Oclaro 10K/A 2004 Annual report (amended)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

Amendment No. 2
to

FORM 10-K/A

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934


o		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


þ		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from January 1, 2004 to July 3, 2004

Commission file number 0-30684

Bookham, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		20-1303994
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)
2584 Junction Avenue
San Jose, California		95134
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: 408-919-1500
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of class)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yesþ Noo

The aggregate market value of the Common Stock held by non-affiliates of the registrant was $188,782,586 based on the closing price of the registrant’s Common Stock on September 10, 2004 as reported by the NASDAQ National Market ($7.55 per share). As of August 10, 2005, there were 33,805,437 shares of Common Stock outstanding.

TABLE OF CONTENTS


PART IV
	Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
EXHIBIT 23.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

TRANSITION REPORT ON FORM 10-K
PERIOD ENDED JULY 3, 2004

TABLE OF CONTENTS

PART IV


Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K			3

EXPLANATORY NOTE

This Amendment No. 2 to Form 10-K/A is being filed for the purposes of (i) revising Note 1 to the financial statements to describe management’s plans to address the need to raise additional funds and (ii) revising the opinion of Ernst & Young LLP, Bookham, Inc.’s independent registered public accounting firm, on page F-2 to include an emphasis of matter paragraph stating that if management is unable to raise additional funds it would significantly adversely affect Bookham, Inc.’s ability to continue operations.

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) The following documents are filed as part of or are included in this Amendment No. 2 to the Transition Report on Form 10-K/A:

1. Financial Statements


1. Report of Independent Registered Public Accounting Firm			F-2
2. Consolidated Balance Sheets			F-3
3. Consolidated Statement of Operations			F-4
4. Consolidated Statements of Stockholder’s Equity			F-5
5. Consolidated Statements of Cash Flows			F-8
6. Notes to Consolidated Financial Statements			F-9

2. Financial Statement Schedules

Schedule II: Valuation and Qualifying Accounts

3. List of Exhibits

The Exhibits filed as part of this Transition Report on Form 10-K./A are listed on the Exhibit Index immediately preceding such Exhibits, which Exhibit Index is incorporated herein by reference. The documents listed on such Exhibit Index, except as otherwise noted, are being filed as exhibits herewith. We have noted on the Exhibit Index that certain documents have, pursuant to Rule 12b-32 promulgated under the Exchange Act, been incorporated by reference from other documents that we have filed with the SEC. Bookham’s file number under the Exchange Act is 000-30684. This Exhibit Index also identifies each management or compensatory plan or arrangement required to be filed as an Exhibit to this report.

(b) Reports on Form 8-K

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment No. 2 to Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly authorized.


	BOOKHAM, INC.
	By:	/s/ Stephen Abely
		Stephen Abely
August 12, 2005		Chief Financial Officer

BOOKHAM, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Report of Independent Registered Public Accounting Firm			F-2
Consolidated Balance Sheets			F-3
Consolidated Statements of Operations			F-4
Consolidated Statements of Stockholders’ Equity			F-5
Consolidated Statements of Cash Flows			F-8
Notes to Consolidated Financial Statements			F-9

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Bookham, Inc.

We have audited the accompanying consolidated balance sheets of Bookham, Inc. as of July 3, 2004 and December 31, 2003, and 2002 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the six month period ended July 3, 2004, and for each of the three years in the period ended December 31, 2003. Our audits also included the financial statement schedule listed in the Index at Item 15(a)2. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Since the date of completion of our audit of the accompanying financial statements and initial issuance of our report thereon dated September 15, 2004, as discussed in Note 1, management has determined that additional funding will be required in order fund operations for fiscal 2006. Management are taking actions to raise additional equity capital and considering the disposal of selected assets or businesses. If management are unable to raise additional finance it would significantly adversely affect the Company’s ability to continue operations. Note 1 describes management’s plans to address this issue.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bookham, Inc. at July 3, 2004, and December 31, 2003 and 2002 and the consolidated results of its operations and its consolidated cash flows for the six-month period ended July 3, 2004 and each of the three years in the period ended December 31, 2003, in conformity with generally accepted accounting principles in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects, the information set forth therein.


		ERNST & YOUNG LLP

Reading, England
September 15, 2004, except for
Note 1 — Summary of Significant Accounting Policies –
Basis of Presentation,
as to which the date is
August 12, 2005

F-2

BOOKHAM, INC.

CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)


				December 31,
	July 3,
	2004			2003			2002
Assets
Current assets:
Cash and cash equivalents	$	116,667		$	69,340		$	169,723
Accounts receivable (net of allowances of $1,260, $587 and $963 at July 3, 2004, December 31, 2003 and 2002, respectively)		13,565			8,875			3,923
Amounts due from related parties		15,954			18,864			24,704
Inventories (net of provision of $16,424, $16,801 and $23,525 at July 3, 2004 and December 31, 2003 and 2002, respectively)		48,339			44,378			38,123
Prepaid expenses and other current assets		17,887			12,248			5,835
Assets held for resale		13,908			—			—
Total current assets		226,320			153,705			242,308
Long-term restricted cash		4,434			—			—
Intangible assets, net		163,802			45,230			42,541
Property and equipment, net		72,369			70,563			66,767
Investments		1,100			—			—
Total assets	$	468,025		$	269,498		$	351,616
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	28,765		$	19,660		$	18,336
Amounts owed to related parties		628			739			844
Short-term capital lease obligations		5,131			417			—
Accrued expenses and other liabilities		38,351			15,979			27,948
Current portion of loans due		53			53			48
Total current liabilities		72,928			36,848			47,176
Non-current portion of loans due		400			488			440
Non-current portion of loans due to related party		50,000			50,000			50,000
Long-term capital lease obligation, net of current portion		—			15			—
Other long-term liabilities		14,107			17,752			5,392
Total liabilities		137,435			105,103			103,008
Stockholders’ equity:
Common stock:
$0.01 par value; 175,000,000 authorized; 32,612,555, 21,680,901 and 20,495,087 issued and outstanding at July 3, 2004, and December 31, 2003 and 2002, respectively		1,772			1,100			1,034
Additional paid-in capital		916,193			684,561			661,841
Deferred compensation		(1,354	)		(28	)		(28	)
Accumulated other comprehensive income		33,035			30,447			11,699
Accumulated deficit		(619,056	)		(551,685	)		(425,938	)
Total stockholders’ equity		330,590			164,395			248,608
Total liabilities and stockholders’ equity	$	468,025		$	269,498		$	351,616

The accompanying notes form an integral part of these consolidated financial statements.

F-3

BOOKHAM, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)


	Six months ended						Year ended December 31,
	July 3, 2004			June 29, 2003			2003			2002			2001
				(Unaudited)
External revenues	$	35,846		$	18,346		$	42,457		$	15,869		$	14,007
Revenues from related parties		43,917			49,416			103,740			36,036			17,559
Net revenues		79,763			67,762			146,197			51,905			31,566
Cost of net revenues		84,415			80,915			156,008			79,055			43,453
Gross loss		(4,652	)		(13,153	)		(9,811	)		(27,150	)		(11,887	)
Operating expenses:
Research and development		26,887			26,469			50,371			50,291			54,423
Selling, general and administrative		29,584			18,795			33,849			20,253			19,178
Amortization of intangible assets		5,677			4,746			8,487			5,376			2,834
In-process research and development		5,890			—			245			13,132			9,293
Restructuring charges		(664	)		7,631			31,392			55,090			81,680
Stock-based compensation		104			—			—			339			637
Total costs and expenses		67,478			57,641			124,344			144,481			168,045
Operating loss		(72,130	)		(70,794	)		(134,155	)		(171,631	)		(179,932	)
Other income/(expense):
Profit on disposal of property and equipment		5,254			—			3,060			66			12
Grant and other income		126			185			32			199			96
Interest income		1,871			5,334			9,484			8,693			16,423
Interest expense		(1,651	)		(4,579	)		(3,162	)		(681	)		(688	)
Gain/(loss) on foreign exchange		(1,050	)		1,814			(4,445	)		(1,584	)		(281	)
Total other income, net		4,550			2,754			4,969			6,693			15,562
Loss before income taxes		(67,580	)		(68,040	)		(129,186	)		(164,938	)		(164,370	)
Income tax credit		209			—			3,439			—			—
Net loss	$	(67,371	)	$	(68,040	)	$	(125,747	)	$	(164,938	)	$	(164,370	)
Net loss per share (basic and diluted)	$	(2.48	)	$	(3.32	)	$	(6.03	)	$	(10.92	)	$	(12.79	)
Weighted average shares of common stock outstanding		27,198,838			20,495,259			20,844,793			15,099,620			12,853,311
Stock-based compensation, as below is excluded from the following categories:
Research and development	$	28		$	—		$	—		$	24		$	52
Selling, general and administration		76			—			—			315			585
Total	$	104		$	—		$	—		$	339		$	637
Stock-based compensation, as below is included in the following categories:
Cost of net revenues	$	18		$	—		$	—		$	75		$	125
Total	$	18		$	—		$	—		$	75		$	125

The accompanying notes form an integral part of these consolidated financial statements.

F-4

BOOKHAM, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)


	Common Stock
					Additional							Accumulated Other
					Paid-In		Notes Receivable		Deferred			Comprehensive			Accumulated			Comprehensive
	Shares		Amount		Capital		Stockholders		Compensation			Income			Deficit			Income			Total
Balance at January 1, 2001		12,731,747	$	634	$	553,553	$	—	$	(1,204	)	$	1		$	(96,630	)				$	456,354
Refund of VAT on IPO costs						611		—		—			—			—			—			611
Amortization of deferred stock compensation		—		—		—		—		473			—			—			—			473
Issuance of non-employee stock options in exchange for services		—		—		—		—		289			—			—			—			289
Issuance of shares on the acquisition of Measurement Microsystems A-Z, Inc.		128,230		7		25,735		—		—			—			—			—			25,742
Issuance of shares upon exercise of common stock options		155,814		7		1,794		—		—			—			—			—			1,801
Exercise of common stock warrants		250		—		7		—		—			—			—			—			7
Comprehensive loss:
Currency translation adjustment		—		—		—		—		—			(15,031	)		—			(15,031	)		(15,031	)
Net loss for the period		—		—		—		—		—			—			(164,370	)		(164,370	)		(164,370	)
Total comprehensive loss		—		—		—		—		—			—			—			(179,401	)
Balance at December 31, 2001		13,016,041	$	648	$	581,700	$	—	$	(442	)	$	(15,030	)	$	(261,000	)				$	305,876

The accompanying notes form an integral part of these consolidated financial statements.

F-5

BOOKHAM, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)


	Common Stock
					Additional								Accumulated Other
					Paid-In			Notes Receivable		Deferred			Comprehensive			Accumulated			Comprehensive
	Shares		Amount		Capital			Stockholders		Compensation			Income			Deficit			Income			Total
Balance at December 31, 2001		13,016,041	$	648	$	581,700		$	—	$	(442	)	$	(15,030	)	$	(261,000	)				$	305,876
Conversion of shares in respect of Measurement Microsystems A-Z, Inc.		57,724		2		(2	)		—		—			—			—			—			—
Add back of contingent shares in respect of Measurement Microsystems A-Z Inc.		—		—		267			—		—			—			—			—			267
Issuance of shares on acquisition of the Marconi Optical Components business		1,289,100		61		27,950			—		—			—			—			—			28,011
Issuance of shares on acquisition of Nortel Networks Optical Components business		6,100,000		321		44,983			—		—			—			—			—			45,304
Issuance of warrants on acquisition of Nortel Networks Optical Components business		—		—		6,685			—		—			—			—			—			6,685
Issuance of shares upon exercise of common stock options		32,222		2		186			—		—			—			—			—			188
Amortization of deferred stock compensation		—		—		—			—		290			—			—			—			290
Issuance of non-employee stock options in exchange for services		—		—		—			—		124			—			—			—			124
Refund of VAT on IPO costs		—		—		72			—		—			—			—			—			72
Comprehensive loss:
Currency translation adjustment		—		—		—			—		—			26,729			—			26,729			26,729
Net loss for the period		—		—		—			—		—			—			(164,938	)		(164,938	)		(164,938	)
Total comprehensive loss		—		—		—			—		—			—			—			(138,209	)
Balance at December 31, 2002		20,495,087		1,034		661,841			—		(28	)		11,699			(425,938	)					248,608
Conversion of shares in respect of Measurement Microsystems A-Z, Inc.		873		—		—			—		—			—			—			—			—
Issuance of shares on the acquisition of the Cierra Photonics business		307,148		17		3,652			—		—			—			—			—			3,669
Issuance of shares on the acquisition of Ignis Optics, Inc.		802,082		45		17,703			—		—			—			—			—			17,748
Issuance of shares upon exercise of common stock options		63,429		3		1,132			—		—			—			—			—			1,135
Exercise of common stock warrants		12,282		1		233			—		—			—			—			—			234
Comprehensive loss:
Unrealized gain on hedging transactions		—		—		—			—		—			274			—			274			274
Currency translation adjustment		—		—		—			—		—			18,474			—			18,474			18,474
Net loss for the period		—		—		—			—		—			—			(125,747	)		(125,747	)		(125,747	)
Total comprehensive loss		—		—		—			—		—			—			—			(106,999	)
Balance at December 31, 2003		21,680,901	$	1,100	$	684,561		$	—	$	(28	)	$	30,447		$	(551,685	)				$	164,395

The accompanying notes form an integral part of these consolidated financial statements.

