As filed with the Securities and Exchange Commission on October 11, 2005

Registration No. 333-127546

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 4

to

Form S-3

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Bookham, Inc.

(Exact Name of Registrant as Specified in Its Charter)

2584 Junction Avenue

San Jose, California 95134

(408) 383-1400

(Address, Including Zip Code, and Telephone Number,

Including Area Code, of Registrant’s Principal Executive Offices)

Giorgio Anania

Chief Executive Officer

2584 Junction Avenue

San Jose, California 95134

(408) 383-1400

(Name, Address, Including Zip Code, and Telephone Number,

Including Area Code, of Agent for Service)

Copies to:

     Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date hereof.

     If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box.    o

     If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box.    o

     If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

     If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

     If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.    o

CALCULATION OF REGISTRATION FEE

     The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

Subject to completion, dated October 11, 2005

PROSPECTUS

8,000,000 Shares

Common Stock

We are selling 8,000,000 shares of our common stock. Our common stock is quoted on the Nasdaq National Market under the symbol “BKHM.” On September 23, 2005, the last reported sale price of our common stock was $4.50 per share.

Our business and an investment in our common stock involves significant risks. These risks are described under the caption “Risk Factors” beginning on page 7 of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters may also purchase up to 1,200,000 shares of our common stock from us at the public offering price, less underwriting discounts and commissions, to cover over allotments.

The underwriters expect to deliver the shares in New York, New York on                     , 2005.

SG Cowen & Co.

                    , 2005

TABLE OF CONTENTS

      You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information that is different. We are offering to sell and seeking offers to buy shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.

      Unless stated otherwise, references in this prospectus to “Bookham”, “we”, “us”, or “our” refer to Bookham, Inc., a Delaware corporation, and its subsidiaries unless the context requires otherwise. This prospectus contains references to a number of trademarks that are our registered trademarks or common law rights. Bookham and the Bookham logo are registered trademarks and all other Bookham product names are trademarks or registered trademarks in the United States and other countries.

	•	Breadth of technology and products. We believe that we offer one of the most comprehensive end-to-end portfolios of optical component solutions to the telecommunications market.
	•	Leading networking customers. We are a supplier to leading equipment system vendors, such as Nortel Networks, Huawei, Cisco and Marconi, and we are sole-sourced by certain customers for many of our designs.
	•	Product innovation and technology leadership. Through internal development and selective acquisitions of external technology, we continue to innovate and introduce new products, such as our 10 Gb/s pluggable transceiver.
	•	Advanced semiconductor manufacturing facilities. We believe our ownership of advanced component design and manufacturing facilities is a significant competitive advantage as it allows us to perform on-chip integration of functionality, which we believe leads to price and performance advantages. By tightly controlling our production processes we can also improve our manufacturing yields as we ramp up production of next-generation products.
	•	Low-cost, advanced assembly facilities. We operate an advanced assembly facility in Shenzhen, China that we expect will significantly reduce our assembly and test costs.
	•	Realigned cost structure and improved financial condition. As part of the process of integrating acquired businesses and companies, in the past year we have taken significant steps to rationalize production capacity, decrease headcount and restructure resources to reduce manufacturing and operating overhead. These steps have resulted in reduced expenses and enabled us to deliver to our customers component solutions at a lower cost.

	•	Leveraging broad product portfolio and technology expertise. We believe that our broad product portfolio positions us to increase our penetration of existing customers, such as Nortel Networks,

		Cisco, Huawei and Marconi and gives us a competitive advantage in winning new customers. In addition, we intend to apply our optical component technologies to opportunities in other, non-telecommunications markets where we believe the use of optical technologies is expanding, including military, industrial research, semiconductor capital equipment and biotechnology.
	•	Providing more comprehensive and technologically advanced solutions. We intend to continue to invest in innovative component level technologies that we believe will allow us to lead the market in quality, price and performance. Our customers are increasingly demanding more complex solutions, and we plan to leverage our component level technologies into a series of modules and subsystems to take advantage of this demand opportunity.
	•	Broadening sales, marketing and customer support capabilities. We intend to develop our sales and marketing infrastructure and customer support functions to ensure that we retain existing customers and broaden the deployment of our products within these relationships, gain new customers and identify new opportunities and applications.
	•	Continuing to improve cost structure. We intend to continue to identify and implement cost-saving programs across our organization, including programs to align our manufacturing resources appropriately and transition our assembly and test activities to competitive cost locations, such as our Shenzhen, China facility. We intend to continue to focus on managing our variable costs through yield improvements, labor productivity gains, component substitutions and rigorous supply chain management.
	•	Selectively pursuing acquisitions. As we have done in the past, we intend to continue to use acquisitions to enhance our scale, obtain critical technologies and enter new markets.

Common stock offered by us		8,000,000 shares
Common stock to be outstanding after this offering		41,805,437 shares
Use of proceeds		We currently intend to use the net proceeds from this offering for general corporate purposes, including working capital. See “Use of Proceeds.”
Nasdaq National Market Symbol		BKHM

	•	3,247,252 shares of common stock issuable upon the exercise of options outstanding as of that date at a weighted average exercise price of $16.40 per share;
	•	2,276,231 shares of common stock reserved for future issuance under our stock option plans;
	•	4,636,404 shares of common stock issuable upon conversion of our 7.0% senior unsecured convertible debentures due December 2007 based on the conversion price of $5.50 per share as of that date; and
	•	2,006,844 shares of common stock issuable upon the exercise of warrants outstanding as of that date at a weighted average exercise price of $6.08 per share.

																																			Twelve
			Three Months Ended																																Months				Year
																																			Ended				Ended
			Sept. 28,				Dec. 31,				April 4,				July 3,				Oct. 2,				Jan. 1,				April 2,				July 2,				July 3,				July 2,
			2003				2003				2004				2004				2004				2005				2005				2005				2004				2005
			(in millions, except share and per share data)
Consolidated Statements of Operations Data:
Revenues			$	37.8			$	40.6			$	41.0			$	38.8			$	43.6			$	45.8			$	49.9			$	61.0			$	158.2			$	200.3
Cost of revenues				38.4				36.7				41.8				42.7				45.7				49.3				49.4				49.3				159.6				193.6
Gross profit/(loss)				(0.6	)			3.9				(0.8	)			(3.9	)			(2.1	)			(3.5	)			0.5				11.7				(1.4	)			6.7
Operating expenses:
	Research and development			11.7				12.2				12.4				14.4				12.4				12.0				10.6				9.8				50.7				44.8
	Selling, general and administrative			9.8				5.2				16.2				13.4				17.4				14.2				14.0				13.9				44.6				59.5
	Restructuring charges			23.9				(0.2	)			0.0				(0.7	)			4.3				7.9				3.8				4.9				23.0				20.9
	Impairment of goodwill and other intangible assets			0.0				0.0				0.0				0.0				0.0				0.0				98.1				16.1				0.0				114.2
	Other operating expenses			0.0				0.9				0.6				6.0				2.1				3.0				3.1				2.8				11.0				11.2
Total operating expenses				45.4				18.1				29.2				33.1				36.2				37.1				129.6				47.5				129.3				250.6
Operating loss				(46.0	)			(14.2	)			(30.0	)			(37.0	)			(38.3	)			(40.6	)			(129.1	)			(35.8	)			(130.7	)			(243.9	)
Total other income/(expense)				(1.1	)			0.2				(1.5	)			0.9				0.1				(0.5	)			(0.5	)			(3.2	)			2.0				(4.0	)
Loss before income taxes				(47.1	)			(14.0	)			(31.5	)			(36.1	)			(38.2	)			(41.1	)			(129.6	)			(39.0	)			(128.7	)			(247.9	)
Income tax (provision)/benefit				0.0				3.5				0.0				0.2				0.0				0.0				0.0				0.0				(3.7	)			0.0
Net loss			$	(47.1	)		$	(10.5	)		$	(31.5	)		$	(35.9	)		$	(38.2	)		$	(41.1	)		$	(129.6	)		$	(39.0	)		$	(132.4	)		$	(247.9	)
Net loss per share (basic and diluted)			$	(2.27	)		$	(0.49	)		$	(1.31	)		$	(1.18	)		$	(1.16	)		$	(1.23	)		$	(3.86	)		$	(1.16	)		$	(5.47	)		$	(7.43	)
Weighted average shares of common stock outstanding (in thousands)				20,790				21,599				23,976				30,421				32,867				33,535				33,535				33,555				24,197				33,379

		As of
		July 2, 2005
						As
		Actual				Adjusted
		(in millions)
Consolidated Balance Sheet Data:
Cash, cash equivalents and restricted cash, current and long-term		$	32.3			$	71.8
Working capital			63.2				102.7
Long-term obligations			72.6				72.6
Total assets			237.9				277.4
Stockholders’ equity			91.1				130.6

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

      This prospectus includes forward-looking statements, and the documents we incorporate by reference into this prospectus contain forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. For this purpose, any statements contained herein that relate to future events or conditions, including without limitation, the statements included or incorporated by reference into this prospectus regarding industry prospects and our prospective results of operations or financial position, may be deemed to be forward-looking statements. The words “believes,” “anticipates,” “plans,” “expects,” and similar expressions are intended to identify forward-looking statements. Such forward-looking statements represent management’s current expectations and are inherently uncertain. The important factors discussed below under “Risk Factors,” among others, could cause actual results to differ materially from those indicated by such forward-looking statements. Any such forward-looking statements represent management’s views as of the date of the document in which such forward-looking statement is contained. While we may elect to update such forward-looking statements at some point in the future, we disclaim any obligation to do so, even if subsequent events cause our views to change.

RISK FACTORS

      An investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors and the other information included or incorporated by reference into this prospectus before investing in our common stock. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business operations. If any of these risks occur, our business could suffer, the market price of our common stock could decline and you could lose all or part of your investment in our common stock.

