(1)
|
|
Restricted Stock Agreement dated November 11, 2005 between
Bookham, Inc. and Jim Haynes (previously filed as
Exhibit 10.5 to Quarterly Report on
Form 10-Q
(file
no. 000-30684)
for the quarter ended December 31, 2005, and incorporated
herein by reference).
|
|
10
|
.42(1)
|
|
Form of Indemnification Agreement, dated October 26, 2005,
between Bookham, Inc. and each of Giorgio Anania and Liam Nagle,
(previously filed as Exhibit 99.1 to Current Report on
Form 8-K
(file
no. 000-30684)
filed on November 1, 2005, and incorporated herein by
reference).
|
|
10
|
.43*
|
|
Addendum and Amendment to Optical Components Supply Agreement,
dated January 13, 2006, between Nortel Networks Limited and
Bookham Technology plc (previously filed as Exhibit 10.1 to
Quarterly Report on
Form 10-Q
(file
no. 000-30684)
for the quarter ended April 1, 2006, and incorporated
herein by reference).
|
|
10
|
.44
|
|
Registration and
Lock-Up
Agreement, dated as of January 13, 2006, among Bookham
Technology plc, Bookham, Inc. and Nortel Networks Corporation
(previously filed as Exhibit 10.2 to Quarterly Report on
Form 10-Q
(file
no. 000-30684)
for the quarter ended April 1, 2006, and incorporated
herein by reference).
|
|
10
|
.45
|
|
Agreement for Sale and Leaseback dated as of March 10,
2006, by and among Bookham Technology plc, Coleridge
(No. 24) Limited and Bookham, Inc. (previously filed
as Exhibit 10.3 to Quarterly Report on
Form 10-Q
(file
no. 000-30684)
for the quarter ended April 1, 2006, and incorporated
herein by reference).
|
|
10
|
.46
|
|
Pre-emption Agreement dated as of March 10, 2006, by and
among Bookham Technology plc, Coleridge
(No. 24) Limited and Bookham, Inc. (previously filed
as Exhibit 10.4 to Quarterly Report on
Form 10-Q
(file
no. 000-30684)
for the quarter ended April 1, 2006, and incorporated
herein by reference).
|
|
10
|
.47
|
|
Lease dated as of March 10, 2006, by and among Bookham
Technology plc, Coleridge (No. 24) Limited and
Bookham, Inc. (previously filed as Exhibit 10.5 to
Quarterly Report on
Form 10-Q
(file
no. 000-30684)
for the quarter ended April 1, 2006, and incorporated
herein by reference).
|
|
10
|
.48
|
|
Exchange Agreement, dated as of January 13, 2006, by and
among Bookham, Inc., Bookham Technology plc and the Investors
(as defined therein) (previously filed as Exhibit 99.1 to
Current Report on
Form 8-K
(file
no. 000-30684)
filed on January 17, 2006, and incorporated herein by
reference).
|
|
10
|
.49
|
|
Form of Warrant (previously filed as Exhibit 99.2 to
Current Report on
Form 8-K
(file
no. 000-30684)
filed on January 17, 2006, and incorporated herein by
reference).
|
|
10
|
.50
|
|
Securities Exchange Agreement, dated as of January 13,
2006, by and between Bookham, Inc. and the Investors (as such
term is defined therein) (previously filed as Exhibit 99.3
to Current Report on
Form 8-K
(file
no. 000-30684)
filed on January 17, 2006, and incorporated herein by
reference).
|
|
10
|
.51
|
|
Registration Rights Agreement, dated as of January 13,
2006, by and between Bookham, Inc. and the Investors (as such
term is defined therein) (previously filed as Exhibit 99.4
to Current Report on
Form 8-K
(file
no. 000-30684)
filed on January 17, 2006, and incorporated herein by
reference).
|
|
10
|
.52
|
|
Form of Warrant (previously filed as Exhibit 99.5 to
Current Report on
Form 8-K
(file
no. 000-30684)
filed on January 17, 2006, and incorporated herein by
reference).
|
|
10
|
.53
|
|
Credit Agreement, dated as of August 2, 2006, among
Bookham, Inc., Bookham Technology plc, New Focus, Inc. and
Bookham (US), Inc., Wells Fargo Foothill, Inc. and other lenders
party thereto. (previously filed as Exhibit 10.53 to Annual
Report on
Form 10-K
(file
no. 000-30684)
for the year ended July 1, 2006, and incorporated herein by
reference).
|
|
10
|
.54
|
|
Security Agreement, dated as of August 2, 2006, among
Bookham, Inc., Onetta, Inc., Focused Research, Inc., Globe Y.
Technology, Inc., Ignis Optics, Inc., Bookham (Canada) Inc.,
Bookham Nominees Limited and Bookham International Ltd., Wells
Fargo Foothill, Inc. and other secured parties party thereto.
(previously filed as Exhibit 10.54 to Annual Report on
Form 10-K
(file
no. 000-30684)
for the year ended July 1, 2006, and incorporated herein by
reference).
|
|
10
|
.55
|
|
Securities Purchase Agreement, dated as of August 31, 2006,
by and among Bookham, Inc. and the Investors (as defined
therein) (previously filed as Exhibit 99.1 to Current
Report on
Form 8-K
(file
no. 000-30684)
filed on September 5, 2006 and incorporated herein by
reference).
|
|
10
|
.56
|
|
Registration Rights Agreement, dated as of August 31, 2006,
by and among Bookham, Inc. and the Holders (as defined therein)
(previously filed as Exhibit 99.2 to Current Report on
Form 8-K
(file
no. 000-30684)
filed on September 5, 2006 and incorporated herein by
reference).