F-6

BOOKHAM, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)


	Common Stock
					Additional									Accumulated Other
					Paid-In			Notes Receivable			Deferred			Comprehensive			Accumulated			Comprehensive
	Shares		Amount		Capital			Stockholders			Compensation			Income			Deficit			Income			Total
Balance at December 31, 2003		21,680,901	$	1,100	$	684,561		$	—		$	(28	)	$	30,447		$	(551,685	)				$	164,395
Conversion of shares in respect of Measurement Microsystems A-Z, Inc.		1,081		—		—			—			—			—			—			—			—
Issuance of shares on the acquisition of New Focus, Inc.		7,866,600		485		197,225			—			—			—			—			—			197,710
Issuance of shares on the acquisition of Onetta, Inc.		2,764,030		168		24,540			—			—			—			—			—			24,708
Issuance of shares upon exercise of common stock options		299,943		19		2,133			—			—			—			—			—			2,152
Issuance of fully vested stock on the acquisition of New Focus, Inc.		—		—		6,286			—			—			—			—			—			6,286
Assumption of stockholder’s notes receivable from acquisition of New Focus Inc.		—		—		—			(1,233	)		—			—			—			—			(1,233	)
Assumption of unvested stock options on the acquisition of New Focus, Inc.		—		—		1,464			—			(1,464	)		—			—			—			—
Payments received on stockholder’s notes receivable		—		—		—			1,233			—			—			—			—			1,233
Amortization of deferred stock compensation, net of cancellations		—		—		(16	)		—			138			—			—			—			122
Comprehensive loss:
Unrealized loss on restricted cash		—		—		—			—			—			(16	)		—			(16	)		(16	)
Unrealized loss on hedging transactions		—		—		—			—			—			(122	)		—			(122	)		(122	)
Currency translation adjustment		—		—		—			—			—			2,726			—			2,726			2,726
Net loss for the period		—		—		—			—			—			—			(67,371	)		(67,371	)		(67,371	)
Total comprehensive loss		—		—		—			—			—			2,588			—			(64,783	)
Balance at July 3, 2004		32,612,555	$	1,772	$	916,193		$	—		$	(1,354	)	$	33,035		$	(619,056	)				$	330,590

The accompanying notes form an integral part of these consolidated financial statements.

F-7

BOOKHAM, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)


	Six months ended						Year Ended December 31,
	July 3, 2004			June 29, 2003			2003			2002			2001
				(Unaudited)
Cash flows used in operating activities:
Net loss	$	(67,371	)	$	(68,040	)	$	(125,747	)	$	(164,938	)	$	(164,370	)
Adjustments to reconcile net loss to net cash used in operating activities:
In-process research and development		5,890			—			245			13,132			9,293
Tax credit recognized for research and development activities		—			—			(3,719	)		3,719			—
Write off of investments		44			—			—			—			—
Depreciation, amortization and impairment		13,455			10,296			21,312			57,702			86,006
Stock-based compensation		122			—			—			290			473
Expense related to stock options issued to non-employees for services.		—			—			—			124			289
Gain on sale of property and equipment		(5,254	)		—			(3,060	)		(66	)		(12	)
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable, net		2,406			4,812			4,087			(21,228	)		11,789
Inventories, net		2,790			11,462			19,674			18,952			6,332
Prepaid expenses and other current assets		752			(2,399	)		(2,208	)		(5,521	)		73
Accounts payable		6,199			504			(274	)		7,230			(4,516	)
Accrued expenses and other liabilities		(8,135	)		55			(2,517	)		5,906			6,749
Unrealized foreign exchange adjustments on loans and hedges		(1,071	)		—			(5,768	)		—			—
Net cash used in operating activities		(50,173	)		(43,310	)		(97,975	)		(84,698	)		(47,894	)
Cash flows used in investing activities:
Purchase of intangible assets		(98	)		—			—			(138	)		(2,609	)
Purchase of property and equipment		(6,648	)		(12,416	)		(19,186	)		(15,158	)		(57,450	)
Proceeds from sale of property and equipment		5,254			—			7,105			66			138
Acquisitions, net of cash acquired		95,583			—			65			(18,090	)		(9,786	)
Purchase of long term investments		(751	)		—			—			—			—
Proceeds from notes receivable		1,233			—			—			—			—
Proceeds from restricted cash		(197	)		—			—			—			648
Net cash provided by/(used in) investing activities		94,376			(12,416	)		(12,016	)		(33,320	)		(69,059	)
Cash flows provided by financing activities:
Proceeds from issuance of common stock		2,152			10			1,369			188			1,808
Repayment of capital lease obligations		(417	)		—			(227	)		(1,347	)		(1,951	)
Repayment of loans		(57	)		—			(49	)		—			—
Net cash provided by/(used in) financing activities		1,678			10			1,093			(1,159	)		(143	)
Effect of exchange rate on cash		1,446			(8,589	)		8,515			20,920			(853	)
Net increase/(decrease) in cash and cash equivalents		47,327			(64,305	)		(100,383	)		(98,257	)		(117,949	)
Cash and cash equivalents at beginning of period		69,340			169,723			169,723			267,980			385,929
Cash and cash equivalents at end of period	$	116,667		$	105,418		$	69,340		$	169,723		$	267,980
Supplemental cash flow disclosures
Income taxes paid	$	11		$	—		$	280		$	—		$	—
Cash paid for interest	$	1,658		$	1,486		$	3,131		$	586		$	—
Supplemental disclosure of non-cash transactions
Warrants and shares issued for acquistions	$	228,704		$	—		$	21,417		$	80,000		$	26,000

The accompanying notes form an integral part of these consolidated financial statements.

F-8

BOOKHAM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies

Description of Business

Bookham Technology plc was incorporated under the laws of England and Wales on September 22, 1988. On September 10, 2004, pursuant to a scheme of arrangement under the laws of the United Kingdom (the “Scheme”), Bookham Technology plc became a wholly-owned subsidiary of Bookham, Inc., a Delaware corporation (“Bookham, Inc.”). Bookham, Inc. principally designs, manufactures and markets optical components, modules and subsystems for the telecommunications industry. Bookham, Inc. also manufactures high-speed electronic components for the telecommunications, defense and space industries. References to “we,” “our,” “us” or the “Company” mean Bookham, Inc. and its subsidiaries consolidated business activities since September 10, 2004 and Bookham Technology plc’s consolidated business activities prior to September 10, 2004.

Basis of Presentation

At the time of the Company’s acquisition of Nortel Network’s optical components business (“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. The Original $20m Note was then exchanged for a $20 million note issued by the Company which was convertible into shares of the Company’s common stock in connection with the Company’s reorganization as a Delaware corporation in September 2004 (the “New $20m Note”).

On December 2, 2004, (i) the $30m Note was amended and restated to, among other things, extend the final maturity date by one year from November 8, 2005 to November 8, 2006 and (ii) the New $20m Note was amended and restated to, among other things, provide that it will not convert into the Company’s common stock (collectively, the “Amended and Restated Notes”). The Amended and Restated Notes are each secured by the assets that secured the $30m Note, as well as certain additional property, plant and equipment of the Company. The Amended and Restated Notes also contain certain limitations, including restrictions on asset sales and a requirement that the Company maintain a cash balance of at least $25 million.

On February 8, 2005, the Company, Bookham Technology plc, a wholly-owned subsidiary, and certain of the Company’s other subsidiaries entered into a Notes Amendment and Waiver Agreement with Nortel Networks Corporation and Nortel Networks UK Limited, relating to the $25 million cash balance covenant set forth in the Amended and Restated Notes. Under the waiver, the obligation to maintain this cash balance is waived until August 8, 2006.

On December 20, 2004 the Company closed a private placement of $25.5 million of the Company’s 7.0% senior unsecured convertible debentures and warrants to purchase common stock. The Company intends to use the net proceeds from the private placement for general corporate purposes, including, among other things, payment of outstanding indebtedness and working capital. The debentures may be converted into the Company’s common stock at the option of the holder prior to the maturity of the debentures on December 20, 2007. The conversion price of the debentures is $5.50, which represents a premium of approximately 16% over the closing price of the Company’s common stock on December 20, 2004. The debentures also may be converted into shares of common stock by the Company under certain circumstances. The warrants provide holders thereof the right to purchase up to 2,001,963 shares of common stock and are exercisable during the five year period ending December 20, 2009 at an exercise price of $6.00 per share which represents a premium of approximately 26% over the closing price of the Company’s common stock on December 20, 2004.

Based upon management’s current cash flow forecasts, the Company will need to raise additional funding through external sources prior to December 2005 in order to maintain sufficient financial resources to continue to operate its business. In addition, depending on the amount of additional funding secured prior to December 2005, the Company will also need to raise further funding before June 2006 in order to maintain a cash balance of at least $25 million as required by the new terms of the Amended and Restated Notes.

The failure to raise additional capital would have a significant impact on the Company’s ability to continue

F-9

operations. It is the Company’s belief that it will be able to raise additional funds through: (i) working capital financing and other forms of financing such as issuing debt, selling equity by means of a private placement or public offering, (ii) a sale of Company assets or non-core businesses or (iii) issuing equity in order to acquire cash rich companies. The Company will pursue any one or a combination of the above in order to enable it to continue operations through the period to June 2006 and to maintain cash balances required pursuant to the Amended and Restated Notes.

The Company assumed Bookham Technology plc’s financial reporting listing effective September 10, 2004. As a result, management deems Bookham Technology plc’s consolidated business activities prior to September 10, 2004 to represent the Company’s consolidated business activities as if the Company and Bookham Technology plc historically had been the same entity. The consolidated financial statements include Bookham, Inc. and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated. The Company has included the results of operations of acquired entities from the date of acquisition (Note 13).

Until July 3, 2004, the Company’s fiscal year ended on December 31. Effective June 30, 2004, the Company changed its fiscal year end from December 31 to the Sunday closest to June 30. Accordingly, financial statements have been prepared for the six months ended July 3, 2004, and now will be prepared for fifty-two/fifty-three week cycles going forward.

In connection with the scheme of arrangement, the Company changed its domicile from the United Kingdom to the United States. In addition, the Company changed its functional currency from pounds sterling to the United States dollar with effect from September 10, 2004. The change in functional currency is a result of the change in the principal economic environment in which the Company operates. During the past year, the Company has purchased four companies with primary operations in the United States. As a result of these acquisitions, the Company has continued to increase both its revenues from U.S. customers, as well as its operations and expenses denominated in U.S. dollars. Because of the continuing shift toward business denominated in U.S. dollars, the Company also changed its headquarters to San Jose, California in September 2004.

The Company’s annual reports on Form 20-F for the years ended December 31, 2003, 2002 and 2001 contained the Company’s consolidated financial statements prepared in accordance with accounting principles generally accepted in the United Kingdom and were denominated in pounds sterling. The consolidated balance sheets of the Company as of July 3, 2004, December 31, 2003 and 2002 and the related consolidated statements of operations, stockholders’ equity and cash flows for the six months ended July 3, 2004 and June 29, 2003 and the years ended December 31, 2003, 2002 and 2001 contained in this Report on Form 10-K have been prepared in conformity with United States generally accepted accounting principles (“GAAP”) and have been translated from pounds sterling into U. S. dollars using the exchange rates set forth below. Translation differences are recorded in other comprehensive income.


	Income statement		Balance sheet
Year ended December 31, 2001		1.44		1.45
Year ended December 31, 2002		1.50		1.61
Year ended December 31, 2003		1.64		1.78
Six months ended June 29, 2003		1.61		1.66
Six months ended July 3, 2004		1.82		1.82

Use of Estimates

The preparation of financial statements in conformity with 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 not limited to, the allowances for doubtful accounts; product return reserves; inventory write-downs and 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; and accrued liabilities and other reserves. Actual results could differ from these estimates and such differences may be material to the 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) in the consolidated statements of operations.

F-10

Long-term Restricted Cash

The Company has provided irrevocable letters of credit totaling $4,434,000 as collateral for the performance of its obligations under certain facility lease agreements. The letters of credit expire at various dates through 2007.

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 Company’s assessment of current and expected orders from its customers, including consideration that orders are subject to cancellation with limited advance notice prior to shipment.

Property and Equipment

The Company records its property and equipment at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:


Freehold buildings		Five years
Plant and machinery		Three to five years
Fixtures, fittings and equipment		Three to five years
Computer equipment		Three years

No depreciation is recorded on land or assets in the course of construction

Asset Held For Resale

Assets are classified as held for resale when the Company has a plan for disposal of certain assets and those assets meet the held for sale criteria of Statement of Financial Accounting Standards (“SFAS”) No. 144,Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The Company has classified freehold land as held for resale which is being actively marketed for sale. This balance is held in the Optics segment (Note 12).

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 the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison of its carrying amounts to future undiscounted cash flows the assets are expected to generate. If property and equipment and certain identifiable intangibles are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair market value. There was no impairment of long-lived assets in the six months ended July 3, 2004.

The Company has adopted SFAS No. 142,Goodwill and Other Intangible Assets. SFAS No. 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. The Company completed its annual impairment test during the quarter ended July 3, 2004 and found no impairment.

SFAS No. 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 asset’s carrying value may not be recoverable in accordance with SFAS No. 144. The Company is currently amortizing its acquired intangible assets with definite lives over periods ranging from 3 to 16 years. The Company believes no events or changes in circumstances have occurred that would require an impairment test for these assets during the six month period ended July 3, 2004.