Risks Related to Our Business

We have a history of large operating losses and we expect to generate losses in the future unless we achieve further cost reductions and revenue increases.

      We have never been profitable. We have incurred losses and negative cash flow from operations since our inception. As of July 2, 2005, we had an accumulated deficit of $867 million.

      Our net loss for the year ended July 2, 2005 was $248 million, as compared to a net loss for the twelve months ended July 3, 2004 of $125 million. Included in the loss for the year ended July 2, 2005 were goodwill and intangibles impairment charges of $114.2 million and restructuring charges of $21 million. Included in the loss for the twelve months ended July 3, 2004 were restructuring charges of $23 million and charges of $6 million for the write-off of acquired in-process research and development.

      Even though we generated positive gross margins in the three months ended April 2, 2005 and in the three months ended July 2, 2005, we have a history of negative gross margins and we may not be able to maintain positive gross margins if we do not continue to reduce our costs, improve our product mix and generate sufficient revenues from new and existing customers to offset the revenues we will lose after Nortel Networks completes its purchases pursuant to purchase orders for certain last-time buys, as described in “Risk Factors — We remain highly dependent on sales to Nortel Networks and we expect revenues from Nortel Networks to decrease significantly into and including the third quarter of fiscal 2006.”

      We expect to experience continuing losses from operations for at least the next six quarters.

In order to continue as a going concern, we will need capital in excess of our current cash resources.

      Based on our cash balances and our cash flow forecasts, and given our continuing losses, we estimate that we will need to raise between $20 million and $30 million prior to December 2005 in order to maintain our planned level of operations. Since the end of fiscal 2005, we have generated approximately $24 million through the sale of land and the acquisition of City Leasing (Creekside) Limited, which we expect will substantially meet our cash requirements through the end of calendar 2005. Taking into account these proceeds, we will need to raise between $30 million and $40 million on a cumulative basis between now and August 2006 in order to comply with the $25 million minimum cash balance required by the terms of the $45.9 million in aggregate principal amount of promissory notes held by Nortel Networks. If we are unable to maintain this cash balance after August 2006, we will be in default under the promissory notes. To this end, we plan to dispose of non-core assets, take actions to raise additional equity capital, including pursuant to this offering, and are considering the disposal of selected assets or businesses. Beyond this, we will need to raise additional funds to repay the notes issued to Nortel Networks in the aggregate principal amounts of $25.9 million and $20 million that will be due and payable in November 2006 and 2007, respectively, and to repay, if still outstanding, $25.5 million principal amount of our 7% senior unsecured convertible debentures due in December 2007. There can be no assurances that we will be able to raise additional funds or reduce our operating expenses, and in the event we are unable to raise sufficient capital to meet our requirements, we will not be able to continue some or all of our current operations.

We may encounter unexpected costs or delays in transferring our assembly and test operations from the United Kingdom to Shenzhen, China.

      A key element of our cost reduction program is the successful transfer of substantially all of our assembly and test operations from Paignton, U.K. to Shenzhen, China. Accordingly, we expect that our ability to transfer manufacturing capabilities to and to operate effectively in China is critical to the overall success of our business. We began to implement the transfer of our assembly and test operations from Paignton to Shenzhen in the fall of 2004 and we expect to complete the transfer in the first half of calendar 2006. Our business and results of operations would be materially and adversely affected if we experience delays in, increased costs related to, or are ultimately unable to:

We may not be able to satisfy customer demand in a timely and cost effective manner as we transition our assembly and test operations from the United Kingdom to China.

      We are in the process of transferring assembly and test operations previously undertaken at our Paignton facility to our Shenzhen facility. Fluctuations in customer demand present challenges and require us to continually assess and predict demand appropriately in order to ensure availability and staffing of assembly and test facilities sufficient to meet that demand. For example, in the quarters ended April 2, 2005 and July 2, 2005, we experienced increased customer demand for certain of our products that required that we operate our Paignton facility at greater capacity than we had anticipated when we implemented our most recent restructuring plan. This increased use of the Paignton facility to meet customer demands constrained the planned transition of our assembly and test operations from our facility in the United Kingdom to China and increased our expenses as we kept our U.K. production line operating. In addition, if we are not able to fill customer orders on time due to our inability to forecast customer demand, our reputation may be harmed with those customers and other potential customers.

The market for optical components continues to be characterized by excess capacity and intense price competition which has had, and will continue to have, a material adverse affect on our results of operations.

      By 2002, actual demand for optical communications equipment and components was dramatically less than that forecasted by leading market researchers only two years before. Even though the market for optical components has been recovering recently, particularly in the metro market segment, there continues to be excess capacity, intense price competition among optical component manufacturers and continued consolidation of the industry. As a result of this excess capacity, and other industry factors, pricing pressure remains intense. The continued uncertainties in the telecommunications industry and the global economy make it difficult for us to anticipate revenue levels and therefore to make appropriate estimates and plans relating to management of costs. Continued uncertain demand for optical components has had, and will continue to have, a material adverse effect on our results of operations.

We remain highly dependent on sales to Nortel Networks and we expect revenues from Nortel Networks to decrease significantly into and including the third quarter of fiscal 2006.

      Historically, Nortel Networks has been our largest customer. In the fiscal year ended July 2, 2005, we sold $89.5 million of products and services to Nortel Networks, or 45% of our total revenues during that period.

      In connection with the second addendum to the supply agreement with Nortel Networks, which we entered into on May 2, 2005, Nortel Networks issued non-cancelable purchase orders for last-time buys of certain products that we have decided to discontinue and for certain other non last-time buys with a value that we estimate to be approximately $100 million. Approximately $50 million of this represents last-time buys and approximately $50 million represents non last-time buys, all of which are scheduled to be delivered to Nortel Networks through March 31, 2006. These purchase orders will automatically expire on March 31, 2006, or earlier if certain events occur. Taking into account these purchase orders, we expect Nortel Networks to account for more than 50% of our revenues in the quarters ending October 1, 2005 and December 31, 2005, and as the final purchase orders for last-time buys are filled in the third fiscal quarter of 2006, we anticipate that revenues from Nortel Networks will begin to decrease and may continue to decline for at least several quarters thereafter. There can be no assurances that we will be able to replace this revenue.

      To the extent that we may rely on Nortel Networks for revenues in the future, Nortel Networks has experienced significant losses in the past and any future adverse change in Nortel Networks’ financial condition could adversely affect their demand for our products.

Any default under our agreements with Nortel Networks or the notes issued to Nortel Networks would have an adverse impact on our ability to continue the conduct of our business.

      We are party to a supply agreement with Nortel Networks that has been amended twice, most recently in May 2005. Pursuant to the terms of the supply agreement, as amended, Nortel Networks issued non-cancelable purchase orders for last-time buys of certain products and other non last-time buy products with a value that we estimate to be approximately $100 million, all of which are expected to be delivered to Nortel Networks over the next nine months. The provisions of the second addendum to the supply agreement also include increased prices and adjustment in payment terms of certain of the products we ship to Nortel Networks through March 31, 2006. These provisions will terminate automatically if we: (1) materially breach the terms of the supply agreement, (2) default under the terms of the promissory notes issued to Nortel Networks and related agreements, as described below, (3) are subject to a change in control or (4) experience an insolvency event. If any of the foregoing events were to occur, Nortel Networks would have the right to cancel the purchase orders they submitted, which would result in the loss of the remainder of the $100 million payable under the non-cancelable purchase orders issued pursuant to the second addendum to the supply agreement. In addition, to the extent that Nortel Networks decides to purchase any additional products under the second addendum, the increased prices for those products we ship to Nortel Networks would have to be re-negotiated at prices lower than those set forth in the supply agreement, as amended.

      The supply agreement, as amended, also requires that we grant a license for the assembly, test, post-processing and test intellectual property (but excluding wafer technology) of certain critical products to Nortel Networks and to any designated alternative supplier, if at any time, we: (1) have a cash balance of less than $25 million; (2) are unable to manufacture critical products for Nortel Networks in any material respect for a continuous period of not less than six weeks, or (3) are subject to an insolvency event, such as a petition or assignment in bankruptcy, appointment of a trustee, custodian or receiver, or entrance into an arrangement for the general benefit of creditors. In addition, if our cash balance is less than $10 million or there is an insolvency event, Nortel Networks will have the right to buy all Nortel Networks inventory we hold, and we will be obligated to grant a license to Nortel Networks or any alternative supplier for the manufacture of all products covered by the first supply agreement addendum. Our revenues and business

would be substantially harmed if we were required to license this assembly, test, post-processing and test intellectual property to Nortel Networks or any supplier they were to designate.

      In connection with our acquisition of the optical components business of Nortel Networks, we issued two promissory notes in an initial aggregate principal amount of $50 million. As of July 2, 2005, approximately $45.9 million aggregate principal amount was outstanding under these two notes. The notes provide that, upon an event of default, Nortel Networks can declare all principal and interest payable under the notes immediately due and payable. Pursuant to the terms of the notes, an event of default includes: (1) failure to pay any interest or principal on the notes when due, (2) any event which results in the payment of any other debt in an amount in excess of $5 million in advance of the scheduled maturity date, (3) failure to maintain a cash balance of $25 million or greater after August 2006, (4) a material default under notes or certain other agreements entered into in connection with the notes, (5) our becoming subject to a bankruptcy event and (6) failure to provide certain financial information to Nortel Networks within the schedules provided for in the notes. Any event of default under these notes would also trigger an event of default under our 7% senior unsecured convertible debentures due December 2007, which have an aggregate principal amount of $25.5 million. If an event of default were to occur and the principal and interest payable under the notes were accelerated, we would not be able to pay the notes issued to Nortel Networks or the 7% senior unsecured convertible debentures due December 2007 without selling a substantial amount of our assets, if at all, which would have a material adverse impact on our ability to continue the conduct of our business.

We and our customers are each dependent upon a limited number of customers.