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
10
|
.57
|
|
Form of Warrant (previously filed as Exhibit 99.3 to
Current Report on
Form 8-K
(file
no. 000-30684)
filed on September 5, 2006 and incorporated herein by
reference).
|
|
10
|
.58
|
|
Securities Purchase Agreement, dated as of March 22, 2007,
by and among Bookham, Inc. and the Investors (as such term is
defined therein) (previously filed as Exhibit 99.1 to
Current Report on
Form 8-K
(file
no. 000-30684)
filed on March 26, 2007 and incorporated herein by
reference).
|
|
10
|
.59
|
|
Registration Rights Agreement, dated as of March 22, 2007,
by and among Bookham, Inc. and the Investors (as such term is
defined therein) (previously filed as Exhibit 99.2 to
Current Report on
Form 8-K
(file
no. 000-30684)
filed on March 26, 2007 and incorporated herein by
reference).
|
|
10
|
.60
|
|
Form of Warrant (previously filed as Exhibit 99.3 to
Current Report on
Form 8-K
(file
no. 000-30684)
filed on March 26, 2007 and incorporated herein by
reference).
|
|
10
|
.61
|
|
Letter Agreement, dated May 7, 2007, between Bookham, Inc.
and Peter Bordui (previously filed as Exhibit 99.1 to
Current Report on
Form 8-K
(file
no. 000-30684)
filed on May 11, 2007 and incorporated herein by reference).
|
|
10
|
.62(1)
|
|
Employment Agreement, dated July 10, 2007, between the
Bookham, Inc. and Alain Couder (previously filed as
Exhibit 99.1 to Current Report on
Form 8-K
(file
no. 000-30684)
filed on July 11, 2007 and incorporated herein by
reference).
|
|
10
|
.63(1)
|
|
Form of Indemnification Agreement, between Bookham, Inc. and
directors and executive officers (previously filed as
Exhibit 10.2 to Quarterly Report on
Form 10-Q
(file
no. 000-30684)
for the quarter ended December 29, 2007 and incorporated
herein by reference).
|
|
10
|
.64(1)
|
|
Form of Executive Severance and Retention Agreement, between
Bookham, Inc. and its executive officers (previously filed as
Exhibit 10.1 to Quarterly Report on
Form 10-Q
(file
no. 000-30684)
for the quarter ended March 29, 2008 and incorporated
herein by reference).
|
|
10
|
.65(1)
|
|
Summary of cash bonus plan (previously provided in Current
Report on
Form 8-K
(file
no. 000-30684)
filed on October 29, 2007 and incorporated herein by
reference).
|
|
10
|
.66(1)
|
|
Summary of cash bonus plan (previously provided in Current
Report on
Form 8-K
(file
no. 000-30684)
filed on January 25, 2008 and, with respect to the summary
to the cash bonus plan, is incorporated herein).
|
|
10
|
.67(1)
|
|
Summary of cash bonus plan (previously provided in Current
Report on
Form 8-K
(file
no. 000-30684)
filed on July 25, 2008 and, with respect to the summary of
the cash bonus plan, is incorporated herein by reference).
|
|
10
|
.68(1)
|
|
Summary of cash bonus plan (previously provided in Current
Report on
Form 8-K
(file
no. 000-30684)
filed on February 24, 2009 and, with respect to the summary
of the cash bonus plan, is incorporated herein by reference).
|
|
16
|
.1
|
|
Letter from Ernst & Young LLP to the Securities and
Exchange Commission dated February 13, 2008 (previously
filed as Exhibit 16.1 to Current Report on
Form 8-K
(file
no. 000-30684)
filed on February 14, 2008 and incorporated herein by
reference).
|
|
21
|
.1
|
|
List of Bookham, Inc. subsidiaries.
|
|
23
|
.1
|
|
Consent of Grant Thornton LLP, independent registered public
accounting firm, with respect to Bookham, Inc.
|
|
23
|
.2
|
|
Consent of Ernst & Young LLP, independent registered
public accounting firm, with respect to Bookham, Inc.
|
|
23
|
.3
|
|
Consent of Deloitte & Touche LLP, independent
registered public accounting firm, with respect to Avanex
Corporation.
|
|
23
|
.4
|
|
Consent of Cooley Godward Kronish LLP (set forth in
Exhibit 5.1).
|
|
23
|
.5
|
|
Consent of Cooley Godward Kronish LLP (set forth in
Exhibit 8.1).
|
|
23
|
.6
|
|
Consent of Wilson Sonsini Goodrich & Rosati (set forth
in Exhibit 8.2).
|
|
24
|
.1
|
|
Powers of Attorney (see
page II-8
to the Registration Statement on
Form S-4
(File
No. 333-157528)
filed with the SEC on February 26, 2009).
|
|
99
|
.1
|
|
Form of Bookham Proxy.
|
|
99
|
.2
|
|
Form of Avanex Proxy.
|
|
99
|
.3
|
|
Consent of Citigroup Global Markets Inc.
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
99
|
.4
|
|
Consent of Banc of America Securities LLC.
|
|
99
|
.5
|
|
Consent of Giovanni Barbarossa, to be named as a director of the
combined company.
|
|
99
|
.6
|
|
Consent of Greg Dougherty, to be named as a director of the
combined company.
|
|
99
|
.7
|
|
Consent of Joel A. Smith III, to be named as a director of the
combined company.
|
|
|
|
* |
|
Confidential treatment requested as to certain portions, which
portions have been omitted and filed separately with the
Commission. |
|
** |
|
The exhibits and schedules to this agreement were omitted by
Bookham, Inc. Bookham, Inc. agrees to furnish any exhibit or
schedule to this agreement supplementally to the Securities and
Exchange Commission upon written request. |
|
|
|
Previously filed. |
|
|
|
(1) |
|
Management contract or compensatory plan or arrangement. |