Foreign Currency Translation

The assets and liabilities of foreign operations are translated from their respective functional currencies into U.S. dollars at the rates in effect at the consolidated balance sheet date, and revenue and expense amounts are translated at the average rate during the applicable period reflected on the consolidated statements of operations. Foreign currency translation adjustments are recorded as other comprehensive income on the consolidated statements of operations.

Gains and losses realized from foreign currency transactions, those transactions denominated in currencies other than the Company’s functional currency, are recorded on the consolidated statements of operations.

F-11

Derivative Financial Instruments

SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities,requires the Company to recognize all derivatives, such as forward foreign currency 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) 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) on the consolidated statements of operations 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 in current operating results during the period of change.

The Company is exposed to fluctuations in foreign currency exchange rates, interest rates and the prices of its common stock. As the business has grown and 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 cover any exposure to such fluctuations, and the Company may be required to convert currencies to meet its obligations.

The Company marks these derivatives to market on a quarterly basis and the changes in fair value are recognized in comprehensive income until the derivative is settled and recognized in operating results. To date, the Company has not entered into any hedges longer than 12 months. For the six months ended July 3, 2004, the Company had a net realized gain of $394,000 relating to hedges that were settled during the first six months of 2004. As at July 3, 2004, the Company had an unrealized gain of $183,000 relating to four hedges that remain outstanding. This amount is included in the balance sheet as part of other current assets. Any unrealized gains are expected to be recognized in the statement of operations in the next 12 months. In 2003, the Company concluded 13 foreign exchange contracts for a total value of $65.0 million. Between January 1, 2004 and July 31, 2004, the Company entered into four foreign exchange contracts amounting to an aggregate of approximately $90.0 million. These contracts expire at various dates between September 2004 and May 2005.

Advertising Expenses

The cost of advertising is expensed as incurred. The Company’s advertising costs for the six months ended July 3, 2004 and the fiscal years ended December 31, 2003, 2002 and 2001 were approximately $138,000, $0, $197,000 and $616,000, respectively.

Revenue Recognition

Revenue represents the amounts (excluding sales taxes) derived from the provision of goods and services to third-party customers during the period. The Company’s revenue recognition policy follows Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 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 Company’s return policy.

The Company recognizes royalty revenue when it is earned and collectibility is reasonably assured. All royalty revenue has been recorded at the time of cash receipt.

The Company applies the same revenue recognition policy to both of its two segments.

F-12

Shipping and handling costs are included in costs of net revenues.

Research and Development

Company-sponsored research and development costs as well as costs related to research and development contracts are expensed as incurred.

Income Taxes

The Company recognizes 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.

Stock-Based Compensation

The Company accounts for employee stock options using the intrinsic value method in accordance with Accounting Principles Board Opinion (“APB”) No. 25,Accounting for Stock Issued to Employees, and has adopted the disclosure-only alternative of SFAS No. 123,Accounting for Stock-Based Compensation,as amended by SFAS No. 148,Accounting for Stock-Based Compensation—Transition and Disclosure. Under the intrinsic value method, the Company has only recorded stock-based compensation resulting from options granted at below fair market value.

The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, as amended by SFAS No. 148, to stock-based employee compensation data:


				Year ended December 31,
	Six months
	ended July 3,
	2004			2003			2002			2001
	(in thousands except per share data)
Net loss—as reported	$	(67,371	)	$	(125,747	)	$	(164,938	)	$	(164,370	)
Add: Stock-based compensation cost, included in the determination of net income as reported		122			—			414			762
Deduct: Total stock-based employee compensation determined under the fair value method for all awards		(6,751	)		(3,710	)		(10,754	)		(10,519	)
Pro forma net loss	$	(74,000	)	$	(129,457	)	$	(175,278	)	$	(174,127	)
Loss per share:
Basic and diluted—as reported	$	(2.48	)	$	(6.03	)	$	(10.92	)	$	(12.79	)
Basic and diluted—pro forma	$	(2.72	)	$	(6.21	)	$	(11.61	)	$	(13.55	)

The weighted average fair value of stock options granted at fair market value during the six months ended July 3, 2004 and the years ended December 31, 2003, 2002 and 2001 was $1.14, $2.08, $1.23, and $3.14, respectively. The weighted-average fair value for stock options granted were calculated using the Black-Scholes option-pricing model based on the following assumptions:


	2004			2003			2002			2001
Volatility		194	%		147	%		191	%		196	%
Weighted-average estimated life	4.1 years			3.8 years			5.40 years			3.78 years
Weighted-average risk-free interest rate		2.9	%		3.4	%		4.3	%		5.0	%
Dividend yield		—			—			—			—

Comprehensive Loss

For the six months ended July 3, 2004 and years ended December 31, 2003, 2002 and 2001, the Company’s comprehensive loss is comprised of its net loss, unrealized gains on the Company’s hedging instruments, foreign currency translation adjustments and unrealized holding losses on restricted cash. The components of accumulated other comprehensive loss were as follows:

F-13


				December 31,
	July 3, 2004			2003		2002		2001
	(in thousands)
Unrealized gains on the Company’s hedging instruments	$	153		$	274	$	—	$	—
Currency translation adjustment		32,898			30,173		11,699		(15,030	)
Unrealized holding losses on restricted cash		(16	)		—		—		—
Accumulated other comprehensive loss	$	33,035		$	30,447	$	11,699	$	(15,030	)

Scheme of Arrangement

On August 16, 2004 at an extraordinary general meeting, the Company’s shareholders approved the scheme of arrangement pursuant to which, effective September 10, 2004, Bookham Technology plc became a wholly-owned subsidiary of Bookham, Inc. Pursuant to the scheme of arrangement, Bookham Technology plc ordinary shares were exchanged for shares of common stock of Bookham, Inc. on a ten for one basis. All references in the consolidated financial statements and notes thereto with respect to the number of shares, per share amounts and market prices have been restated to reflect the scheme of arrangement.

Reclassifications

Certain reclassifications have been made to fiscal 2003, 2002 and 2001 balances to conform to the July 3, 2004 presentation. These classifications have no impact on the Company’s loss from operations or net loss.

Concentration of Revenues and Credit and Other Risks

The Company places its cash and cash equivalents 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.

For the six months ended July 3, 2004 and years ended December 31, 2003, 2002, and 2001, transactions with Nortel Networks accounted for approximately 46%, 59%, 31% and 41%, respectively, of the Company’s total revenues. For the six months ended July 3, 2004 and years ended December 31, 2003, 2002 and 2001, transactions with Marconi Communications accounted for approximately 9%, 13%, 38% and 15%, respectively, of the Company’s total revenues. These revenues were generated in the Company’s Optics segment.

For the six months ended July 3, 2004 and years ended December 31, 2003, 2002 and 2001, no other customer accounted for more than 10% of the Company’s total revenues. At July 3, 2004, December 31, 2003 and 2002, Nortel Networks accounted for 39%, 55% and 47% of the Company’s gross accounts receivable balance, respectively. At July 3, 2004, December 31, 2003 and 2002, Marconi Communications accounted for 15%, 13% and 39% of the Company’s gross accounts receivable balance, respectively. The Company performs ongoing credit evaluations of its customers and does not typically require collateral or guarantees.

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.

Property, Plant and Equipment


				December 31,
	July 3, 2004			2003			2002
	(in thousands)
Freehold land	$	7,486		$	20,924		$	20,529
Freehold buildings		29,508			11,100			9,187
Plant and machinery		52,969			74,187			61,603
Fixtures, fittings and equipment		2,502			4,822			8,027
Computer equipment		10,538			9,875			6,564
		103,003			120,908			105,910
Less accumulated depreciation		(30,634	)		(50,345	)		(39,143	)
	$	72,369		$	70,563		$	66,767

Depreciation expense was $7,755,000, $9,222,000, $11,759,000 and $12,040,000 for the six months ended July 3, 2004, and the years ended December 31, 2003, 2002, and 2001, respectively.

F-14

Inventories

Inventories consist of the following:


			December 31,
	July 3, 2004		2003		2002
	(in thousands)
Raw materials	$	30,880	$	23,816	$	8,940
Work-in-progress		9,004		11,876		12,160
Finished goods		8,455		8,686		17,023
	$	48,339	$	44,378	$	38,123

Inventory is valued at the cost to acquire or manufacture the product less reserves of the inventory which prove to be unsaleable. The manufacturing cost will include the cost of the components purchased to produce products, the related labor and overhead. On a monthly basis, inventory is reviewed to determine if it is believed to be saleable. Products may be unsaleable because they are technically obsolete, due to substitute products or specification changes or because the Company holds an excessive amount of inventory relative to customer forecasts. Inventory is currently reserved 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 the selling price less costs to complete and sell the product.

Accrued Expenses and Other Liabilities

Accrued expenses and other current liabilities consists of the following:


			December 31,
	July 3, 2004		2003		2002
	(in thousands)
Accounts payable accruals	$	5,538	$	7,734	$	7,855
Compensation related accruals		10,831		3,768		3,742
Other accruals		8,532		4,458		16,351
Current proportion of provisions		13,450		19		—
	$	38,351	$	15,979	$	27,948

Other long term liabilities consist of the following:


			December 31,
	July 3, 2004		2003		2002
	(in thousands)
Warranty provision	$	754	$	5,042	$	1,752
Environmental provision		1,132		2,253		2,038
Restructuring provisions		12,221		8,252		—
Pension costs provisions		—		1,121		1,602
Other provisions		—		1,084		—
	$	14,107	$	17,752	$	5,392

F-15

Movements in Provision for liabilities and charges are summarized below


	Provision for			Environmental
	warranties			provision
	(in thousands)
At January 1, 2002	$	—		$	—
Arising during the year		87			—
Arising on acquisition		1,545			1,899
Foreign exchange movements		120			139
Paid during the year		—			—
At December 31, 2002		1,752			2,038
Released during the year		—			—
Fair value adjustment		1,968			—
Arising during the year		846			—
Arising on acquisition		65			—
Foreign exchange movements		430			215
Paid during the year		—			—
At December 31, 2003		5,061			2,253
Short-term portion		5,042			2,253
Long-term portion		19
At December 31, 2003		5,061			2,253
Released during the year		(1,096	)		(1,171	)
Arising on acquisition		569			—
Fair value adjustment		—			—
Foreign exchange movements		155			50
Paid during the year		(83	)		—
At July 3, 2004		4,606			1,132
Short-term portion		3,852			—
Long-term portion		754			1,132
	$	4,606		$	1,132

Provision for warranties

The Company accrues for the estimated costs to provide warranty services at the time revenue is recognized. The Company’s estimate of costs to service it’s 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 Company warranty costs will increase resulting in increases to gross loss.

Environmental Provision

The Company has provided for potential environmental liabilities at sites where the Company could be required to remove asbestos from its facilities following a change in U.K. legislation. The Company has an undiscounted provision relating to potential costs of future remediation works of $1,132,000 at July 3, 2004. The provision is expected to be utilized between 2005 and 2007. Following a review of potential soil contamination liabilities during the period, $1,171,000 was released from the provision during the six months ended July 3, 2004.

Commitments and Contingencies

Operating Leases

The Company leases its facilities under non-cancelable operating lease agreements that expire at various dates from 2005 through 2011. Net rent expense for these leases aggregated $1,998,000, $5,565,000, $4,463,000 and $3,522,00 for the six months ended July 3, 2004 and fiscal years ended December 31, 2003, 2002 and 2001, respectively.

F-16

The Company’s future minimum lease payments under non-cancelable operating leases are as follows (in thousands):


For Fiscal Year Ending on or about June 30,
2005	$	13,531
2006		12,562
2007		10,438
2008		2,444
2009		1,202
Thereafter		2,230
Total	$	42,407

Included in future minimum lease payments above is approximately $16,815,000 related to unoccupied facilities as a result of the Company’s restructuring activities. As of July 3, 2004, the aggregate future minimum sublease income to be received under non-cancelable subleases totaled approximately $700,000.

Through its acquisitions, the Company has become party to capital lease arrangements to obtain equipment for its operations. These agreements are typically for three years, with interest rates ranging from 9 percent to 10 percent per year. The leases are secured by the underlying equipment.

Future minimum lease payments under capital leases in effect at July 3, 2004 are as are as follows (in thousands):


2005	$	5,133
Total minimum lease payments		5,133
Less: amount representing interest		(2	)
Present value of capital lease obligations		5,131
Less: current portion		(5,131	)
Capital lease obligations, net of current portion	$	—

The amount of property, plant and equipment leased under capital leases was recorded at fair value upon acquisition. The fair value of this property, plant and equipment was $1,665,000 at July 3, 2004. Accumulated amortization to date has not been significant.

Guarantees

The Company adopted the provisions of Financial Accounting Standards Board (“FASB”) issued Interpretation No. 45,Guarantor’s 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(“FIN 45”) effective December 31, 2002. The Company has the following financial guarantees:

	•		The purchase agreement between the Company and Cierra Photonics, Inc. (see Note 13) contains an indemnity clause whereby should a previously filed lawsuit against Cierra Photonics result in payment by Cierra Photonics, the Company would be liable for a maximum of $1.0 million related to any settlement payout. The Company had accrued the amount of this guarantee as representing the most probable outcome as determined by management as of December 31, 2003. This amount was settled during the six months ended July 3, 2004 with the payment of full $1.0 million under the indemnity.