      Historically, we have generated most of our revenues from a limited number of customers. Sales to one customer, Nortel Networks, accounted for 59% of our revenues for the year ended December 31, 2003, 52% for the twelve months ended July 3, 2004, and 45% for the year ended July 2, 2005. In addition to the reduced outlook for revenue from Nortel Networks after the non-cancelable purchase orders are filled, we expect that revenue from our other major customers may decline or fluctuate significantly in fiscal 2006 and beyond. We may not be able to offset any such decline in revenues from our existing major customers with revenues from new customers.

      Our dependence on a limited number of customers is due to the fact that the optical telecommunications systems industry is dominated by a small number of large companies. Similarly, our customers depend primarily on a limited number of major telecommunications carrier customers to purchase their products that incorporate our optical components. Many major telecommunication systems companies and telecommunication carriers are experiencing losses from operations. The further consolidation of the industry, coupled with declining revenues from our major customers, may have a material adverse impact on our business.

As a result of our global operations, our business is subject to currency fluctuations that have adversely affected our results of operations in recent quarters and may continue to do so in the future.

      Our financial results have been materially impacted by foreign currency fluctuations and our future financial results may also be materially impacted by foreign currency fluctuations. Over the last two years, the decline in the value of the U.S. dollar versus the U.K. pound sterling has had a major negative effect on our profit margins and our cash flow. Despite our change in domicile from the United Kingdom to the United States and the implementation of our restructuring program to move all assembly and test operations from Paignton, U.K. to Shenzhen, China, the majority of our expenses are still currently denominated in U.K. pounds sterling and substantially all of our revenues are denominated in U.S. dollars. Fluctuations in the exchange rate between these two currencies and, to a lesser extent, other currencies in which we collect revenues and pay expenses will continue to have a material affect on our operating results.

      We engage in currency transactions in an effort to cover any exposure to such fluctuations, and we may be required to convert currencies to meet our obligations; however, under certain circumstances, these transactions can have an adverse effect on our financial condition.

We are increasing manufacturing operations in China, which exposes us to risks inherent in doing business in China.

      We are taking advantage of the comparatively low manufacturing costs in China by transferring substantially all of our assembly and test operations to our facility in Shenzhen, China. Operations in China are subject to greater political, legal and economic risks than our operations in other countries. In order to operate the facility, we must obtain required legal authorizations and train and hire a workforce. In particular, the political, legal and economic climate in China, both nationally and regionally is fluid and unpredictable. Our ability to operate in China may be adversely affected by changes in Chinese laws and regulations such as those related to taxation, import and export tariffs, environmental regulations, land use rights, intellectual property and other matters. In addition, we may not obtain the requisite legal permits to continue to operate in China and costs or operational limitations may be imposed in connection with obtaining and complying with such permits.

      We have been advised that power may be rationed in the location of our Shenzhen facility, and were power rationing to be implemented, it could either have an adverse impact on our ability to complete manufacturing commitments on a timely basis or, alternatively, require significant investment in generating capacity to sustain uninterrupted operations at the facility. Our ability to transfer certain assembly and test operations from our facilities in the U.K. to China would be hindered by a potential power rationing. We may also be required to expend greater amounts than we currently anticipate in connection with increasing production at the facility. Any one of these factors, or a combination of them, could result in the incurrence of unanticipated costs, with the potential to materially and adversely affect our business.

      We intend to export the majority of the products manufactured at our Shenzhen facility. Under current regulations, upon application and approval by the relevant governmental authorities, we will not be subject to certain Chinese taxes and will be exempt from certain duties on imported materials that are used in the manufacturing process and subsequently exported from China as finished products. However, Chinese trade regulations are in a state of flux and we may become subject to other forms of taxation and duties in China or may be required to pay export fees in the future. In the event that we become subject to new forms of taxation in China, our business and results of operation could be materially adversely affected.

Our debt repayment obligations may affect our ability to operate our business.

      In connection with our acquisition of the optical components business from Nortel Networks, we issued to Nortel Networks secured interest-bearing notes. As of July 2, 2005, the aggregate principal amount outstanding under the notes was approximately $45.9 million. The first note, with an aggregate principal amount outstanding of $25.9 million, bears interest at the rate of 7% per year, increasing 0.25% per quarter beginning three months after issue until repayment, up to a maximum rate of 10% per year, and is payable in full no later than November 8, 2006. As of July 2, 2005, the note bore interest at a rate of 9.5%. The second note, in the aggregate principal amount of $20 million, bears interest at the rate of 4% per year, and is payable in full no later than November 8, 2007. Both notes are secured by certain of our and our subsidiaries’ assets. We are required to repay the notes, in full or in part, at earlier times upon the occurrence of various events, including equity or equity-linked financings; provided, however, Nortel Networks has waived any such payment with respect to $75 million of aggregate financing proceeds through May 2006. Failure to maintain a cash balance of at least $25 million while the notes are outstanding on or after August 8, 2006 will constitute a default under these notes. If we are in default pursuant to the terms of the senior unsecured convertible debentures we issued in December 2004 described below, we would trigger a default under the notes issued to Nortel Networks, in which event all outstanding principal and accrued interest would be immediately due and payable under such notes.

      On December 20, 2004, we issued senior unsecured convertible debentures in a private placement resulting in gross proceeds of $25.5 million. These debentures bear interest at a rate of 7% per annum payable on each March 31, June 30, September 30 and December 31, while such debentures are outstanding, and on the maturity date. The debentures may be converted into shares of our common stock at the option of the holder prior to the maturity of the debentures on December 20, 2007. The conversion price of the debentures is $5.50. The debentures may also be converted into common stock by us under certain circumstances. If we are in default pursuant to the terms of the notes we issued to Nortel Networks, we would also trigger an event of default under the debentures, in which event all outstanding principal and interest would be immediately due and payable under the debentures.

Fluctuations in operating results could adversely affect the market price of our common stock.

      Our revenues and operating results are likely to fluctuate significantly in the future. The timing of order placement, size of orders and satisfaction of contractual customer acceptance criteria, as well as order or shipment delays or deferrals, with respect to our products, may cause material fluctuations in revenues. Our lengthy sales cycle, which may extend to more than one year, may cause our revenues and operating results to vary from period to period and it may be difficult to predict the timing and amount of any variation. Delays or deferrals in purchasing decisions may increase as we develop new or enhanced products for new markets, including data communications, aerospace, industrial and military. Our current and anticipated future dependence on a small number of customers increases the revenue impact of each customer’s decision to delay or defer purchases from us. Our expense levels in the future will be based, in large part, on our expectations regarding future revenue sources and, as a result, net income for any quarterly period in which material orders fail to occur, are delayed, or deferred could vary significantly.

      Because of these and other factors, quarter-to-quarter comparisons of our results of operations may not be an indication of future performance. In future periods, results of operations may differ from the estimates of public market analysts and investors. Such a discrepancy could cause the market price of our common stock to decline.

We may incur additional significant restructuring charges that will adversely affect our results of operations.

      In light of our restructuring and cost reduction measures in 2002, 2003 and 2004 in response to the depressed demand for optical components and our consolidation activities, we have incurred significant restructuring related charges. In 2004, we announced further restructuring plans, which include moving the majority of our assembly and test operations from our site in Paignton, U.K. to our facility in Shenzhen, China and closing our former headquarters facility in Abingdon, U.K. In the years ended December 31, 2002 and December 31, 2003, in the six months ended July 3, 2004 and in the year ended July 2, 2005, we recorded restructuring charges of $55 million, $31 million, $(0.7) million and $20.9 million, respectively.

      We anticipate that the 2004 restructuring plans will be completed by March 31, 2006 and we expect to spend in the range of $25 million to $30 million relating to these programs over this time period. We may incur charges in excess of amounts currently estimated for these restructuring plans. We may incur additional charges in the future in connection with future restructurings. These charges, along with any other charges, have adversely affected, and will continue to adversely affect, our results of operations for the periods in which such charges have been or will be incurred.

Our results of operations may suffer if we do not effectively manage our inventory and we may incur inventory-related charges.

      We need to manage our inventory of component parts and finished goods effectively to meet changing customer requirements. The ability to accurately forecast customers’ product needs is difficult. Some of our products and supplies have in the past, and may in the future, become obsolete while in inventory due to rapidly changing customer specifications or a decrease in customer demand. If we are not able to

manage our inventory effectively, we may need to write-down the value of some of our existing inventory or write-off unsaleable or obsolete inventory, which would adversely affect our results of operations. We have from time to time incurred significant inventory-related charges. Any such charges we incur in future periods could significantly adversely affect our results of operations.

Charges to earnings resulting from the application of the purchase method of accounting may adversely affect the market value of our common stock.

      We account for our acquisitions, including the acquisition of New Focus, Inc., or New Focus, which we acquired in March 2004, using the purchase method of accounting. In accordance with generally accepted accounting principles, we allocate the total estimated purchase price to the acquired company’s net tangible assets, amortizable intangible assets, and in-process research and development based on their fair values as of the date of announcement of the transaction, and record the excess of the purchase price over those fair values as goodwill. With respect to our acquisition of New Focus, we expensed the portion of the estimated purchase price allocated to in-process research and development in the first quarter of 2004. We will incur an increase in the amount of amortization expense over the estimated useful lives of certain of the intangible assets acquired in connection with the merger on an annual basis. To the extent the value of goodwill or intangible assets with indefinite lives becomes impaired, we may be required to incur material charges relating to the impairment of those assets. In the year ended July 2, 2005, following a triggering event in the third quarter and in accordance with our policy of evaluating long-lived assets for impairment in the fourth quarter, we recorded charges totaling $114.2 million related to the impairment of goodwill and purchased intangible assets. In addition, in the past, after the completion of a transaction, we have amended the provisional values of assets and liabilities we obtained as part of transactions, specifically the Nortel Networks acquisition. This amendment resulted in the value of our inventory being increased by $20.2 million, current liabilities being increased by approximately $1.3 million, intangible assets being decreased by approximately $9.1 million and property, plant and equipment increased by $9.8 million. We cannot assure you that we will not incur charges in the future as a result of any such transaction, which may have an adverse effect on our earnings.

