Bookham acquires Nortel Networks' Transceiver and Optical Amplifier businesses

7 October 2002 -- Bookham Technology has agreed to acquire the Optical Transmitter and Receiver and Optical Amplifier Businesses of Nortel Networks.

Oct 7th, 2002

7 October 2002 -- Bookham Technology has agreed to acquire the Optical Transmitter and Receiver and Optical Amplifier Businesses of Nortel Networks. As part of the deal, Nortel Networks, a subsidiary of Nortel, has also agreed to enter into a USD120m supply agreement with Bookham. The deal is also subject, inter alia, to approval by Bookham's shareholders at an Extraordinary General Meeting to be held on 5 November 2002.

Bookham believes that the economies of scale generated by the creation of the new enlarged group will boost cost efficiencies. Furthermore, as part of an independent entity, there will be greater opportunity for the components generated from the Optical Transmitter and Receiver and Optical Amplifier Businesses to be sold to other leading systems manufacturers who may not previously have purchased components from Nortel, as Nortel is one of their competitors.

Also, by integrating the Optical Transmitter and Receiver and the Optical Amplifier Businesses' products with Bookham's own active and passive solutions, Bookham says it will take a significant step towards becoming a leading provider of optical components, modules and sub-systems and thus towards meeting its customers' desire to have fewer suppliers offering a broader range of products.

Bookham will acquire the assets of the Optical Transmitter and Receiver and Optical Amplifier Businesses excluding cash balances and accounts receivable, but including inventory valued at GBP196m gross/GBP36.5m net. Substantially all of the employees of the Optical Transmitter and Receiver and Optical Amplifier Businesses will be joining Bookham as part of the Combination.

The consideration will be the issue to Nortel of:
- 61,000,000 new ordinary shares of Bookham, which would represent approximately 30% of Bookham's issued share capital;
- Warrants over 9,000,000 new Ordinary Shares of Bookham;
- 3-5 year Loan Notes to the value of USD50m (GBP32m).

Bookham will also pay to Nortel on Completion USD10m (GBP6.4m) for restructuring expenses incurred by Nortel in connection with the Combination.

Nortel Networks Limited has agreed to purchase a minimum of USD120m (GBP76.5m) of optical components and related services from Bookham over a period of six quarters from completion of the Combination ("Completion"). In addition, over the three years following Completion, Nortel Networks Limited has agreed to purchase from Bookham agreed percentages on a product-by-product basis of its total requirements for the optical components products that are currently being supplied to Nortel by the Optical Transmitter and Receiver and Optical Amplifier Businesses, subject to certain performance criteria.

Based on the mid-market closing price of the Ordinary Shares of Bookham on 4 October 2002, the consideration of the Combination is valued at approximately USD112m (GBP71m), assuming full exercise of the Warrants and including the payment on Completion of USD10m restructuring expenses incurred by Nortel in connection with the Combination but excluding the interest payable on the Loan Notes.

Due to the size of the Optical Transmitter and Receiver and Optical Amplifier Businesses relative to Bookham, this Combination is classified under The UK Listing Rules of the UK Listing Authority as a reverse takeover. Therefore, as required by The UK Listing Rules, Bookham has requested that listings of and dealings in its ordinary shares be temporarily suspended pending publication of the listing particulars and circular in relation to the Combination. Bookham expects that this suspension will be lifted on 8 October 2002.

Nortel has agreed, for so long as it or any members of the Nortel Group of companies, holds five per cent or more of the issued share capital of Bookham, the holders of such Ordinary Shares will abstain, except in limited circumstances, from exercising the voting rights attached to the Ordinary Shares to ensure that Bookham is capable of carrying on its business independently of Nortel. In addition, Nortel will not have any board representation following the Combination.

The directors of Bookham consider the Combination and the resolutions to be proposed at the EGM to be in the best interests of the Company and its shareholders as a whole and unanimously recommend shareholders to vote in favour of the Combination at the EGM.

Dr. Andrew Rickman, Chairman of Bookham, and his family, its largest shareholder, has, together with the other Directors of Bookham who together hold 29,496,878 Ordinary Shares (representing approximately 20.5 per cent of the current issued share capital of the Company) undertaken to vote in favour of the resolutions to be proposed at the EGM.

In addition, the company has received an irrevocable undertaking to vote in favour of the resolutions to be proposed at the EGM in respect of 12,891,000 Ordinary Shares (representing approximately 9.0 per cent of the current issued share capital of the Company).

Nortel is a leading global supplier of vertically integrated optical amplifiers, transmitters and receivers to telecom-oriented optical networking vendors. In the six months to 30 June 2002, the Optical Transmitter and Receiver and Optical Amplifier and Businesses achieved sales of GBP40.8m. The Optical Transmitter and Receiver and Optical Amplifier Businesses are located principally in Paignton, UK, in Ottawa, Canada, and in Zurich, Switzerland. Substantially all of the employees of the Optical Transmitter and Receiver and Optical Amplifier Businesses will be joining Bookham as part of the Combination.

Giorgio Anania, President and CEO of Bookham, said, "We believe that the optical communications market has good long-term potential, though market conditions are currently depressed and are likely to remain depressed for the next several quarters. In this environment, having scale and technology is critical to achieving profitability in the optical components sector, as it is characterised by high fixed manufacturing costs, such as opto-electronic semiconductor fabrication facilities, and by heavy R&D investment.

"Through the acquisition and ongoing integration of the optical components business of Marconi in February this year, we have demonstrated that we are able to integrate two substantial businesses quickly and efficiently. We believe this will also be the case in this combination.

Brian McFadden, President, Optical Networks, Nortel Networks, added, "We are extremely pleased and excited about this transaction between Bookham and Nortel Networks. Our relationship with Bookham will enable Nortel Networks to maintain access to high performance, cost effective optical components from a world-class supplier. We see this deal as working well for all parties concerned, strengthening both companies' positions in our market place."

Morgan Stanley is acting for Bookham as financial adviser and sponsor in connection with the Combination.

Bookham will announce its third quarter 2002 results on 29 October 2002 through its normal scheduled press release and conference call. The Company expects to report revenues of approximately GBP7.5m, representing approximately a 6 per cent sequential increase over revenues in the second quarter, and significantly reduced cash outflow for the quarter.

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