	•		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 indemnification expires in May 2009 and has no maximum liability. In connection with the sale by New Focus of its tunable laser technology to Intel Corporation, New Focus has indemnified Intel against losses for certain intellectual property claims. This indemnification expires in May 2008 and has a maximum liability of $7.0 million. The Company does not expect to pay out any amounts in respect of this indemnification, therefore no accrual has been made for this indemnification.

	•		In connection with the sale by the Company of JCA Technology, Inc. to Endwave Corporation on July 21, 2004, the Company agreed to indemnify Endwave Corporation against losses arising from breach of any representation or warranty of the Company contained in the purchase agreement and for certain claims arising from non-compliance with environmental laws prior to the closing date. This indemnification expires on the later of one year from closing, or on July 21, 2005 and has a $2.5 million maximum liability.

	•		The Company indemnifies its directors and certain employees as permitted by law. Indemnification covers at least negligence and gross negligence on the part of indemnified parties. The Company has not recorded a liability associated with these indemnification agreements as the Company historically has not incurred any costs

F-17

			associated with such indemnifications. 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 bankers 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 Company’s 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.

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. 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 Focus’s initial public offering. Three subsequent lawsuits were filed containing substantially similar allegations. These complaints have been consolidated. On April 19, 2002, plaintiffs filed an Amended Class Action Complaint, described below, naming as defendants the Individual Defendants and the Underwriter Defendants.

On November 7, 2001, a Class Action Complaint was filed against Bookham and others in the United States District Court for the Southern District of New York. On April 19, 2002, the plaintiffs filed an Amended Class Action Complaint. The Amended Complaint names as defendants Bookham, Goldman, Sachs & Co. and FleetBoston Robertson Stephens, Inc., two of the underwriters of Bookham’s initial public offering in April 2000, and Andrew G. Rickman, Stephen J. Cockrell and David Simpson, each of whom was an officer and/or director at the time of the initial public offering.

The Amended Complaints assert claims under certain provisions of the securities laws of the United States. They allege, among other things, that the prospectuses for Bookham’s and New Focus’s 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, or common stock, in the case of New Focus, from the underwriters. The Amended Complaints seek unspecified damages (or in the alternative rescission for those class members who no longer hold ordinary shares, in the case of Bookham or common stock, in the case of New Focus), costs, attorneys’ fees, experts’ fees, interest and other expenses. In October 2002, the individual defendants were dismissed, without prejudice, from the action. In July 2002, all defendants filed Motions to Dismiss the Amended Complaint. The motion was denied as to Bookham Technology plc and New Focus in February 2003. Special committees of the board of directors authorized the companies to negotiate a settlement of pending claims substantially consistent with a memorandum of understanding negotiated among class plaintiffs, all issuer defendants and their insurers. The parties have negotiated a settlement which is subject to approval by the court. We believe we and New Focus have meritorious defenses and indemnification rights to the claims made in the Amended Complaint and we therefore believe that such claims will not have a material effect on our financial position.

A stipulation of settlement for the claims against the issuer defendants, including the Company, has been submitted to the Court for preliminary approval. Under the stipulation of settlement, the plaintiffs will dismiss and release all claims against participating defendants in exchange for a contingent payment guaranty by the insurance companies collectively responsible for insuring the issuers in all the related cases, and the assignment or surrender to the plaintiffs of certain claims the issuer defendants may have against the underwriters. Under the guaranty, the insurers will be required to pay the amount, if any, by which $1.0 billion exceeds the aggregate amount ultimately collected by the plaintiffs from the underwriter defendants in all the cases. There is no guarantee that the settlement will become effective, as it is subject to a number of conditions, including Court approval.

On February 13, 2002, Howard Yue, the former sole shareholder of Globe Y Technology, Inc., a company acquired by New Focus in February 2001, filed a lawsuit against New Focus and several of its officers and directors in Santa Clara County Superior Court. The lawsuit is captioned Howard Yue v. New Focus, Inc. et al, Case No. CV808031, and asserts claims stemming from New Focus’s acquisition of Globe Y. The plaintiff has amended his complaint several times following the Court’s dismissal of his earlier complaints. Currently, the plaintiff’s third amended complaint alleges eight causes of action against New Focus: violation of §25400 and §25500 of the California Corporations Code; violation of §§1709-1710 of the California Civil Code; violation of §17200 and §17500 of the California Business & Professions Code; fraud and deceit by concealment; fraud and deceit by active concealment; fraud and deceit based upon non-disclosure of material facts; negligent

F-18

misrepresentation; and breach of contract and the duty of good faith and fair dealing. The complaint seeks unspecified economic, punitive, and exemplary damages, prejudgment interest, costs, and equitable and general relief.

On October 6, 2003, New Focus filed a cross-complaint against Mr. Yue seeking damages arising from Mr. Yue’s misrepresentations to New Focus in the acquisition of Globe Y by New Focus. Discovery is ongoing in both the lawsuit by Mr. Yue and New Focus’s cross-complaint. New Focus has certain counterclaims against Mr. Yue as well as the following defenses against Mr. Yue’s claims: the doctrines of estoppel, waiver and consent; plaintiff’s coming to the action with unclean hands; plaintiff’s breach of contract; plaintiff’s failure to fulfill any contractual conditions precedent; plaintiff’s failure to mitigate damages, if any; plaintiff’s negligence; the lack of an existence of a fiduciary or confidential relationship with the plaintiff; the causing of plaintiff’s damages, if any, by intervening events; and plaintiff’s fraudulent conduct. New Focus intends to conduct a vigorous defense of this lawsuit.

On or about January 30, 2004, a lawsuit was filed in the United States District Court for the Eastern District of Virginia against Bookham, certain individuals affiliated with Bookham, Goldman Sachs, Goldman Sachs International, Robertson Stephens, Robertson Stephens International, Julius Baer & Company Ltd., Dexia PrivatBank Switzerland, Swiss Partners Investment Network Ltd., or Spin, and certain individuals affiliated with Spin. The complaint is captioned Defries v. Bookham, et al., Case No. 1:04-CV-00054. The suit purports to allege that defendants violated the federal securities laws in connection with Bookham’s initial public offering conducted on or about April 11, 2000, Bookham’s follow-on public offering conducted on or about September 19, 2000, and the trading of Bookham’s shares in the aftermarket from the date of the initial public offering through December 6, 2000. The complaint purports to allege violations of Sections 3(a)(8), 5, 11 and 15 of the Securities Act of 1933, as amended, Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Section 203 of the Investment Advisers Act of 1940, as amended. It purports to incorporate allegations made by plaintiffs in the IPO laddering litigation described above. The suit purports to seek damages in the sum of at least $25,000,000.00, fees and costs. On May 20, 2004, the plaintiff filed a motion seeking to extend the deadline for service of the complaint until September 17, 2004. The court granted plaintiff’s motion on May 21, 2004. The complaint has not been served, and we have not responded to the complaint. We are unable to predict the outcome of this suit and its ultimate effect, if any, on our financial condition; however, our defense against this suit may result in the expenditure of significant financial and managerial resources.

Restructuring

The Company has implemented a restructuring plan as a result of the acquisitions made by the Company and the significant downturn in the market during this period. This restructuring plan is designed to reduce our annual operating expenses and cost structure. Included in the plan were costs related to severance pay, write-down of the carrying value of equipment used by terminated employees, office closures and the termination of certain office leases. All restructuring charges were incurred within the Company’s Optics segment.

The following table summarizes the activity related to the restructuring liability for the six months ended July 3, 2004:


	Accrued				Amounts								Accrued
	restructuring				charged to								restructuring
	costs at		Amounts		restructuring								costs at
	January 1,		assumed on		costs and		Amounts			Amounts paid			July 3,
	2004		acquisition		other		reversed			or written off			2004
	(in thousands)
Lease cancellations and commitments	$	5,030	$	16,815	$	—	$	(1,953	)	$	(765	)	$	19,127
Termination payments to employees and related costs		3,222		24		1,411		(122	)		(2,957	)		1,578
Total restructure accrual and other	$	8,252	$	16,839	$	1,411	$	(2,075	)	$	(3,722	)	$	20,705
Less non-current accrued restructuring charges														(12,221	)
Accrued restructuring charges included within other accrued liabilities													$	8,484

The following table summarizes the activity related to the restructuring liability for the year ended December 31, 2003:


	Accrued							Accrued
	restructuring		Amounts charged					restructuring costs
	costs at		to restructuring		Amounts paid			at December 31,
	January 1, 2003		costs and other		or written off			2003
	(in thousands)
Lease cancellations and commitments	$	2,898	$	6,703	$	(4,571	)	$	5,030
Termination payments to employees and related costs		1,127		20,888		(18,793	)		3,222
Write-off on disposal of assets and related costs		4,830		3,801		(8,631	)		—
Total restructure accrual and other	$	8,855	$	31,392	$	(31,995	)	$	8,252
Less non-current accrued restructuring charges									—
Accrued restructuring charges included within other accrued liabilities								$	8,252

The following table summarizes the activity related to the restructuring liability for the year ended December 31, 2002:


	Accrued							Accrued
	restructuring		Amounts charged					restructuring costs
	costs at		to restructuring		Amounts paid			at December 31,
	January 1, 2002		costs and other		or written off			2002
	(in thousands)
Lease cancellations and commitments	$	—	$	7,690	$	(4,792	)	$	2,898
Termination payments to employees and related costs		—		3,750		(2,623	)		1,127
Write-off on disposal of assets and related costs		—		43,650		(38,820	)		4,830
Accrued restructuring charges included within other accrued liabilities	$	—	$	55,090	$	(46,235	)		8,855
Less non-current accrued restructuring charges									(8,855	)
Accrued restructuring charges included within other accrued liabilities								$	—

Lease cancellations and commitments

Due to the closure of certain sites at costs less than initially anticipated, the Company reversed approximately $1,953,000 for the six months ended July 3, 2004. The Company incurred closure costs of approximately $6,703,000 and $7,690,000 for the years ended December 31, 2003 and 2002, respectively, for facilities consolidated or closed in Canada, the U.S. and the U.K. These closure costs reflect the remaining contractual obligations under facility leases. On acquiring New Focus the Company assumed approximately $16,815,000 of lease committments in respect of facilities it was not going to use.

Termination payments to employees and related costs

The Company incurred restructuring charges of approximately $1,289,000, $20,888,000 and $3,750,000 for the six months ended July 3, 2004 and the years ended December 31, 2003 and 2002, respectively, for the termination of 100, 400 and 200 employees as separation pay. The separation payments were accrued and charged to restructuring costs in the period that both the benefit amounts were determined and such amounts were communicated to the affected employees. The employee

F-19

reductions occurred in all areas of the Company. As of July 3, 2004, all of the employees to be terminated had been notified and the majority of these terminations had been completed.

Write-off on disposal of assets and related costs

The Company incurred restructuring charges of approximately $0, $3,801,000 and $43,650,000 for the six months ended July 3, 2004 and the years ended December 31, 2003 and 2002, respectively, related to the carrying values of equipment abandoned at the Milton U.K. facility in connection with the restructuring. Included in the assets disposed of and charged to restructuring costs are office equipment and manufacturing equipment.

Employee Benefit Plan

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 made 25% matching contributions (up to a maximum of $2,000 per eligible employee per year) and recognized costs of $140,000, $101,000, $18,000 and $81,000 for these matching provisions in the six months ended July 3, 2004 and the years ended December 31, 2003, 2002 and 2001, respectively.

Defined benefit pension scheme.

The Company also has a defined benefit pension plan for certain employees of Bookham (Switzerland) AG. The plan covers four current employees and three pensioners.

The plan assets as of July 3, 2004 consists of (in thousands):


Covering capital	$	3,862
Accumulated profit shares		275
Accumulated leaving profits		160
Free reserves		795
Other assets		2
Total plan assets	$	5,094

The actuarial basis for the obligations was based on the following assumptions:


Actuarial Method		The calculated cost shown in the report are computed using the projected unit credit cost method.

Discount rate		An annual discount rate of 3.75% has been applied.

Expected return on plan assets		Expected net return of 4.5% across all investments.

Salary increase		2% per annum.

Pension increase		Currently estimated at 0%.

Mortality and disability		As per Swiss Federal Pension Fund tables.

In accordance with SFAS No. 87,Employers’ Accounting for Pensions, the following disclosure is required with respect to the Bookham (Switzerland) AG pension plan.

Balance Sheet


	July 3, 2004(in thousands)
Market value of plan assets	$	5,092
Projected benefit obligation		(5,821	)
Fund status		(729	)
Unrecognized actuarial loss		(385	)
Net liability		(1,114	)
Accumulated benefit obligation	$	(5,223	)

In August 2004, the members of the Bookham (Switzerland) AG pension plan accepted revised terms and conditions under an existing defined contribution plan and agreed to leave this plan. Hence the plan is now in the process of being liquidated.

F-20

Other pension schemes

The Company pays contributions into the Company’s defined contribution pension scheme for directors and employees. The Company also has a defined contribution plan for the benefit of one director. The Company’s contributions to the plans are charged to the profit and loss account in the year they which they relate. The Company does not accept any responsibility for the benefit gained from these schemes. Accordingly, the Company has no other liability in respect of these pension arrangements. There were $859,000, $696,000 and $989,000 in respect of payments due to pension plans at July 3, 2004, December 31, 2003 and 2002, respectively.