Bookham Technology plc may not be able to utilize tax losses against the receivables that arise as a result of its transaction with Deutsche Bank.

      On August 10, 2005, Bookham Technology plc purchased all of the issued share capital of City Leasing (Creekside) Limited, a subsidiary of Deutsche Bank. Creekside is entitled to receivables of £73.8 million (approximately $135.8 million, based on an exchange rate of £1.00 to $1.8403, the noon buying rate on September 2, 2005 for cable transfers in foreign currencies as certified by the Federal Reserve Bank of New York) from Deutsche Bank in connection with certain aircraft subleases and will in turn apply those payments over a two-year term to obligations of £73.1 million (approximately $134.5 million) owed to Deutsche Bank. As a result of these transactions, Bookham Technology plc will have available through Creekside cash of approximately £6.63 million (approximately $12.2 million). We expect Bookham Technology plc to utilize certain expected tax losses to reduce the taxes that might otherwise be due by Creekside as the receivables are paid. In the event that Bookham Technology plc is not able to utilize these tax losses (or these tax losses do not arise), Creekside may have to pay taxes, reducing the cash available from Creekside. In the event there is a future change in applicable U.K. tax law, Creekside, and in turn Bookham Technology plc, would be responsible for any resulting tax liabilities, which amounts could be material to our financial condition or operating results.

Our success will depend on our ability to anticipate and respond to evolving technologies and customer requirements.

      The market for telecommunications equipment is characterized by substantial capital investment and diverse and evolving technologies. For example, the market for optical components is currently characterized by a trend toward the adoption of “pluggable” components that do not require the customized interconnections of traditional “gold box” devices and the increased integration of components

on subsystems. Our ability to anticipate and respond to these and other changes in technology, industry standards, customer requirements and product offerings and to develop and introduce new and enhanced products will be significant factors in our ability to succeed. We expect that new technologies will continue to emerge as competition in the telecommunications industry increases and the need for higher and more cost efficient bandwidth expands. The introduction of new products embodying new technologies or the emergence of new industry standards could render our existing products uncompetitive from a pricing standpoint, obsolete or unmarketable.

Our products are complex, may take longer to develop than anticipated and we may not recognize revenues from new products until after long field testing and customer acceptance periods.

      Many of our new products must be tailored to customer specifications. As a result, we are constantly developing new products and using new technologies in those products. For example, while we currently manufacture and sell “discrete gold box” technology, we expect that many of our sales of gold box technology will soon be replaced by pluggable modules. These products often take many quarters to develop because of their complexity and because customer specifications sometimes change during the development cycle. We often incur substantial costs associated with the research and development and sales and marketing activities in connection with products that may be purchased long after we have incurred the costs associated with designing, creating and selling such products. In addition, due to the rapid technological changes in our market, a customer may cancel or modify a design project before we begin large-scale manufacture of the product and receive revenue from the customer. It is unlikely that we would be able to recover the expenses for cancelled or unutilized design projects. It is difficult to predict with any certainty, particularly in the present economic climate, the frequency with which customers will cancel or modify their projects, or the effect that any cancellation or modification would have on our results of operations.

If our customers do not qualify our manufacturing lines or the manufacturing lines of our subcontractors for volume shipments, our operating results could suffer.

      Most of our customers do not purchase products, other than limited numbers of evaluation units, prior to qualification of the manufacturing line for volume production. Our existing manufacturing lines, as well as each new manufacturing line, must pass through varying levels of qualification with our customers. Our manufacturing line has passed our qualification standards, as well as our technical standards. However, our customers may also require that we pass their specific qualification standards and that we, and any subcontractors that we may use, be registered under international quality standards. In addition, we have in the past, and may in the future, encounter quality control issues as a result of relocating our manufacturing lines or introducing new products to fill production. We may experience delays in obtaining customer qualification of our manufacturing lines and, as a consequence, our operating results and customer relationships would be harmed.

Delays, disruptions or quality control problems in manufacturing could result in delays in product shipments to customers and could adversely affect our business.

      We may experience delays, disruptions or quality control problems in our manufacturing operations or the manufacturing operations of our subcontractors. As a result, we could incur additional costs that would adversely affect gross margins, and product shipments to our customers could be delayed beyond the shipment schedules requested by our customers, which would negatively affect our revenues, competitive position and reputation. Furthermore, even if we are able to deliver products to our customers on a timely basis, we may be unable to recognize revenues based on our revenue recognition policies.

We may experience low manufacturing yields.

      Manufacturing yields depend on a number of factors, including the volume of production due to customer demand and the nature and extent of changes in specifications required by customers for which we perform design-in work. Higher volumes due to demand for a fixed, rather than continually changing,

design generally result in higher manufacturing yields, whereas lower volume production generally results in lower yields. In addition, lower yields may result, and have in the past resulted, from commercial shipments of products prior to full manufacturing qualification to the applicable specifications. Changes in manufacturing processes required as a result of changes in product specifications, changing customer needs and the introduction of new product lines have historically caused, and may in the future cause, significantly reduced manufacturing yields, resulting in low or negative margins on those products. Moreover, an increase in the rejection rate of products during the quality control process either pre, during or post manufacture, results in lower yields and margins. Finally, manufacturing yields and margins can also be lower if we receive or inadvertently use defective or contaminated materials from our suppliers.

We depend on a number of suppliers who could disrupt our business if they stopped, decreased or delayed shipments.

      We depend on a number of suppliers of raw materials and equipment used to manufacture our products. Some of these suppliers are sole sources. We typically have not entered into long-term agreements with our suppliers and, therefore, these suppliers generally may stop supplying materials and equipment at any time. The reliance on a sole or limited number of suppliers could result in delivery problems, reduced control over product pricing and quality, and an inability to identify and qualify another supplier in a timely manner. Any supply deficiencies relating to the quality or quantities of materials or equipment we use to manufacture our products could adversely affect our ability to fulfill customer orders or our financial results of operations.

Our intellectual property rights may not be adequately protected.

      Our future success will depend, in large part, upon our intellectual property rights, including patents, design rights, trade secrets, trademarks, know-how and continuing technological innovation. We maintain an active program of identifying technology appropriate for patent protection. Our practice is to require employees and consultants to execute non-disclosure and proprietary rights agreements upon commencement of employment or consulting arrangements. These agreements acknowledge our exclusive ownership of all intellectual property developed by the individuals during their work for us and require that all proprietary information disclosed will remain confidential. Although such agreements may be binding, they may not be enforceable in all jurisdictions.

      Our intellectual property portfolio is an important corporate asset. The steps we have taken and may take in the future to protect our intellectual property may not adequately prevent misappropriation or ensure that others will not develop competitive technologies or products. We cannot assure investors that our competitors will not successfully challenge the validity of these patents, or design products that avoid infringement of our proprietary rights with respect to our technology. There can be no assurance that other companies are not investigating or developing other similar technologies, that any patents will be issued from any application pending or filed by us or that, if patents are issued, the claims allowed will be sufficiently broad to deter or prohibit others from marketing similar products. In addition, we cannot assure investors that any patents issued to us will not be challenged, invalidated or circumvented, or that the rights under those patents will provide a competitive advantage to us. Further, the laws of certain regions in which our products are or may be developed, manufactured or sold, including Asia-Pacific, Southeast Asia and Latin America, may not protect our products and intellectual property rights to the same extent as the laws of the United States, the United Kingdom and continental European countries. This is especially relevant as we transfer certain of our assembly and test operations from our facilities in the United Kingdom to China and as our competitors establish manufacturing operations in China to take advantage of comparatively low manufacturing costs.

Our products may infringe the intellectual property rights of others, which could result in expensive litigation or require us to obtain a license to use the technology from third parties.

      Companies in the industry in which we operate frequently receive claims of patent infringement or infringement of other intellectual property rights. In this regard, third parties may in the future assert

claims against us concerning our existing products or with respect to future products under development. We have entered into and may in the future enter into indemnification obligations in favor of some customers that could be triggered upon an allegation or finding that we are infringing other parties’ proprietary rights. If we do infringe a third party’s rights, we may need to negotiate with holders of patents relevant to our business. We have from time to time received notices from third parties alleging infringement of their intellectual property and where appropriate have entered into license agreements with those third parties with respect to that intellectual property. We may not in all cases be able to resolve allegations of infringement through licensing arrangements, settlement, alternative designs or otherwise. We may take legal action to determine the validity and scope of the third-party rights or to defend against any allegations of infringement. In the course of pursuing any of these means or defending against any lawsuits filed against us, we could incur significant costs and diversion of our resources. Due to the competitive nature of our industry, it is unlikely that we could increase our prices to cover such costs. In addition, such claims could result in significant penalties or injunctions that could prevent us from selling some of our products in certain markets or result in settlements that require payment of significant royalties that could adversely affect our ability to price our products profitably.

If we fail to obtain the right to use the intellectual property rights of others necessary to operate our business, our ability to succeed will be adversely affected.

      The telecommunications and optical components markets in which we sell our products have experienced frequent litigation regarding patent and other intellectual property rights. Numerous patents in these industries are held by others, including academic institutions and our competitors. Optical component suppliers may seek to gain a competitive advantage or other third parties may seek an economic return on their intellectual property portfolios by making infringement claims against us. In the future, we may need to obtain license rights to patents or other intellectual property held by others to the extent necessary for our business. Unless we are able to obtain those licenses on commercially reasonable terms, patents or other intellectual property held by others could inhibit our development of new products for our markets. Licenses granting us the right to use third-party technology may not be available on commercially reasonable terms, if at all. Generally, a license, if granted, would include payments of up-front fees, ongoing royalties or both. These payments or other terms could have a significant adverse impact on our operating results. Our larger competitors may be able to obtain licenses or cross-license their technology on better terms than we can, which could put us at a competitive disadvantage.