Income Taxes

The Company’s income tax credit consists of the following:


				Year Ended December 31,
	Six months ended
	July 3, 2004			2003			2002		2001
	(in thousands)
Current:
Federal	$	—		$	—		$	—	$	—
State		—			—			—		—
Foreign		(209	)		(3,439	)		—		—
		(209	)		(3,439	)		—		—

Deferred:
Federal		—			—			—		—
State		—			—			—		—
		—			—			—		—
	$	(209	)	$	(3,439	)	$	—	$	—

The difference between the provision/benefit) for income taxes and the amount computed by applying the U.S. federal statutory income tax rate (34%) to loss before provision for income taxes is explained below:


				Year Ended December 31,
	Six months ended
	July 3, 2004			2003			2002			2001
	(in thousands)
Tax benefit at federal statutory rate	$	(22,977	)	$	(43,923	)	$	(56,079	)	$	(55,886	)
Domestic Loss for which no tax benefit is currently recognizable		2,891			—			—
Foreign research & development credits		(209	)		(3,720	)		—			—
Foreign losses with no current benefit		20,086			43,923			56,079			55,886
Foreign capital taxes		—			281			—			—
Total benefit	$	(209	)	$	(3,439	)	$	—		$	—

Deferred taxation

Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows:

Deferred tax comprises the following:


			December 31,
	July 3,
	2004		2003		2002
	(in thousands)
Deferred tax assets:
Net operating loss carryforwards	$	168,605	$	128,703	$	83,796
Excess of taxation value over book value of fixed assets		43,434		46,120		38,149
Inventory valuation		1,840		—		—
Accruals and reserves		1,550		—		—

F-21


				December 31,
	July 3,
	2004			2003			2002
	(in thousands)
Other deferred tax assets		5,130			—			—
Gross deferred tax assets		220,559			174,823			121,945
Deferred tax liabilities:
Stock option compensation		(210	)		—			—
Purchased intangible assets		(3,700	)		—			—
Gross deferred tax liabilities		(3,910	)		—			—
		216,649			174,823			121,945
Valuation allowance		(216,649	)		(174,823	)		(121,945	)
Net deferred tax assets	$	—		$	—		$	—

The valuation allowance increased by $41,826,000, $52,878,000 and $56,959,000 for the periods ended July 3, 2004, December 31, 2003 and 2002 respectively.

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 Company’s 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 July 3, 2004, the Company has foreign net operating loss carryforwards of approximately $415 million. It has U.S. federal and state net operating loss carryforwards of approximately $80,000,000 and $40,000,000, respectively, for tax purposes which are subject to an estimated annual limitation of approximately $4,000,000 as a result of the acquisition of New Focus by Bookham. The U.S. federal and state net operating loss carryforwards will expire at various dates beginning in 2005 through 2023, if not utilized. The foreign net operating loss carryforwards do not expire.

Utilization of the net operating loss carryforwards may be subject to substantial annual limitations due to the ownership change limitations provided by the Internal Revenue Code, similar state provisions and various foreign legislatures. The domestic annual limitation may result in the expiration of net operating losses and tax credit carryforwards before utilization

10.

Stockholder’s Equity

At July 3, 2004, the Company had the following employee stock option schemes:

1995 Employee Share Option Scheme

Pursuant to the 1995 Employee Stock Option Scheme, the Company granted options to purchase common stock during the period from July 10, 1995 to September 29, 1998. At July 3, 2004, there were no options authorized for future issuance under this scheme and there were outstanding options to purchase 60,544 shares of common stock. During the six months ended July 3, 2004, options to purchase 240 shares of common stock were exercised under this scheme. The options expire ten years after the date of grant and are exercisable to the extent vested. Vesting generally occurs at the rate of one-third each at 18 months, 30 months and 42 months after the date of grant. The scheme has not been approved by the U.K. Inland Revenue.

1998 Employee Share Option Scheme

Pursuant to the 1998 Employee Share Option Scheme, the Company granted options to purchase shares of Company common stock to employees, officers and consultants. The options expire ten years after the date of grant and are exercisable to the extent vested. Vesting generally occurs at the rate of one-third each at 18 months, 30 months and 42 months after the date of grant; or at the rate of one quarter after 12 months with the remaining three-quarters vesting monthly over the next 36 months. Certain options are capable of earlier vesting if certain defined performance targets are met. During the six month period ending July 3, 2004, options to purchase 13,872 shares of common stock were exercised. At July 3, 2004, there were options to purchase 2,926,631 shares of Company common stock outstanding. The Company does not intend to grant additional options under the scheme. The scheme has not been approved by the U.K. Inland Revenue.

2001 Approved Employee Stock Option Scheme

Pursuant to the 2001 Approved Employee Stock Option Scheme, the Company granted options to purchase shares of Company common stock to executive directors and employees. Options were granted at the discretion of the board, and certain options may vest upon the achievement of pre-defined performance conditions. Options vest between three and ten years from date of grant. At July 3, 2004, there were no options outstanding under this scheme. The Company does not intend to grant additional options under the scheme. The scheme has been approved by the UK Inland Revenue.

F-22

2001 Approved Sharesave Scheme

Pursuant to the 2001 Approved Sharesave Scheme, the Company granted options to purchase common stock to all full time directors and all employees with five years service or such shorter period as the board determines and those that the board deems appropriate. Options issued under the scheme are dependent on the savings made by the employee and the option price, determined by the board, was not less than 85% of the mid-market price of the Company’s common stock on the date proceeding the date which the employees were invited to apply for options. Options are normally exercisable for three to five years from the commencement of the savings contract established by the employee. During the six months ended July 3, 2004, options to purchase 3,626 shares of common stock were exercised under the scheme. At July 3, 2004, options to purchase 13,194 shares of common stock were outstanding. The Company does not intend to grant additional options under the scheme. The scheme has been approved by the U.K. Inland Revenue.

Following the acquisition on March 8, 2004, of New Focus, the Company assumed stock option agreements under the stock option plans set out below:

1990 Incentive Stock Option Plan

Pursuant to the New Focus 1990 Incentive Stock Option Plan, stock options and non-statutory stock options were authorized for grant to employees, directors and consultants. Options and stock purchase rights were authorized for grant to employees and consultants provided that incentive stock options were only authorized for grant to employees. Options were authorized for grant to purchase common stock at an exercise price of not less than 100% of the fair value of the stock at the date of grant as determined by the Board of Directors. Generally, options vest over the five years and expire after ten years. The normal vesting schedule for options includes an initial vesting equal to 20% of the underlying shares after the first year of service and monthly vesting of the remaining shares over the next four years. During the six months ended July 3, 2004, options to purchase 18,871 shares of common stock were exercised. At July 31, 2004, there were no options outstanding that had been granted under this plan. No further grants will be made under the plan.

2000 Stock Plan

Pursuant to the New Focus 2000 Stock Plan stock options to purchase shares of the common stock were authorized for grant to employees, directors and consultants. During the six months ended July 3, 2004, options to purchase 255,524 shares of common stock that had been granted under the plan were exercised. At July 3, 2004, there were outstanding options to purchase 206,243 shares of common stock. No further grants will be made under the plan.

2000 Director Option Plan

Pursuant to the New Focus 2000 Director Option plan, stock options were authorized for automatic grant to non-employee directors of New Focus. The plan generally provided for an automatic initial grant to purchase 2,500 shares of common stock to each non-employee director on the date when the person first becomes a non-employee director. In addition, upon the date of each stockholders’ meeting subsequent to the date of each non-employee director’s initial grant, each non-employee director was further automatically granted an option to purchase 500 shares of common stock. During the six months ended July 3, 2004, options to purchase 7,810 shares of common stock that had been granted under the plan were exercised. At July 3, 2004, there were no options outstanding that had been granted under this plan. No further grants will be made under the plan.

Exchangeable shares issued in connection with the acquisition of Measurement Microsystems A-Z, Inc.

In connection with the acquisition of Measurement Microsystems A-Z , Inc. (“MM”) in 2001, the Company issued exchangeable shares to the MM stockholders. The exchangeable shares were issued by Bookham Exchange, Inc., a wholly-owned subsidiary of the Company. The exchangeable shares were non-voting, preferred shares which were convertible at any time into shares of Bookham Technology plc, the then parent company of Bookham Exchange, Inc. During the six months ended July 3, 2004 and the years ended December 31, 2003, 2002 and 2001, MM stockholders exchanged 1,081, 873, 57,724 and 0 shares, respectively.

Stock compensation expense

The Company granted stock options to certain employees at exercise prices below the fair market value of the underlying ordinary shares at the date of grant during 1997. The intrinsic value of these options has been charged to the consolidated statements of operations on a straight line basis over the vesting period of the options. The stock compensation

F-23

expense related to these options was $0, $0, $290,000 and $473,000 during the six months ended July 3, 2004 and for the years ended December 31, 2003, 2002 and 2001, respectively.

As part of the acquisition of New Focus, the Company granted New Focus employees 605,797 shares of common stock in connection with the assumption of outstanding options. At July 3, 2004, the intrinsic value of the stock options which relate to future services totaled $1,354,000. The Company recognized $122,000 in stock compensation during the six months ended July 3, 2004 related to these options.

Warrants and stock options issued to non-employees

During 1999, the Company granted stock options to three consultants to purchase 34,560 shares of common stock under the 1998 Scheme, expiring ten years from date of grant. These options vested upon completion of specified performance requirements, all of which were met in the year ended 31 December 2000. Options to purchase 4,000 shares of common stock were exercised in the six month period to July 3, 2004 and as at July 3, 2004, options to purchase 30,560 shares of common stock remained outstanding. 28,880 of these options have an exercise price of $19.71 per share and 1,680 of these options have an exercise price of $21.84 per share.

During 1999, the Company issued warrants to purchase shares of common stock to a leasing company. These shares were immediately exercisable. In 2003, 12,282 shares were exercised in respect of this warrant. At July 3, 2004, 844 shares to purchase common stock pursuant to this warrant remained outstanding.

In 2002, the Company issued a warrant to purchase 900,000 shares of common stock to Nortel Networks as part of the purchase price for the acquisition of the optical components business of Nortel Networks. The Company valued the warrants issued to Nortel Networks at $6,685,000 based on the fair market value of the Company’s common stock as of the announcement date of the acquisition. At July 3, 2004 the warrant was outstanding; however, the warrant was exercised in full on September 7, 2004.

During 2002, the Company granted stock options to purchase 40,000 shares of common stock under the 1998 Scheme to one consultant, 2,500 of these options vested immediately and the remaining 37,500 may only vest upon completion of specified performance criteria relating to the operation of the business unit to which the consultant was consulting. None of these options had been exercised as at July 3, 2004. The Company valued the options to non-employees using the Black-Scholes option pricing model. The value of these options was $124,000.

During 2003, the Company assumed warrants to purchase 4,880 shares of common stock as part of the terms of acquisition of Ignis Optics. The warrants, which have an exercise price of $40.00 per share, are exercisable immediately and expire in April 2011. None of these warrants was exercised during the period ended July 3, 2004 and as of July 3, 2004, 4,880 remained outstanding.

A summary of the share option movements is given below:


	Options			Weighted average
	outstanding			exercise price
Outstanding at January 1, 2001		1,202,839		$	77.90
Granted		655,919			38.04
Exercised		(155,814	)		6.37
Cancelled		(296,911	)		136.68
Outstanding at December 31, 2001		1,407,033			60.24
Granted		1,071,541			15.65
Exercised		(32,222	)		7.10
Cancelled		(258,434	)		65.34
Outstanding at December 31, 2002		2,187,918			33.85
Granted		993,363			21.11
Exercised		(63,429	)		19.84
Cancelled		(576,930	)		51.14
Outstanding at December 31, 2003		2,540,922			26.57
Granted		640,195			11.56
Assumed on acquisition of New Focus		605,797			2.90
Exercised		(299,943	)		9.41
Cancelled		(280,359	)		27.05
Outstanding as at July 3, 2004		3,206,612		$	15.21

F-24

The following summarizes option information relating to outstanding options under all of the Company’s stock plans as of July 3, 2004:


		Options Outstanding						Options Exerciseable
				Weighted Average
Range of Exercise				Remaining		Weighted Average				Weighted Average
Prices		Number Outstanding		Contractual Life		Exercise Price		Number Exerciseable		Exerciseable Price
$	3.25-$6.00		70,686		8.14	$	4.84		31,060	$	4.84
$	6.40-$7.75		3,777		8.31	$	7.34		1,615	$	7.09
$	8.90-$9.85		94,513		9.68	$	9.70		452	$	9.12
$	10.40-$10.65		506,663		9.92	$	10.59		47,002	$	10.49
$	10.80-$12.00		143,403		4.73	$	11.78		146,403	$	11.78
$	12.40-$13.50		34,844		2.23	$	13.04		9,014	$	12.85
$	13.55-$14.00		151,176		7.98	$	13.76		91,372	$	13.69
$	14.05-$14.20		594,642		8.26	$	14.18		296,600	$	14.19
$	14.25-$15.00		196,963		8.05	$	14.44		49,831	$	15.42
$	15.08-$15.50		60,443		3.50	$	15.11		60,443	$	15.11
$	16.00-$19.75		41,935		7.48	$	18.44		37,809	$	18.64
$	20.00-$22.00		203,680		7.61	$	21.22		108,261	$	21.04
$	22.00-$23.60		37,044		6.26	$	22.58		17,667	$	22.82
$	24.00-$25.50		807,860		9.13	$	24.63		184,479	$	24.66
$	26.40-$32.00		122,959		7.18	$	31.09		82,386	$	31.11
$	56.00-$59.00		31,276		6.52	$	57.79		31,276	$	57.79
$	61.00-$69.00		19,261		6.85	$	62.18		13,076	$	62.21
$	77.00-$128.00		36,574		6.13	$	89.78		33,071	$	88.30
$	150.00-$300.00		42,599		6.21	$	210.54		41,859	$	211.31
$	392.00-$818.00		3,314		6.33	$	701.14		2,852	$	700.47
$	3.25-$818.00		3,206,612		8.24	$	21.93		1,286,528	$	28.35

Notes Receivable from Stockholders

On acquisition of New Focus, the Company acquired secured full recourse loans aggregating approximately $1,233,000 which had been made to certain employees in connection with their purchase of common stock in New Focus. Each of these loans was made pursuant to a full recourse promissory note secured by a stock pledge. As at July 3, 2004, the notes receivable had been repaid in full.

Common Stock

Common stock reserved for future issuance is as follows:


	July 3,
	2004
Stock option plan:
Outstanding options		3,206,612
Warrants and options to non-employees		937,944
Reserved for future grants		3,481,898
Total		7,626,454

11.

Earnings per share

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 4,145,000, 2,275,000, 1,940,000 and 1,182,000 common equivalent shares related to outstanding share options and warrants (determined using the treasury stock method) for the six months ended July 3, 2004 and for the years ended December 31, 2003, 2002 and 2001, respectively.

F-25

12.

Segments of an Enterprise and Related Information

The Company is currently organized and operates as two operating segments: Optics and Research and Defense. The Optics segment designs, develops, manufactures, markets and sells optical solutions for telecommunications and industrial applications. The Research and Defense segment designs, manufactures, markets and sells photonic and microwave solutions. The Company evaluates the performance of its segments and allocates resources based on consolidated revenues and overall profitability.

Segment and geographic information for the six months ended July 3, 2004 and June 29, 2003 and the years ended December 31, 2003, 2002 and 2001 is presented below. Revenues are attributed to countries based on the location of customers.

Information on reportable segments is as follows:


	Six months ended						Year Ended December 31,
	July 3,			June 29,
	2004			2003			2003			2002			2001
	(in thousands)
Net revenues:
Optics	$	69,315		$	67,762		$	146,197		$	51,905		$	31,566
Research and defense		10,448			—			—			—			—
Consolidated total revenues	$	79,763		$	67,762		$	146,197		$	51,905		$	31,566
Net loss:
Optics	$	(59,321	)	$	(68,040	)	$	(125,747	)	$	(164,938	)	$	(164,370	)
Research and defense		(8,050	)		—			—			—			—
Consolidated net loss	$	(67,371	)	$	(68,040	)	$	(125,747	)	$	(164,938	)	$	(164,370	)
Depreciation and amortization:
Optics	$	11,941		$	9,962		$	17,709		$	17,135		$	14,874
Research and defense		1,491			—			—			—			—
Consolidated depreciation and amortization	$	13,432		$	9,962		$	17,709		$	17,135		$	14,874
Total expenditures for additions to long life assets:
Optics	$	7,051		$	12,611		$	19,406		$	17,612		$	47,405
Research and defense		56			—			—			—			—
Consolidated total expenditures for additions to long life assets	$	7,107		$	12,611		$	19,406		$	17,612		$	47,405

Information regarding the Company’s operations by geographic area is as follows:


	Six months ended				Year Ended December 31,
	July 3,		July 3,
	2004		2003		2003		2002		2001
	(in thousands)
Revenues:
United States	$	20,446	$	4,168	$	13,502	$	4,683	$	2,884
United Kingdom		4,023		14,810		25,454		31,910		19,165
North America other than United States		35,529		36,446		78,207		11,235		1,574
Europe other than United Kingdom		8,797		5,461		13,230		3,560		539
Asia		10,875		6,479		14,986		479		7,170
Rest of the World		93		398		818		38		234
Consolidated total revenues	$	79,763	$	67,762	$	146,197	$	51,905	$	31,566

F-26


			December 31,
	July 3,
	2004		2003		2002
			(in thousands)
Net assets:
United States	$	171,227	$	18,711	$	539
United Kingdom		266,131		237,085		314,702
North America other than United States		3,624		2,998		26,148
Europe other than United Kingdom		11,400		10,699		10,211
Asia		15,643		5		16
Total net assets	$	468,025	$	269,498	$	351,616


			December 31,
	July 3,
	2004		2003		2002
			(in thousands)
Long-lived assets:
United States	$	50,584	$	15,128	$	101
United Kingdom		163,840		91,352		89,367
North America other than United States		1,354		1,447		11,315
Europe other than United Kingdom		7,389		7,864		8,523
Asia		13,004		2		2
Total long-lived assets	$	236,171	$	115,793	$	109,308

For the six months ended July 3, 2004, JCA Technology, Inc.’s results consolidated in the research and defense segment amounted to $2,400,000 of revenue and a loss of $500,000 and, at July 3, 2004, net assets of $1,600,000. The Company sold JCA Technology to Endwave Corporation in July 2004.

13.

Business combinations

During the six months ended July 3, 2004 and the years ended December 31, 2003, and 2002, the Company completed a total of six acquisitions. Each of the acquisitions was accounted for under the purchase method of accounting. The allocation of the purchase price to the assets acquired and liabilities assumed, as determined by the Company, was conducted at the date of acquisition, with the assistance of third-party valuation experts, except for the acquisitions of Cierra Photonics and Onetta, Inc. The methodologies used to value intangible assets acquired were consistently applied to each of the acquisitions.

To determine the value of the developed technology, 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 in-process research and development, or IPR&D, 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 each of the acquired companies 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 Company’s results of operations during the period of the 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 and 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 owner to the business currently using the patents in an arm’s-length transaction. Conversely, this is the royalty savings enjoyed by 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.

Onetta, Inc.

F-27

Onetta, Inc., or Onetta, designs and manufacturers optical amplifier modules and subsystems for communications networks. Their intelligent Erbium Doped Fiber Amplifiers (EDFA) incorporate advanced optics, control electronics and firmware to provide industry leading performance for current and next-generation optical communication networks

On June 10, 2004, under the terms of the purchase agreement, the Company acquired the entire issued share capital of Onetta, Inc. The consideration for the acquisition was 2,764,030 shares of common stock valued at $24,708,000. As part of the agreement, the Onetta stockholders agreed to settle liabilities of Onetta, Inc. in the amount of $6,083,000. The purchase price allocation has not yet been finalized.

In connection with the acquisition, there was no value allocated to IPR&D projects.

New Focus, Inc.

New Focus, Inc., or New Focus, provides photonics and microwave solutions to non-telecom diversified markets, including the semiconductor, defense, research, industrial, biotech/medical and telecom test and measurement industries.

On March 8, 2004, under the terms of the merger agreement, the Company acquired New Focus by a merger of a wholly-owned subsidiary with and into New Focus, with New Focus surviving as the Company’s wholly-owned subsidiary. Pursuant to the merger agreement, immediately prior to the merger, each New Focus stockholder received a cash distribution from New Focus, Inc. in the amount of $2.19 per share of New Focus common stock held on that date.

The consideration paid by the Company for New Focus consisted of 7,866,600 shares of common stock, valued at $197,710,000, and the assumption of options with a value of $6,286,000. Each of the assumed options became an option to purchase a unit consisting of 1.2015 shares of common stock. New Focus made a cash distribution of $2.19 for each share of New Focus common stock immediately prior to the merger. The exercise price of the assumed options was adjusted to reflect the cash distribution.

In connection with the acquisition of New Focus, $5,890,000 was allocated to IPR&D projects. The new product introductions, NPI, at the acquisition date are expected to result in the development of products to support the New Focus, original equipment manufacturing and catalog business. There were no technology research, TR, programs at the time of acquisition. The NPIs include:

	•		Catalog Products: Programs are focused on increasing the wavelength spectrum over which modulator products can operate and the development of detectors to operate at higher frequency with lower noise over a broader wavelength. Commercial availability is anticipated in late 2004 with shipments in early 2005.

	•		OEM Products: Two of the major programs have already been completed in 2004, namely the development of a super luminous diode light source for use in subsystems and a laser development for use high precision / high stability labs. The Company anticipates that these products will be commercially available in early 2005. The final program for development of a small form factor laser for use in fiber sensing applications continues but has been slowed down due to lower than expected market opportunities emerging.

Ignis Optics, Inc.

Ignis Optics, Inc., or Ignis, designs and manufactures small form-factor, pluggable, single-mode optical transceivers for current and next generation optical datacom and telecom networks.

On October 6, 2003, the Company acquired the entire share capital of Ignis in exchange for 802,082 shares of common stock and the assumption of warrants to purchase 4,880 shares of common stock, valued at $17,748,000. In addition, and subject to certain performance criteria, 78,080 additional shares of common stock could be issued in early 2005.

In connection with the acquisition of Ignis, $1,878,000 was allocated to IPR&D projects. The projects under development at the acquisition date were expected to result in a portfolio of digital transmitters and receivers to be used in current and future fiber optic networks.

F-28

Cierra Photonics, Inc.

Cierra Photonics, Inc., or Cierra, designs and manufactures thin-film filters and other components for the fiber optic telecommunications industry. Cierra Photonics Advanced Energetic Deposition (AED) technology is a specialized process for wafer-scale deposition of extremely well-controlled films that results in thin-film components that have lower costs, high yields and industry-leading optical performance.

On July 4, 2003, the Company acquired substantially all of the assets and certain liabilities of Cierra. The consideration for the acquisition consisted of 307,148 shares of common stock valued at $3,669,000. In addition, and subject to the satisfactory achievement of specific sales milestones over the next two years, 420,000 additional shares of common stock could be issued to Cierra in 2004 and 2005.

In connection with the acquisition, there was no value allocated to IPR&D projects.

Nortel Networks Optical Components

Nortel Networks Optical Components, or NNOC, comprises the Optical Amplifier Business and the Transmitter and Receiver Business of Nortel Networks. The optical amplifier business, based in Paignton, UK and Zurich, Switzerland is a vertically integrated business, with 980nm and 14xx chip foundries, module assembly as well as broad raman pump units and long-haul EDFA offerings, for the long haul and metro network markets. The transmitter and receiver business is located in Ottawa, Canada and Paignton, U.K. and produces active components for metro, long-haul and ultra long-haul applications.

On November 8, 2002, the Company acquired NNOC for a total consideration of 6,100,000 shares of common stock, warrants to purchase 900,000 shares of common stock, notes with an aggregate principal value of $50 million and the payment of a cash consideration of $9,212,000, which equals an aggregate of approximately $111,201,000 (excluding deal costs). The common stock transferred to Nortel Networks had a value of $45,304,000, as determined on the announcement date of the acquisition. The warrants were exercised in full on September 7, 2004. The notes are in two series, the first is a $30 million principal amount secured loan note and the second, a $20 million principal amount unsecured loan notes (Note 16). Nortel Networks beneficially held 12.3% of the Company’s common stock as of July 3, 2004.

The Company valued the warrants issued to NNOC at $6,685,000 determined as the value of the Company’s common stock issued at closing based on the fair market value on the announcement date of the acquisition. The warrants were exercised in full on September 7, 2004.

In connection with the Company’s acquisition of NNOC, the Company entered into a supply agreement with Nortel Networks Limited, a wholly-owned subsidiary of Nortel Networks. Under the agreement, Nortel Networks Limited agreed to purchase a minimum of $20 million per quarter, or $120 million total, of optical products and related services from the Company over a period of six quarters from completion of the transaction on November 8, 2002. In addition, Nortel Networks is required to purchase a percentage of its optical components requirements from us until November 2005.

Tangible assets acquired principally included property, plant and equipment and inventories. Liabilities assumed included provisions for environmental liabilities and certain employee related accruals.

Of the total consideration, the allocation to acquired IPR&D projects was $5,657,000. The projects remaining under development at the acquisition date were expected to result in a portfolio addressing tunability, bandwidth, integration, amplification, and managed optical networks. These projects were split into two distinct categories: NPI and Technology Research. The TR projects, which met the criteria for recognition as IPR&D, were assessed as requiring between 1 and 1 and a 1 / 2 years before attaining NPI status.

All estimated costs to complete were to be funded from current cash reserves in Bookham. The current status of each category is given below.

NPI

	•		Amplifiers:The MiNi and Barolo platform products were successfully released in 2003 and continue to be shipped to customers.

	•		Pumps: The next generation of pumps incorporating the G07 higher power chip were successfully launched in 2003.

F-29

•

Transmitters/Receivers:The majority of the Transmitters and Receivers in the NPI stage at acquisition have now been released to the market and are being shipped to customers. These include the 10G 8x50 GaAs laser, the 100mW UHP laser, the Compact MZ laser, MSA receiver, a 10G uncooled DFB directly modulated laser and hot pluggable transponder modules. A couple of programs, mainly comprising or modules including tunable lasers have been rephased due to slower market demand for the new technology.

Technology Research

	•		Amplifiers:Activity on these projects has slowed significantly due to weakening market demand and pricing pressure. Since the date of acquisition, substantially all of the technology work-in-progress has been completed or absorbed into products.

	•		Pumps/Transmitter/Receivers:Since the date of acquisition, substantially all of the technology work-in-progress has been completed or absorbed into products.