The markets in which we operate are highly competitive, which could result in lost sales and lower revenues.

      The market for fiber optic components is highly competitive and such competition could result in our existing customers moving their orders to competitors. Certain of our competitors may be able more quickly and effectively to:

      Many of our current competitors, as well as a number of our potential competitors, have longer operating histories, greater name recognition, broader customer relationships and industry alliances and substantially greater financial, technical and marketing resources than we do. In addition, market leaders in industries such as semiconductor and data communications, who may also have significantly more resources than we do, may in the future enter our market with competing products. All of these risks may be increased if the market were to consolidate through mergers or business combinations between competitors.

      We cannot assure investors that we will be able to compete successfully with our competitors or that aggressive competition in the market will not result in lower prices for our products or decreased gross profit margins. Any such development would have a material adverse effect on our business, financial condition and results of operations.

We generate a significant portion of our revenues internationally and therefore are subject to additional risks associated with the extent of our international operations.

      For the year ended July 2, 2005, the six months ended July 3, 2004, and the years ended December 31, 2003 and December 31, 2002, 28%, 26%, 9% and 9% of our revenues, respectively, were derived in the United States and 72%, 74%, 91% and 91%, respectively, were derived outside the United States.

      We are subject to additional risks related to operating in foreign countries, including:

      Any of these risks, or any other risks related to our foreign revenues, could materially adversely affect our business, financial condition and results of operations.

Our business will be adversely affected if we cannot manage the significant changes in the number of our employees and the size of our operations.

      In the past we have significantly reduced the number of employees and scope of our operations because of declining demand for our products. There is a risk that, during periods of growth or decline, management will not sufficiently coordinate the roles of individuals to ensure that all areas receive appropriate focus and attention. If we are unable to manage our headcount, manufacturing capacity and scope of operations effectively, the cost and quality of our products may suffer, we may be unable to attract and retain key personnel and we may be unable to market and develop new products. Further, the inability to successfully manage the substantially larger and geographically more diverse organization, or any significant delay in achieving successful management, could have a material adverse effect on us and, as a result, on the market price of our common stock.

We may be faced with product liability claims.

      Despite quality assurance measures, there remains a risk that defects may occur in our products. The occurrence of any defects in our products could give rise to liability for damages caused by such defects and for consequential damages. They could, moreover, impair the market’s acceptance of our products. Both could have a material adverse effect on our business and financial condition. In addition, we may assume product warranty liabilities related to companies we acquire which could have a material adverse effect on our business and financial condition. In order to mitigate the risk of liability for damages, we carry product liability insurance with a $26 million aggregate annual limit and errors and omissions insurance with a $5 million annual limit. We cannot assure investors that this insurance could adequately cover our costs arising from defects in our products or otherwise.

If we fail to attract and retain key personnel, our business could suffer.

      Our future depends, in part, on our ability to attract and retain key personnel. Competition for highly skilled technical people is extremely intense and we continue to face difficulty identifying and hiring

qualified engineers in many areas of our business. We may not be able to hire and retain such personnel at compensation levels consistent with our existing compensation and salary structure. Our future also depends on the continued contributions of our executive management team and other key management and technical personnel, each of whom would be difficult to replace. The loss of services of these or other executive officers or key personnel or the inability to continue to attract qualified personnel could have a material adverse effect on our business.

      Similar to other technology companies, we rely upon our ability to use stock options and other forms of equity-based compensation as key components of our executive and employee compensation structure. Historically, these components have been critical to our ability to retain important personnel and offer competitive compensation packages. Without these components, we would be required to significantly increase cash compensation levels (or develop alternative compensation structures) in order to retain our key employees. Recent proposals to modify accounting rules relating to the expensing of equity compensation may cause us to substantially reduce, modify, or even eliminate, all or portions of our equity compensation programs.

Our business and future operating results may be adversely affected by events outside of our control.

      Our business and operating results are vulnerable to interruption by events outside of our control, such as earthquakes, fire, power loss, telecommunications failures, political instability, military conflict and uncertainties arising out of terrorist attacks, including a global economic slowdown, the economic consequences of additional military action or additional terrorist activities and associated political instability, and the effect of heightened security concerns on domestic and international travel and commerce.

Risks Related to Regulatory Compliance and Litigation

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results, which may cause stockholders to lose confidence in the accuracy of our financial statements.

      Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, our brand and operating results could be harmed. In addition, compliance with the internal control requirements, as well as other financial reporting standards applicable to a public company, including the Sarbanes-Oxley Act of 2002, has in the past and will in the future continue to involve substantial cost and investment of our management’s time.

      In the past, we have reported that Ernst & Young LLP, our independent registered public accounting firm, informed us and our audit committee that we had incorrectly included certain foreign currency translation adjustments in our statement of operations. Ernst & Young LLP advised us that this condition is a material weakness in our internal control over financial reporting. In addition, we did not file our Quarterly Report on Form 10-Q for the quarter ended April 2, 2005 by May 12, 2005, the filing deadline. Our management concluded that the delay reflected a material weakness in our internal controls over financial reporting.

      Included in our Annual Report on Form 10-K for the fiscal year ended July 2, 2005 is management’s report on our internal control over financial reporting and Ernst & Young LLP’s attestation audit report thereon, both of which identify material weaknesses in our internal controls over financial reporting as of July 2, 2005 related to the following:

      In fiscal 2006, and beyond, we will continue to spend significant time and incur significant costs to assess and report on the effectiveness of our internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act. Discovering material weaknesses in the future could make it more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers, which could harm our business. In addition, if we discover future material weaknesses, disclosure of that fact could reduce the market’s confidence in our financial statements, which could harm our stock price and our ability to raise capital.

As a result of discussions with staff at the Nasdaq National Market, we intend to submit our 2004 stock incentive plan for stockholder approval, and any failure to receive that approval could have an adverse effect.

      We have been advised by the staff at the Nasdaq National Market that, in its judgment, the approval of our 2004 stock incentive plan was not sufficient to satisfy the stockholder approval requirements of Nasdaq Marketplace Rule 4350(i)(1)(a). We have agreed with Nasdaq to seek stockholder approval of the plan at our 2005 annual meeting of stockholders. Until we receive stockholder approval, we have agreed that no shares of common stock will be issued upon the exercise of any options granted under the plan and that restrictions will not lapse on any shares of restricted stock issued under the plan. As of September 2, 2005, there were approximately 1,473,910 shares subject to outstanding options under the 2004 stock incentive plan, some of which begin to vest on September 22, 2005, and 249,859 shares of restricted stock, for which restrictions lapse on February 9, 2006. In addition, we may not grant additional options or restricted stock awards under the 2004 stock incentive plan until the 2004 stock incentive plan is approved by our stockholders. Nasdaq has advised us that its extension period for compliance with Nasdaq Marketplace Rule 4350(i)(1)(a) will expire on October 31, 2005. If our stockholders do not approve the 2004 stock incentive plan, we will be required to undertake to rescind any outstanding options, which would affect employee morale and could trigger employee claims, and may require that we seek substitute alternative forms of equity incentive or other compensation or, if we decline to do so, may face delisting from the Nasdaq National Market.

Our business involves the use of hazardous materials, and environmental laws and regulations may expose us to liability and increase our costs.

      We historically have handled small amounts of hazardous materials as part of our manufacturing activities and now handle more and different hazardous materials as a result of the manufacturing processes related to New Focus, the optical components business acquired from Nortel Networks and the product lines we acquired from Marconi. Consequently, our operations are subject to environmental laws and regulations governing, among other things, the use and handling of hazardous substances and waste disposal. We may be required to incur environmental costs to comply with current or future environmental laws. As with other companies engaged in manufacturing activities that involve hazardous materials, a risk of environmental liability is inherent in our manufacturing activities, as is the risk that our facilities will be shut down in the event of a release of hazardous waste. The costs associated with environmental compliance or remediation efforts or other environmental liabilities could adversely affect our business.

Major litigation regarding Bookham Technology plc’s initial public offering and follow-on offering and any other litigation in which we become involved, including as a result of acquisitions, may substantially increase our costs and harm our business.

      On June 26, 2001, a putative securities class action captioned Lanter v. New Focus, Inc. et al., Civil Action No. 01-CV-5822, was filed against New Focus, Inc. and several of its officers and directors, or the New Focus 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 New Focus Individual Defendants and the Underwriter Defendants.

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

      The Amended Complaint asserts claims under certain provisions of the securities laws of the United States. It alleges, among other things, that the prospectuses for Bookham Technology plc’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 Technology plc, or common stock, in the case of New Focus, from the underwriters. The Amended Complaint seeks unspecified damages (or in the alternative rescission for those class members who no longer hold common stock), costs, attorneys’ fees, experts’ fees, interest and other expenses. In October 2002, the New Focus Individual Defendants and the Bookham 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.

      Plaintiffs and most of the issuer defendants and their insurers have entered into a stipulation of settlement for the claims against the issuer defendants, including Bookham. Under the stipulation of settlement, the plaintiff will dismiss and release all claims against participating defendants in exchange for a payment guaranty by the insurance companies collectively responsible for insuring the issuers in the

related cases, and the assignment or surrender to the plaintiffs of certain claims the issuer defendants may have against the underwriters. On February 15, 2005, the court issued an Opinion and Order preliminarily approving the settlement provided that the defendants and plaintiffs agree to a modification narrowing the scope of the bar order set forth in the original settlement agreement. The parties agreed to the modification narrowing the scope of the bar order, and on August 31, 2005, the court issued an order preliminarily approving the settlement and setting a public hearing on its fairness for April 24, 2006.