Marconi Optical Components (MOC)

Marconi Optical Components, or MOC, designs, manufactures and supplies current and next generation active optical components. MOC’s products include fixed and tunable lasers, high-speed gallium arsenide modulators, transmitters, receivers and erbium doped fibre amplifiers. MOC has over twenty five years experience of advanced research and development in the area of optical technologies, compound semiconductor materials and semiconductor manufacturing processes. MOC has an intellectual property portfolio relating to lasers, high-speed modulators, optical amplifiers and general micro-optics and processes.

In accordance with the MOC acquisition agreement, the Company paid $1,843,000 in cash and issued 1,289,100 shares of common stock having a value equal to approximately $28,011,000 determined as of the closing, based on the fair market value of the securities on the announcement date. Tangible assets acquired principally include fixed assets and inventories. In connection with the acquisition of the assets of MOC, $5,922,000 was allocated to IPR&D projects. The remaining projects under development at the acquisition date were expected to result in a portfolio addressing tunability, bandwidth, integration, amplification, and managed optical networks. The expected dates of release of these projects ranged from seven to seventeen months from the date of acquisition. There were three main programs acquired in the NPI stage of development. All estimated costs to complete were to be funded from current cash reserves in Bookham, unless stated to the contrary. The current status of each category is given below:

	•		Fast tuning, wide coverage, tunable lasers:Development of these products was suspended post-acquisition in favor of alternative technologies. Technology work has continued to eliminate many of the fundamental limitations of the chip. A development program for a laser and module has been launched with product availability expected in the second half of 2005.

	•		10G Transmitters:This program was rephased as a result of wafer fab and assembly and test facility transfers. An integrated narrow band tunable transmitter has been completed and shipping to the customer commenced in 2003. The wide band transmitter was discontinued in 2003.

	•		40G Transmitters and Receivers:Following the acquisition, the program was suspended as the market conditions for acceptance of this product have changed, and there was overlap with products being developed/marketed by the acquired Nortel Networks businesses. While we continue to believe that this market will develop in the future, there are no plans at this stage to continue with this program.

A summary of the purchase price allocations pertaining to the above acquisitions and the amortization periods of the intangible assets acquired is as follows:


	Onetta		New Focus		Ignis		Cierra		NNOC		MOC
	(in thousands)
Purchase price:
Ordinary stock issued	$	24,708	$	197,710	$	17,748	$	3,669	$	45,304	$	28,011
Stock options assumed		—		6,286		—		—		—		—
Warrants		—		—		—		—		6,685		—
Loan notes		—		—		—		—		50,000		—
Cash		—		—		—		—		9,212		—
		24,708		203,996		17,748		3,669		111,201		28,011
Transaction and other direct acquisition costs		274		6,969		300		249		7,800		1,843
	$	24,982	$	210,965	$	18,048	$	3,918	$	119,001	$	29,854

F-30


	Onetta		New Focus		Ignis		Cierra		NNOC		MOC
	(in thousands)
Allocation of purchase price:
Historic net tangible assets acquired	$	3,780	$	101,665	$	4,455	$	761	$	85,961	$	15,222
Intangible assets acquired:		—		—		—		—		—		—
Supply contracts and customer relationships		—		625		—		—		6,878		978
Customer database		—		606		—		—		—		—
Patent portfolio		—		2,317		913		216		7,906		1,817
Core and current technology		—		10,563		775		2,941		12,599		5,915
In process research and development		—		5,890		1,878		—		5,657		5,922
Goodwill		21,202		89,299		10,027		—		—		—
	$	24,982	$	210,965	$	18,048	$	3,918	$	119,001	$	29,854


	Onetta		New Focus		Ignis		Cierra		NNOC		MOC
Amortization period (in years):
Supply contracts/customer relationships		—		3		—		—		3 - 16		4 - 5
Customer database		—		5		—		—		—		—
Patent portfolio		—		6 - 10		5		6		5		4 - 5
Core & current technology		—		3 - 6		5		5		5		4 - 5

On November 8, 2002, the Company acquired the trade and assets of NNOC, the net assets of which were provisionally valued in the 2002 accounts. In accordance with SFAS No. 141 “Business Combinations”, an adjustment was made in the 2003 accounts for amendments to those provisional values. This adjustment was principally the result of the company selling more inventory than anticipated during 2003.

Amended and provisional values of the net assets acquired were as follows, and the explanations for these changes are given in the note below.


	Original					Revised Fair Value
	Purchase Price		Purchase Price			Allocation December 31,
	Allocation		Adjustment			2003
	(in thousands)
Purchase price	$	111,201	$	—		$	111,201
Transaction and other direct acquisition costs		7,800		—			7,800
	$	119,001	$	—		$	119,001
Allocation of purchase price:
Historical net tangible assets acquired	$	76,827	$	9,134		$	85,961
Intangible assets acquired:
Supply contracts		8,862		(1,984	)		6,878
Patent portfolio		9,988		(2,082	)		7,906
Core and current technology		16,034		(3,435	)		12,599
In process research and development		7,290		(1,633	)		5,657
	$	119,001	$	—		$	119,001

During 2003, a larger amount of inventory was sold than was expected at the time the acquisition of NNOC was completed in 2003. As a consequence, the Company increased the value of the inventory by $20,227,000, reduced intangible assets by $9,134,000 and decreased other net assets by $11,093,000 as part of the allocation fair value of the remaining assets as summarized below.

The warranty provision recognized on acquisition has been increased by $1,968,000 following a review of the level of expected warranty costs. In addition, the initial value recognized for historic employee-related costs has been reduced by $590,000 a revised valuation of the pension scheme in Switzerland.

The following unaudited proforma summary shows the consolidated results of Bookham had the acquisitions of Onetta, New Focus, Ignis, Cierra, NNOC and MOC acquisitions been completed on January 1, 2002. It is provided for illustrative

F-31

purposes and is not indicative of the consolidated results of operations for future periods or that actually would have been realized had Bookham actually acquired those companies on January 1, 2002.


				Year ended December 31,
	Six Months ended
	July 3, 2004			2003			2002
	(in thousands except per share data)
Sales	$	87,763		$	180,207		$	187,880
Net loss	$	82,380		$	168,832		$	601,918
Basic and diluted loss per share	$	(3.03	)	$	(8.10	)	$	(39.86	)

14.

Goodwill and other intangibles

The following is a summary of the goodwill and other intangible assets:


	Goodwill			Intangibles			Total
	(in thousands)
Cost
At January 1, 2002	$	1,530		$	3,796		$	5,326
Additions during the year		—			138			138
Acquisitions		—			43,595			43,595
Disposals during the year		(1,583	)		(858	)		(2,441	)
Exchange rate adjustment		53			2,252			2,305
At December 31, 2002		—			48,923			48,923
Fair value adjustment		—			(7,501	)		(7,501	)
Acquisitions		10,027			4,845			14,872
Disposals during the year		—			(605	)		(605	)
Exchange rate adjustment		647			4,380			5,027
At December 31, 2003		10,674			50,042			60,716
Additions during the period		—			98			98
Acquisitions		110,501			14,111			124,612
Exchange rate adjustment		(1,222	)		1,078			(144	)
At July 3, 2004	$	119,953		$	65,329		$	185,282
Accumulated amortization
At January 1, 2002	$	1,530		$	1,380		$	2,910
Charge during the year		—			5,376			5,376
Disposals during the year		(1,583	)		(858	)		(2,441	)
Exchange rate adjustment		53			484			537
At December 31, 2002		—			6,382			6,382
Fair value adjustment		—			(190	)		(190	)
Charge during the year		—			8,487			8,487
Disposals during the year		—			(518	)		(518	)
Exchange adjustment		—			1,325			1,325
At December 31, 2003		—			15,486			15,486
Charge during the year					5,677			5,677
Exchange rate adjustment					317			317
At July 3, 2004	$	—		$	21,480		$	21,480
Net Book Value
Net book value at July 3, 2004	$	119,953		$	43,849		$	163,802
Net book value at December 31, 2003	$	10,674		$	34,556		$	45,230
Net book value at December 31, 2002	$	—		$	42,541		$	42,541

F-32

Intangible assets consist of the following:


	Balance at							Translation			Balance at July 3,
	January 1, 2004			Additions		Acquisitions		Adjustment			2004
	(in thousands)
Supply agreements	$	5,361		$	—	$	—	$	121		$	5,482
Customer relationships		—			—		625		(8	)		617
Customer databases		—			—		606		(7	)		599
Core and current technology		25,569			—		10,563		528			36,660
Patent portfolio		12,342			—		2,317		292			14,951
Capitalized licenses		3,148			98		—		72			3,318
Customer contracts		3,622			—		—		80			3,702
		50,042			98		14,111		1,078			65,329
Less accumulated amortization		(15,486	)		—		—		—			(21,480	)
Intangible assets (net)	$	34,556		$	98	$	14,111	$	1,078		$	43,849


	Balance at					Fair Value			Reclassifications			Translation		Balance at
	January 1, 2003			Acquisitions		Allocation			and disposals			Adjustment		December 31, 2003
	(in thousands)
Supply agreements	$	5,926		$	—	$	(1,057	)	$	—		$	492	$	5,361
Core and current technology		23,086			3,716		(3,435	)		—			2,202		25,569
Patent portfolio		12,249			1,129		(2,082	)		—			1,046		12,342
Capitalized licenses		2,848			—		—			—			300		3,148
Customer contracts		4,220			—		(927	)		—			329		3,622
Capitalised professional fees		594			—		—			(605	)		11		0
		48,923			4,845		(7,501	)		(605	)		4,380		50,042
Less accumulated amortization		(6,382	)		—		—			—			—		(15,486	)
Intangible assets (net)	$	42,541		$	4,845	$	(7,501	)	$	(605	)	$	4,380	$	34,556

Goodwill

On June 10, 2004, Bookham acquired Onetta for a total consideration of $24,982,000 (Note 13). The goodwill arising from this combination was $21,202,000.

On March 8, 2004, Bookham acquired New Focus for a total consideration of $210,965,000 (Note 13). The goodwill arising from the acquisition was $89,299,000.

On October 6, 2003, Bookham acquired Ignis for a total consideration of $18,048,000 (Note 13). The goodwill arising from this combination was $10,027,000.

No other acquisitions by the Company resulted in recognition of goodwill in the period ended July 3, 2004 or the years ended December 31, 2003 and 2002.

In each case goodwill was allocated to the Optics segment of the Company.

Other Intangible Assets

Other 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.

The expected future annual amortization expense of the other intangible assets is as follows (in thousands):


For the fiscal year ended on or about June 30,
2005	$	13,541
2006		12,662
2007		11,299
2008		7,155
2009		231
Thereafter		5,045
Total expected future amortization	$	49,933

During 2003 the Company conducted a Purchase Price Allocation (PPA) review of its acquisition of NNOC, and identified the need to adjust the original fair value of the fixed assets and inventory. This resulted in an adjustment of the values

F-33

of all the remaining assets and consequential adjustments of the amortization and depreciation thereof. This adjustment reduced the value of the intangible assets by $7,501,000 and created a reversal of depreciation of $207,000 (Note 13).

During 2002, the Company’s investment in Measurement Microsystems A-Z Inc. (MM), was reduced, resulting in the Company ceasing to control MM. As a result, the Company eliminated the cost and accumulated depreciation of $858,000 in respect of MM’s intangible assets. The Company wrote off a further $605,000 in respect of MM’s capitalized professional fees (with net book value of $92,000) in 2003.

15.

Related Party Transactions

During 1998, the Company entered into a contract with Lori Holland for the provision of consultancy services under which Ms. Holland would be compensated in cash and through a grant of stock options. Lori Holland became a director in 1999. The consultancy contract was terminated effective as of August 1, 2002. Lori Holland exercised none of her options during 2003. All shares of common stock underlying the option had vested and options to purchase 48,666 shares of common stock were outstanding at July 3, 2004. During the year, the Company entered into transactions in the ordinary course of business with other related parties. Transactions entered into, and trading balances outstanding at July 3, 2004, and December 31, 2003, 2002 and 2001, are as follows:


					Amounts		Amounts
	Sales to related		Purchases from		owed from		owed to
	party		related party		related party		related party
	(in thousands)
Related party
Marconi Communications
July 3, 2004	$	7,385	$	2	$	4,401	$	—
December 31, 2003		18,147		—		3,731		—
December 31, 2002		19,769		2,019		11,140		—
December 31, 2001		4,615		6		—		—
Nortel Networks
July 3, 2004		36,532		818		11,553		628
December 31, 2003		85,593		9,499		15,133		739
December 31, 2002		16,267		789		13,564		844
December 31, 2001		12,944		2,313		—		—

The Company also has an outstanding loan due to Nortel Networks. The loans are payable in November 2005 and 2007 (Note 16).

At July 3, 2004 and December 31, 2003, Marconi Communications no longer had an interest in the Company as it sold its shares in June 2003. At December 31, 2002 and 2001, Marconi had an interest of 6.3% and 9.0%, respectively

At July 3, 2004, December 31, 2003, and 2002 Nortel Networks had a 12.3%, 13.5%, and 29.8% interest respectively in the Company.