      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. Technology, Inc. The plaintiff has amended his complaint several times following the court’s dismissal of his earlier complaints. Currently, the plaintiff’s fifth amended complaint alleges the following causes of action against New Focus: violation of §25400 and §25500 of the California Corporations Code; violation of §§1709-1710 of the California Civil Code; violation of §25402 of the California Corporations Code; violation of §17200 and §17500 of the California Business & Professions Code; fraud and deceit by concealment; fraud and deceit by active concealment; fraud and deceit based upon non-disclosure of material facts; negligent misrepresentation; and breach of contract and the duty of good faith and fair dealing. The complaint seeks unspecified economic, punitive, and exemplary damages, prejudgment interest, costs, and equitable and general relief. In November 2004, New Focus filed answers to the plaintiff’s fifth amended complaint denying the plaintiff’s allegations and asserting various defenses.

      In addition, in October 2003, New Focus filed a cross-complaint against Mr. Yue seeking damages in connection with Mr. Yue’s conduct during the acquisition of Globe Y. Technology, Inc., by New Focus. In February 2004, New Focus filed a corrected amended cross-complaint against Mr. Yue. In May 2004, Mr. Yue filed an answer to New Focus’s corrected amended cross-complaint denying New Focus’s allegations and asserting various defenses. In December 2004, plaintiff and defendants filed a motion for summary judgment and/or summary adjudication with respect to the corrected amended cross-complaint and certain causes of action in the fifth amended complaint. On April 26, 2005, the court denied both plaintiff’s and defendant’s motions. The trial date has been set for November 14, 2005 and the court has scheduled 15 days for the trial.

      Litigation is subject to inherent uncertainties, and an adverse result in these or other matters that may arise from time to time could have a material adverse effect on our business, results of operations and financial condition. Any litigation to which we are subject may be costly and, further, could require significant involvement of our senior management and may divert management’s attention from our business and operations.

Risks Related to Our Common Stock and this Offering

A variety of factors could cause the trading price of our common stock to be volatile or decline.

      The trading price of our common stock has been, and is likely to continue to be highly volatile. Many factors could cause the market price of our common stock to rise and fall. In addition to the matters discussed in other risk factors included herein, some of the reasons for the fluctuations in our stock price are:

      Since Bookham Technology plc’s initial public offering in April 2000, Bookham Technology plc’s ADSs and ordinary shares, our shares of common stock and the shares of our customers and competitors have experienced substantial price and volume fluctuations, in many cases without any direct relationship to the affected company’s operating performance. An outgrowth of this market volatility is the significant vulnerability of our stock price and the stock prices of our customers and competitors to any actual or perceived fluctuation in the strength of the markets we serve, regardless of the actual consequence of such fluctuations. As a result, the market prices for these companies are highly volatile. These broad market and industry factors caused the market price of Bookham Technology plc’s ADSs, ordinary shares, and our common stock to fluctuate, and may in the future cause the market price of our common stock to fluctuate, regardless of our actual operating performance or the operating performance of our customers. When the market price of a company’s stock decreases significantly, stockholders often institute securities class action litigation against that company. Any litigation against us could cause us to incur substantial costs, divert the time and attention of our management and other resources, or otherwise harm our business.

The future sale of substantial amounts of our common stock could dilute your holdings and adversely affect the price of our common stock.

      On December 20, 2004, we issued convertible debentures and warrants in a private placement with institutional investors. The debentures and warrants issued in connection with the private placement are convertible or exercisable, as applicable, for up to an aggregate of 6,638,326 shares of our common stock, subject to adjustment in certain circumstances. In addition, in connection with Bookham Technology plc’s acquisition of the optical components business from Nortel Networks, Bookham Technology plc issued to affiliates of Nortel Networks an aggregate of 6,100,000 shares of our common stock and a warrant to purchase 900,000 shares of our common stock. The warrant was exercised on September 7, 2004. As of July 2, 2005, affiliates of Nortel Networks held approximately 3,999,999 shares of our common stock. Other stockholders or groups of stockholders also hold significant percentages of our shares of common stock. Sales by Nortel Networks, institutional investors holding the convertible debentures and warrants or other holders of substantial amounts of our shares in the public or private market could adversely affect the market price of our common stock by increasing the supply of shares available for sale compared to the demand in the private and public capital markets to buy our common stock. These sales may also make it more difficult for us to sell equity securities in the future at a time and price that we deem appropriate to meet our capital needs.

      In addition we may need to sell additional shares of common stock, or securities convertible or exercisable for common stock, in the future in either private or public transactions to satisfy our financing requirements, and we do not know if we will be able to sell these shares on terms favorable to us or at all. Any such sales could be dilutive to our existing stockholders.

      All of the shares of our common stock sold in this offering will be freely tradeable without restriction or further registration under the federal securities laws.

Some anti-takeover provisions contained in our charter and under Delaware laws could hinder a takeover attempt.

      We are subject to the provisions of Section 203 of the General Corporation Law of the State of Delaware prohibiting, under some circumstances, publicly-held Delaware corporations from engaging in business combinations with some stockholders for a specified period of time without the approval of the holders of substantially all of our outstanding voting stock. Such provisions could delay or impede the removal of incumbent directors and could make more difficult a merger, tender offer or proxy contest involving us, even if such events could be beneficial, in the short-term, to the interests of the stockholders. In addition, such provisions could limit the price that some investors might be willing to pay in the future for shares of our common stock. Our certificate of incorporation and bylaws contain provisions relating to the limitations of liability and indemnification of our directors and officers, dividing our board of directors into three classes of directors serving three-year terms and providing that our stockholders can take action only at a duly called annual or special meeting of stockholders. These provisions also may have the effect of deterring hostile takeovers or delaying changes in control or management of us.

You will experience immediate and substantial dilution as a result of this offering.

      The offering price of our common stock offered hereby is substantially higher than the net tangible book value per share of our common stock. As a result, you will suffer immediate and substantial dilution in the net tangible book value of the common stock you purchase in this offering. Based on an assumed public offering price of $5.31 per share, if you purchase shares of common stock in this offering, you will suffer immediate and substantial dilution of $3.01 per share in the net tangible book value of the common stock. Please read carefully the section entitled “Dilution” on page 28 for a more detailed discussion of the dilution you will incur in this offering.

Because we do not intend to pay dividends, stockholders will benefit from an investment in our common stock only if it appreciates in value.

      We have never declared or paid any dividends on our common stock. We anticipate that we will retain any future earnings to support operations and to finance the growth and development of our business and do not expect to pay cash dividends in the foreseeable future. As a result, the success of an investment in our common stock will depend upon any future appreciation in its value. There is no guarantee that our common stock will appreciate in value or even maintain the price at which stockholders have purchased their shares.

We can issue shares of preferred stock that may adversely affect your rights as a stockholder of our common stock.

      Our certificate of incorporation authorizes us to issue up to 5,000,000 shares of preferred stock with designations, rights and preferences determined from time-to-time by our board of directors. Accordingly, our board of directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights superior to those of stockholders of our common stock. For example, an issuance of shares of preferred stock could:

      We have in the past and we may in the future issue additional shares of authorized preferred stock at any time.

We have broad discretion in how we use the net proceeds of this offering, and we may not use these proceeds in a manner desired by our stockholders.

      Our management will have broad discretion with respect to the use of the net proceeds from this offering and investors will be relying on the judgment of our management regarding the application of these proceeds. Our management could spend the net proceeds from this offering in ways that our stockholders may not desire or that do not yield a favorable return. You will not have the opportunity, as part of your investment in our common stock, to influence the manner in which the net proceeds of this offering are used. As of the date of this prospectus, we plan to use the net proceeds from this offering primarily for working capital purposes in the ordinary course of business and for general corporate purposes. The amounts actually spent by us for any specific purpose may vary significantly and will depend on a number of factors, including the progress of our restructuring plans, commercialization and development efforts and our possible investment in and acquisition of complementary businesses, products or technologies. In addition, our future financial performance may differ from our current expectations or our business needs may change as our business and the industry we address evolve. As a result, the net proceeds we receive in this offering may be used in a manner significantly different from our current expectations.

USE OF PROCEEDS

      We estimate that the net proceeds to us from the sale of 8,000,000 shares of our common stock will be approximately $37.5 million, assuming a public offering price of $5.31 per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their over allotment option in full, we estimate the net proceeds from this offering to us will be approximately $45.5 million.

      We currently intend to use the net proceeds from this offering primarily for working capital purposes in the ordinary course of business and general corporate purposes. The amounts actually spent by us for any specific purpose may vary significantly and will depend on a number of factors, including the progress of our restructuring plans, commercialization and development efforts and our possible investment, in and acquisition of, complementary businesses, products or technology. Accordingly, our management has broad discretion to allocate the net proceeds. Pending the uses described above, we intend to invest the net proceeds of this offering in short-term, interest-bearing, investment-grade securities.

PRICE RANGE OF COMMON STOCK

      Our common stock began trading on the Nasdaq National Market under the symbol “BKHM” on September 10, 2004. Prior to that date, there was no established public trading market for our common stock. From April 11, 2000 through September 10, 2004, the date of the closing of the scheme of arrangement pursuant to which Bookham Technology plc became our wholly-owned subsidiary, Bookham Technology plc’s ordinary shares were quoted on the Official List of the United Kingdom Listing Authority under the symbol “BHM” and its American Depository Shares, or ADSs, were quoted on the Nasdaq National Market under the symbol “BKHM”. Each ADS represented one ordinary share. In connection with the scheme of arrangement, every ten ordinary shares, and ADSs, of Bookham Technology plc were exchanged for one share of our common stock. The last reported sale price of our common stock on the Nasdaq National Market on October 7, 2005 was $5.29 per share.

      The following table sets forth the range of high and low sale prices of (1) Bookham Technology plc’s ordinary shares and ADSs for the periods indicated through September 9, 2004 and (2) our common stock beginning on September 10, 2004 through the periods indicated (the sales prices for periods prior to the scheme of arrangement have been adjusted to reflect the exchange ratio in the scheme of arrangement):

      As of September 23, 2005, there were 10,776 holders of record of our common stock. This number does not include stockholders who hold their shares in “street name” or through broker or nominee accounts.

DIVIDEND POLICY

      We have never declared or paid any dividends on our common stock. We intend to retain any future earnings for use in our business and, therefore, do not anticipate paying any cash dividends on our common stock for the foreseeable future.

CAPITALIZATION

      The following table sets forth our capitalization as of July 2, 2005:

      You should read the capitalization information below together with the sections entitled “Selected Consolidated Financial Data”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Capital Stock” and with our consolidated financial statements and related notes contained in this prospectus.

      The actual and as adjusted information in the table above excludes the following:

      In addition, we have submitted to our stockholders for approval at our 2005 annual meeting of stockholders to be held on October 26, 2005, an increase of 5,000,000 shares of common stock reserved for future issuance under our 2004 stock incentive plan. These shares are also excluded from the actual and as adjusted information set forth above.

DILUTION

      Our net tangible book value as of July 2, 2005 was approximately $56.8 million, or $1.68 per share. “Net tangible book value” is total tangible assets minus total liabilities. “Net tangible book value per share” is net tangible book value divided by the total number of shares of common stock outstanding.

      After giving effect to the sale by us of 8,000,000 shares of common stock offered by us in this offering, based on an assumed public offering price of $5.31 per share, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our as adjusted net tangible book value as of July 2, 2005 would have been approximately $96.3 million, or $2.16 per share. This represents an immediate increase in net tangible book value of $0.48 per share to existing stockholders and an immediate dilution of $3.01 per share to new investors purchasing shares of common stock in this offering.

      The following table illustrates per share dilution to new investors:

      If the underwriters exercise their over allotment option in full, our as adjusted net tangible book value after this offering would be approximately $2.38 per share, the increase in net tangible book value would be $0.70 per share to existing stockholders and the dilution in net tangible book value would be $2.93 per share to new investors purchasing shares of our common stock in this offering.

      The above discussion and tables are based on 33,805,437 shares of common stock outstanding at July 2, 2005, and excludes as of that date:

      In addition, we have submitted to our stockholders for approval at our 2005 annual meeting of stockholders to be held on October 26, 2005, an increase of 5,000,000 shares of common stock reserved for future issuance under our 2004 stock incentive plan. These shares are excluded from the number of shares of our common stock outstanding after this offering.

SELECTED CONSOLIDATED FINANCIAL DATA

      The selected financial data set forth below should be read in conjunction with our consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus. Prior to June 2004, Bookham Technology plc reported on a December 31 fiscal year-end basis. In June 2004, Bookham Technology plc approved a change in its fiscal year end from December 31 to the Saturday closest to June 30 which matches our fiscal year end. Pursuant to a scheme of arrangement under the laws of the United Kingdom, we assumed the financial reporting history of Bookham Technology plc effective September 10, 2004. In addition, in connection with the scheme of arrangement, we changed our corporate domicile from the United Kingdom to the United States and changed our reporting currency.

      Our annual reports on Form 20-F for the years ended December 31, 2000, 2001, 2002 and 2003 contained Bookham Technology plc’s audited consolidated financial statements which were prepared in accordance with accounting principles generally accepted in the United Kingdom and were denominated in U.K. pounds sterling. Our transition report on Form 10-K, as amended, for the six months ended July 3, 2004 contained audited consolidated financial statements at December 31, 2003 and 2002 and July 3, 2004 and for each of the three years in the period ended December 31, 2003 for the six months ended July 3, 2004 together with unaudited consolidated financial statements for the six months ended June 29, 2003, all prepared in accordance with accounting principles generally accepted in the United States and presented in U.S. dollars.

      The selected financial data set forth below at July 2, 2005 and July 3, 2004 and for the year ended July 2, 2005, the six months ended July 3, 2004 and June 29, 2003 and the years ended December 31, 2003 and 2002 are derived from our consolidated financial statements included elsewhere in this prosepctus. The selected financial data at December 31, 2003 and 2002 and for the year ended December 31, 2001 are derived from our transition report on Form 10-K, as amended, for the six months ended July 3, 2004. The selected financial data at December 31, 2002, 2001 and 2000 and for the years ended December 31, 2001 and 2000 are derived from our annual reports on Form 20-F and have been translated into U.S. dollars using the historical exchange rate at each corresponding period end for balance sheet data and a corresponding simple average rate for statement of operations data.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

      The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Selected Consolidated Financial Data” appearing on page 29 of this prospectus and our consolidated financial statements and related notes appearing on page F-1 through F-55 of this prospectus. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements, as described under “Special Note Regarding Forward-Looking Information” on page 6 of this prospectus.

Overview

      We design, manufacture and market optical components, modules and subsystems that generate, detect, amplify, combine and separate light signals principally for use in high-performance fiber optics communications networks. We principally sell our optical component products to optical systems vendors as well as to customers in the data communications, military, aerospace, industrial and manufacturing industries. Customers for our photonics and microwave product portfolio include academic and governmental research institutions that engage in advanced research and development activities. Our products typically have a long sales cycle. The period of time between our initial contact with a customer to the receipt of a purchase order is frequently a year or more. In addition, many customers perform, and require us to perform, extensive process and product evaluation and testing of components before entering into purchase arrangements.

      We operate in two business segments: optics and research and industrial. Optics relates to the design, development, manufacture, marketing and sale of optical solutions for telecommunications and industrial applications. Research and industrial relates to the design, manufacture, marketing and sale of photonics and microwave solutions.

      Effective September 10, 2004, we changed our corporate domicile from the United Kingdom to the United States and our reporting currency from U.K. pounds sterling to U.S. dollars. In contemplation of the scheme of arrangement, Bookham Technology plc changed its fiscal year end from December 31 to the Saturday closest to June 30, which matches the fiscal year end of Bookham. Accordingly, our financial statements for the fiscal year ended June 30, 2004 were prepared for the six-month period ended July 3, 2004 and will be prepared for a fifty-two/fifty-three week cycles going forward, including for the year ended July 2, 2005, which are included in this Form 10-K. Our consolidated financial statements for the periods up to and including December 31, 2003, were reported in U.K. pounds sterling prior to the scheme of arrangement, and have been translated to U.S. dollars using the historical exchange rate at each corresponding period end for balance sheet accounts and a corresponding simple average rate for statement of operations accounts.

      In view of the change in our fiscal year, this Management’s Discussion and Analysis of Financial Condition and Results of Operations compares the financial position and results of operations as of and for the fiscal year ended July 2, 2005 with the financial position and results of operations as of and for the twelve-month unaudited period ended July 3, 2004, the results for the six month period ended July 3, 2004 with the six-month unaudited period ended June 29, 2003, and the results for the year ended December 31, 2003 with the year ended December 31, 2002. All data as of and for the twelve-month period ended July 3, 2004 and the six-month period ended June 29, 2003 have been derived from unaudited consolidated financial information disclosed in our consolidated financial statements, including Note 17 to our consolidated financial statements.

      Since the beginning of 2002, we have acquired a total of six companies and businesses. In 2002, we acquired the optical components businesses of Nortel Networks and Marconi. During the course of 2003, we purchased substantially all of the assets of Cierra Photonics and acquired all of the outstanding capital stock of Ignis Optics, Inc. During 2004, we acquired New Focus, Inc., and Onetta, Inc.

      We have enacted a series of restructuring plans to reduce our manufacturing overhead and our operating expenses. In 2001, we reduced manufacturing overhead and our operating expenses in response to the initial decline in demand in the optics components industry. In connection with our acquisitions of Nortel Networks’ optical components business in November 2002 and New Focus in March 2003, we enacted restructuring plans related to the consolidation of our operations. In May and November of 2004, we adopted our latest restructuring plans, which included the transfer of our assembly and test operations from Paignton, U.K. to Shenzhen, China, a process that commenced in the quarter ended October 2, 2004. We expect to complete this transition by the end of fiscal year 2006. In connection with these restructuring plans, we have closed eight facilities consisting of approximately 700,000 square feet of space, severed approximately 1,500 employees and incurred approximately $188.6 million of related restructuring charges.

      In recent periods, the value of the U.S. dollar has declined significantly in comparison with the U.K. pound sterling. Because a substantial portion of our revenues have been denominated in U.S. dollars and the majority of our costs have been incurred in U.K. pounds sterling, this decline has resulted, and we expect will continue to result in, pressure on our cash flow, margins and operating results. Moving assembly and testing to our facility in Shenzhen, China will help mitigate our exposure to fluctuations in the U.K. pounds sterling relative to the U.S. dollar. We also attempt to mitigate our currency exposure using foreign exchange contracts as we consider appropriate. Regardless, any weakness in the U.S. dollar versus the U.K. pound sterling will make it more difficult for us to achieve improvements in our margins in the short term.

Application of Critical Accounting Policies

      The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements contained elsewhere in this prospectus, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgements that affect our reported assets and liabilities, revenues and expenses and other financial information. Actual results may differ significantly from those based on our estimates or using different assumptions and conditions. In addition, our reported financial condition and results of operations could vary due to a change in the application of a particular accounting standard.

      We regard an accounting estimate or assumption underlying our financial statements as a “critical accounting estimate” where:

      Our significant accounting policies are more fully described in Note 1 to our consolidated financial statements included elsewhere in this prospectus. We have discussed our accounting policies with the audit committee of our board of directors, and we believe that the policies described below involve critical accounting estimates.