As a result of the Company’s acquisition of New Focus, the Company acquired a loan note receivable from a former officer and board member of New Focus, with a fair value of $1,700,000. The loan note arose as follows:

On July 12, 2001, New Focus extended to Kenneth E. Westrick two secured full recourse short-term loans in the aggregate of $8,000,000. Mr. Westrick was New Focus’ president and chief executive officer and a member of the New Focus’ board of directors at the time these loan agreements were executed. The principal amount of approximately $2.1 million on the first note plus the accrued interest on this note was paid by the scheduled maturity date of June 30, 2002.

The second note in the principal amount of approximately $5,900,000 currently bears interest at the per annum rate of 9.99% compounded annually and is secured by a second deed of trust on certain real property held by Mr. Westrick.

Mr. Westrick resigned as the New Focus’ president and chief executive officer and as a member of the New Focus’ board of directors effective October 10, 2001. In connection with his resignation, Mr. Westrick and the New Focus entered into a Separation and Release Agreement. The agreement extended the due date of the $5,900,000 note to June 30, 2004 from June 30, 2002.

F-34

Principal and accrued interest on the $5,900,000 note receivable totaled $6,400,000 through the end of the second quarter of 2002. New Focus stopped accruing interest on Mr. Westrick’s note for financial reporting purposes beginning in the third quarter of 2002.

The Company has not forgiven or modified the terms of the note receivable and intends to pursue collection.

16.

Loans

The Company has two loans payable to Nortel Networks, a related party. The first loan is an unsecured loan for $20,000,000 which is due in full on November 8, 2007. This loan bears interest at 4% per annum, which is payable quarterly in arrears. The second loan is a secured loan for $30,000,000, which is due in full on November 8, 2005. This loan bears interest at a 7% per annum base rate, which increases by 0.25% each quarter over the term of the note and is payable quarterly in arrears. This loan is secured by the Company’s equipment owned on the date of the NNOC acquisition and the property located in Paignton, U.K. which was purchased as part of the NNOC acquisition. Both of these loans are subject to certain repayment requirements if the Company raises cash through the sale of equity or debt or the sale of the collateralized property. The Company is required to use 20% of the proceeds from the sale of any debt or equity proceeds received in excess of $50 million but less than $100 million and 40% of any proceeds in excess of $100 million to repay the notes. The Company must also repay these loans with any proceeds raised through the sale of equipment in excess $30 million.

The Company also has an unsecured loan payable to Scheappi Grundstûke Verwaltungen KG for $453,000 which is repayable in equal monthly installments until December 2013. This loan bears interest at 5% per annum, which is payable monthly in arrears.

The amounts payable under these loans are as follows (in thousands):


Fiscal year ended on or about June 30,
2005	$	4,144
2006		31,840
2007		873
2008		20,339
2009		73
Thereafter		260
	$	57,529

17.

Subsequent Events

Divestiture of JCA Technology Inc.

On July 21, 2004, the Company sold 100% of its ownership in JCA Technology, Inc. for $6 million in cash. After adjusting for the net costs of the assets sold and the expenses associated with the divestiture, the Company realized no gain or loss from the transaction.

Change in domicile

Effective September 10, 2004, the Company changed its corporate domicile from the United Kingdom to the United States pursuant to the Scheme which had been approved by shareholders on August 16, 2004. Under the Scheme, Bookham Technology plc shareholders and ADS holders received one Bookham, Inc. share for every ten shares held in Bookham Technology plc. The Scheme provided that the entire issued share capital of Bookham Technology Plc was cancelled and new shares were issued to Bookham, Inc. by the capitalization of reserves arising from such cancellation such that Bookham Technology Plc became a wholly owned subsidiary of Bookham, Inc.

Also, on September 9, 2004, trading of Bookham Technology plc ADSs on the Nasdaq National Market ceased and on September 10, 2004, trading in Bookham Technology Plc ordinary shares was suspended at the start of trading on the London Stock Exchange. Effective September 10, 2004, the Company’s common stock began trading on the NASDAQ National Market.

F-35

Related Party Transaction

In September 2004, Nortel Networks exercised its warrants to purchase 900,000 common shares. In addition, Nortel Networks exchanged its $20,000,000 unsecured loan note for a $20,000,000 unsecured loan note that may be converted at any time into shares of the Company’s common stock.

18.

Quarterly Summaries (unaudited)


	Three Months Ended
	July 3,			April 4,			Dec. 31,			Sept. 28,			June 29,			Mar 30,			Dec. 31,			Sept. 29,
	2004			2004			2003			2003			2003			2003			2002			2002
	(in thousands, except share and per share data)
Quarterly Statement of Operations Data:
Net revenues	$	38,797		$	40,966		$	40,613		$	37,822		$	33,243		$	34,519		$	21,486		$	11,366
Cost of net revenues		42,655			41,760			36,685			38,408			58,135			42,780			29,826			17,025
Gross profit (loss)		(3,858	)		(794	)		3,928			(586	)		(4,892	)		(8,261	)		(8,340	)		(5,659	)
Operating Expenses:
Research and development, net		14,436			12,451			12,199			11,703			12,811			13,658			12,989			10,944
Selling, general and administrative		13,394			16,190			5,205			9,849			5,777			13,018			3,414			5,173
Amortization of intangible assets		5,677			—			3,741			—			4,746			—			5,376			—
IPR&D		224			5,666			245			—			—			—			6,836			—
Restructuring charges		(664	)		—			(156	)		23,917			2,770			4,861			39,384			12,786
Stock Based Compensation		104			—			—			—			—			—			73			89
Total operating expenses		33,171			34,307			21,234			45,469			26,104			31,537			68,072			28,992
Operating loss		(37,029	)		(35,101	)		(17,306	)		(46,055	)		(30,996	)		(39,798	)		(76,412	)		(34,651	)
Interest and other income (expense), net		923			3,627			3,273			(1,058	)		3,243			(489	)		559			1,634
Loss before income taxes		(36,106	)		(31,474	)		(14,033	)		(47,113	)		(27,753	)		(40,287	)		(75,853	)		(33,017	)
Income tax credit		209			—			3,478			(39	)		—			—			—			—
Net loss		(35,897	)		(31,474	)		(10,555	)		(47,152	)		(27,753	)		(40,287	)		(75,853	)		(33,017	)
Basic and diluted net income (loss) per share	$	(1.10	)	$	(1.38	)	$	(0.41	)	$	(2.30	)	$	(1.35	)	$	(1.97	)	$	(4.20	)	$	(2.25	)
Shares used to compute basic net income (loss) per share		30,421,376			23,976,300			21,598,752			20,789,900			20,495,418			20,495,100			17,808,980			14,372,500

F-36

Schedule II: Valuation And Qualifying Accounts
Six Months ended July 3, 2004 and
Years ended December 31, 2003, 2002 and 2001


						Additions
	Balance of		Exchange			Charged to
	Beginning of		Rate			Costs and			Deductions			Balance at
Description	Year		Movements			Expenses			Write Offs			End of Year
			(in thousands)
Period Ended July 3, 2004
Allowance for doubtful debts	$	396	$	9		$	548		$	(95	)	$	858
Product Returns		191		4			886			(679	)		402
Inventory Provision		16,801		378			(2,115	)		1,360			16,424
Year Ended December 31, 2003
Allowance for doubtful debts		322		38			36						396
Product Returns		641		27						(477	)		191
Inventory Provision		23,525		1,760			(2,360	)		(6,124	)		16,801
Year Ended December 31, 2002
Allowance for doubtful debts		651		44			(373	)					322
Product Returns		277		53			311						641
Inventory Provision		12,173		2,027			13,028			(3,703	)		23,525
Year Ended December 31, 2001
Allowance for doubtful debts		707		(24	)		347			(379	)		651
Product Returns		309		(10	)		—			(22	)		277
Inventory Provision		5,448		(132	)		8,516			(1,659	)		12,173

EXHIBIT INDEX


Exhibit
Number		Description of Exhibit
3.1(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).

3.2(2)		Amended and Restated Bylaws of Bookham, Inc.

10.1(2)		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 2, 2004, and incorporated herein by reference).

10.2(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*(2)		Letter Agreement dated November 8, 2002 between Nortel Networks Corporation and Bookham Technology plc amending the Acquisition Agreement referred to in Exhibit 4.2 (previously filed as Exhibit 4.2 to Amendment No. 2 to Annual Report on Form 20-F for the year ended December 31, 2002, and incorporated herein by reference).

10.4*(2)		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 for the year ended December 31, 2002, and incorporated herein by reference).

10.5(2)		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 for the year ended December 31, 2002, and incorporated herein by reference).

10.6(2)		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 for the year ended December 31, 2002, and incorporated herein by reference).

10.7(2)		Series A-1 Senior Unsecured Convertible Note Due 2007.

10.8(2)		Series B Senior Secured Note Due 2005, as amended to change the identity of the Lender (previously filed as Exhibit 4.7 to Annual Report on Form 20-F for the year ended December 31, 2002, and incorporated herein by reference).

10.9(2)		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 for the year ended December 31, 2001, and incorporated herein by reference).

10.10(2)		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 for the year ended December 31, 2001, and incorporated herein by reference).

10.11*(2)		Global Procurement Agreement dated February 1, 2001 between Marconi Communications, Inc. and Bookham Technology plc (previously filed as Exhibit 4.3 to Annual Report on Form 20-F for the year ended December 31, 2001, and incorporated herein by reference).

10.12*(2)		Letter Agreement dated January 10, 2003 between Marconi Communications, Inc. and Bookham Technology plc amending the Global Procurement Agreement referred to in Exhibit 4.11 (previously filed as Exhibit 4.11 to Amendment No. 1 to Annual Report on Form 20-F for the year ended December 31, 2002, and incorporated herein by reference).

10.13*(2)		Letter Agreement dated December 17, 2003 between Marconi Communications, Inc. and Bookham Technology plc amending the Global Procurement Agreement referred to in Exhibit 4.11 (previously filed as Exhibit 4.13 to Annual Report on Form 20-F for the year ended December 31, 2003, and incorporated herein by reference).

10.14(1)(2)		Service Agreement dated July 23, 2001, between Bookham Technology plc and Andrew G. Rickman (previously filed as Exhibit 4.4 to Annual Report on Form 20-F for the year ended December 31, 2001, and incorporated herein by reference).

10.15(1)(2)		Service Agreement dated July 23, 2001 between Bookham Technology plc and Giorgio Anania (previously filed as Exhibit 4.5 to Annual Report on Form 20-F for the year ended December 31, 2001, and incorporated herein by reference).

10.16(2)		Lease dated May 21, 1997, between Bookham Technology plc and Landsdown Estates Group Limited,


Exhibit
Number		Description of Exhibit
		with respect to 90 Milton Park, Abingdon, England (previously filed as Exhibit 10.1 to Registration Statement on Form F-1, as amended (file no. 333-11698) dated April 11, 2000, and incorporated herein by reference).

10.17(1)(2)		Bonus Scheme 2002 (previously filed as Exhibit 4.12 to Annual Report on Form 20-F for the year ended December 31, 2001, and incorporated herein by reference).

10.18(1)(2)		2004 Employee Stock Purchase Plan.

10.19(1)(2)		2004 Stock Incentive Plan, including forms of stock option agreement for incentive and nonstatutory stock options.

10.20(1)(2)		2004 Sharesave Scheme.

10.21(1)(2)		Director’s Fee Agreement dated as of August 1, 2002, between Bookham Technology plc and Lori Holland (previously filed as Exhibit 4.23 to Annual Report on Form 20-F for the year ended December 31, 2003, and incorporated herein by reference).

10.22(1)(2)		Chairman’s Fee Agreement dated as of January 1, 2004, between Bookham Technology plc and Andrew Rickman (previously filed as Exhibit 4.24 to Annual Report on Form 20-F for the year ended December 31, 2003, and incorporated herein by reference).

10.23(1)(2)		Bonus Scheme dated July 20, 2004 between Bookham Technology plc and Giorgio Anania.

10.24(1)(2)		Bonus Scheme dated July 20, 2004 between Bookham Technology plc and Liam Nagle.

10.25(1)(2)		Bonus Scheme dated July 20, 2004 between Bookham Technology plc and Stephen Abely.

10.26(1)(2)		Bonus Scheme dated July 20, 2004 between Bookham Technology plc and Stephen Turley.

10.27(1)(2)		Bonus Scheme dated July 20, 2004 between Bookham Technology plc and Michael Scott.

10.28(1)(2)		Contract of Employment dated November 9, 2002 between Bookham Technology plc and Liam Nagle.

10.29(1)(2)		Principal Statement of Terms and Conditions dated September 13, 2001 between Bookham Technology plc and Stephen Abely, as amended on July 1, 2003.

10.30(1)(2)		Principal Statement of Terms and Conditions dated August 15, 2001 between Bookham Technology plc and Stephen Turley.

10.31(1)(2)		Contract of Employment dated November 9, 2002 between Bookham Technology plc and Michael Scott, as amended on March 16, 2004.

10.32(2)		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.

21.1(2)		List of Bookham, Inc. subsidiaries.

23.1		Consent of Ernst & Young LLP.

31.1		Rule 13a-14(a)/15(d)-14(a) Certification of Chief Executive Officer.

31.2		Rule 13a-14(a)/15(d)-14(a) Certification of Chief Financial Officer.

32.1		Section 1350 Certification of Chief Executive Officer.

32.2		Section 1350 Certification of Chief Financial Officer.


*		Confidential treatment granted as to certain portions, which portions have been omitted and filed separately with the Commission.

(1)		Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(c) of Form 10-K.

(2)		Previously filed.

Oclaro Inactive 10-K/A2004 FY Annual report (amended)