Revenue Recognition and Sales Returns

      Revenue represents the amounts, excluding sales taxes, derived from the provision of goods and services to third-party customers during a given period. Our revenue recognition policy follows SEC Staff Accounting Bulletin, or SAB, No. 104, “Revenue Recognition in Financial Statements”. Specifically, we recognize product revenue when persuasive evidence of an arrangement exists, the product has been shipped, title has transferred, collectibility is reasonably assured, fees are fixed or determinable and there are no uncertainties with respect to customer acceptance. For certain sales, we are required to determine, in particular, whether the delivery has occurred, whether items will be returned and whether we will be

paid under normal commercial terms. For certain shipments, we specify delivery terms and assess each shipment against those terms, and only recognize revenue when we are certain that the delivery terms have been met. For shipments to new customers and evaluation units, including initial shipments of new products, where the customer has the right of return through the end of the evaluation period, we recognize revenue on these shipments at the end of an evaluation period, if not returned, and when collection is reasonably assured. We record a provision for estimated sales returns in the same period as the related revenues are recorded which is netted against revenue. These estimates are based on historical sales returns, other known factors and our return policy. Before accepting a new customer, we review publicly available information and credit rating databases to provide ourselves with reasonable assurance that the new customer will pay all outstanding amounts in accordance with our standard terms. For existing customers, we monitor historic payment patterns to assess whether we can expect payment in accordance with the terms of each shipment.

      We recognize royalty revenue when it is earned and collectibility is reasonably assured.

7.0% Senior Convertible Debentures Due December 2007

      In December 2004, we issued $25.5 million aggregate principal amount of convertible debentures accompanied by warrants to purchase 2.0 million shares of our common stock. As of July 2, 2005, $19.1 million of the aggregate principal amount was reflected on our balance sheet as long term debt, $5.4 million was allocated to the value of the warrants and $2.0 million was allocated to the value of the conversion feature of the debentures. The valuation of these financial instruments involved judgments that affect the carrying value of each instrument on the balance sheet and the periodic interest expense recorded. In order to determine the valuation of these instruments, we applied the guidance in Emerging Issues Task Force, or EITF, Issue 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios” and EITF Issue 00-27, “Application of Issue 98-5 to Certain Convertible Instruments” to value the debentures, the accompanying warrants and the value of the convertibility element of the debentures. We first determined the fair value of the warrants and their value relative to the debentures. We chose to use the Black-Scholes model to determine the value of the warrants which requires, among other things, the determination of our stock’s volatility. The historical volatility rate was calculated by measuring the volatility of our stock since we became a public company in April 2000, which approximates the life of the warrants. Had we used a different period to measure the historical volatility, the value assigned as discount to the debt would have been affected. We used the following assumptions in the Black-Scholes model: 97% historical volatility rate; 2.89% risk free interest rate; and a five year life. Changing the assumptions would have changed the amount assigned by us to the discount of the debt liability by affecting both the warrant value and the value of the convertibility element of the debentures and may have a significant effect in the interest expense set forth in our financial statements included in this prospectus. The discount assigned is amortized as part of interest expense over the term of the debentures.

Inventory Valuation

      In general, our inventory is valued at the cost to acquire or manufacture our products, less write-offs of inventory we believe could prove to be unsaleable. The manufacturing cost includes the cost of the components purchased to produce our products, and related labor and overhead. We review our inventory on a monthly basis to determine if it is saleable. Products may be unsaleable because they are technically obsolete due to substitute products, specification changes or excess inventory relative to customer forecasts. We currently reserve for inventory using methods that take those factors into account. In addition, if we find that the cost of inventory is greater than the selling price, we will write the inventory down to the selling price, less the cost to complete and sell the product.

      During 2002, in connection with the acquisition of the optical components business of Nortel Networks, we recorded the fair value of the inventory that was acquired. In accordance with SFAS No. 141 “Business Combinations”, an adjustment was made in the 2003 accounts for amendments to those provisional values. During 2003, a larger amount of inventory was sold than was expected at the

time the transaction with Nortel Networks was completed in 2003. As a consequence, we increased the value of the inventory by $20.2 million, increased current liabilities by approximately $1.3 million, decreased intangible assets by $9.1 million and increased property, plant and equipment by $9.8 million.

Accounting for Acquisitions and Goodwill

      We account for acquisitions using the purchase accounting method in accordance with Statement of Financial Accounting Standards, or SFAS, 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 they may be impaired. Circumstances that could trigger an impairment test include, but are not limited to, a significant adverse change in the business climate, unanticipated competition, loss of key personnel and the possible sale of the whole, or part of the reporting unit. Under this method, the total consideration paid, excluding the contingent consideration that has not been earned, is allocated over the fair value of the net assets acquired, including in-process research and development, with any excess allocated to goodwill (defined as the excess of the purchase price over the fair value allocated to the net assets). Our judgments as to fair value of the assets will, therefore, affect the amount of goodwill that we record. These judgments include estimating their useful lives, over which periods the fair values will be amortized to expense. For tangible assets acquired in any acquisition, such as plant and equipment, we estimate useful lives by considering comparable lives of similar assets, past history, the intended use of the assets and their condition. In estimating the useful life of the acquired intangible assets with definite lives, we consider the industry environment and unique factors relating to each product relative to our business strategy and the likelihood of technological obsolescence. Acquired intangible assets primarily include core and current technology, patents, supply agreements, capitalized licenses and customer contracts. We are currently amortizing our acquired intangible assets with definite lives over periods generally ranging from three to six years and sixteen years as to one specific customer contract.

Impairment of Goodwill and Intangibles

      Under SFAS No. 142, goodwill is no longer amortized over an estimated useful life, but is instead tested annually for impairment, in our case during the fourth quarter, or more often if an event or circumstance suggests impairment has occurred. We review identifiable intangibles, excluding goodwill, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Circumstances which could trigger an impairment test include, but are not limited to, significant decreases in the market price of the asset, significant adverse changes to the business climate or legal factors, current period cash flow or operating losses or a forecast of continuing losses associated with the use of the asset and a current expectation that the asset will more likely than not be sold or disposed of significantly below carrying value before the end of its estimated useful life.

      SFAS No. 142 requires that the first phase of testing goodwill for impairment be based on a business unit’s “fair value,” which is generally determined through market prices. Due to the absence of market prices for our businesses, and as permitted by SFAS No. 142, we have elected to base our testing on discounted future expected cash flows. Although the discount rates and other input variables may differ, the model we use in this process is the same model we use to evaluate the fair value of acquisition candidates and the fairness of offers to purchase businesses that we are considering for divestiture. The forecasted cash flows we use are derived from the annual long-range planning process that we perform and present to our board. In this process, each business unit is required to develop reasonable sales, earnings and cash flow forecasts for the next three to seven years based on current and forecasted economic conditions. For purposes of testing for impairment, the cash flow forecasts are adjusted as needed to reflect information that becomes available concerning changes in business levels and general economic trends. The discount rates used are generally based on our weighted average cost of capital and are then judgmentally adjusted for “plan risk” (the risk that a business will fail to achieve its forecasted results) and “country risk” (the risk that economic or political instability in the countries in which we operate will cause a business unit’s projections to be inaccurate). Finally, a growth factor beyond the three to seven-

year period for which cash flows are planned is selected based on expectations of future economic conditions. Virtually all of the assumptions used are susceptible to change due to global and regional economic conditions as well as competitive factors in the industry in which we operate. In recent years, many of our cash flow forecasts have not been achieved due in large part to the unexpected length and depth of the downturn in our industry. Unanticipated changes in discount rates from one year to the next can also have a significant effect on the results of the calculations. While we believe the estimates and assumptions we use are reasonable in these circumstances, various economic factors could cause the results of our goodwill testing to vary significantly.

      SFAS No. 142 provides guidance for companies who have experienced a “triggering event”, or an event or circumstance indicating that a possible impairment of a business unit’s goodwill may have occurred. During the third quarter of fiscal 2005 we determined that, due to the continued decline in our stock price, and therefore market capitalization, combined with continued net losses and a history of not meeting revenue and profitability targets, the goodwill recorded in connection with our acquisitions of Ignis, Onetta, and New Focus had potentially been impaired. A preliminary evaluation of each business unit’s fair value in accordance with SFAS No. 140 led to a goodwill impairment charge of $98.1 million in the quarter ended April 3, 2005. The completion of our year-end evaluation of all goodwill and intangibles, required under SFAS No. 142, led to an additional impairment charge of $16.1 million in the fourth quarter of fiscal 2005, of which $15.5 million related to goodwill and $0.6 million related to other intangibles (see Note 14 to our consolidated financial statements included elsewhere in this prospectus).

Accounting for Acquired In-Process Research and Development

      In the six-month period ended July 3, 2004, in connection with the acquisition of New Focus, we recorded a charge of $5.9 million for in-process research and development. In 2003, in connection with the acquisition of Ignis Optics, we recorded a charge of $1.9 million for in-process research and development. In 2002, in connection with the acquisition of the optical components businesses of Marconi and Nortel Networks, we recorded charges of $5.9 million and $7.3 million, respectively, for in-process research and development. There were no charges for in-process research and development related to the Cierra Photonics and Onetta acquisitions. During 2003, following the required review of the purchase price allocation for the acquisition of the optical components business of Nortel Networks, a credit of $1.7 million was made related to the in-process research and development expensed as part of an overall reallocation of the purchase price. Management is responsible for estimating the fair values of in-process research and development.

      As of the dates of each in-process research and development valuation, the projects assessed had not yet demonstrated technological or commercial feasibility, and the technology did not have an alternative future use. Therefore, the fair values were expensed at the relevant date of acquisition. Expenses related to development projects which, when using the technology contribution approach, are deemed to have positive net present value, are assigned a fair value, capitalized and amortized over the expected useful lives.

      For each acquisition, allocations of consideration were based on the estimated fair values derived from calculating the discounted cash flows required to develop each incomplete research and development project into a commercially viable product, taking into account the anticipated future revenues and the remaining costs of completion. Consideration was also given to the direct expenses incurred, contribution from other assets, the implications of various jurisdictions of corporate tax, the degrees of completion and the relative risks attributable to each project. All operating cash flows were discounted at appropriate rates. The revenue estimates assumed that the development and marketing of the projects would be successful, and that their commercialization would correlate to management’s forecasts as of the date of the analysis, and that forecasted sales would decline over each product’s expected economic life as new versions were introduced either by us or competitors.

      In identifying the programs to be valued, we distinguish between two main areas of research and development. Pure research of a given technology application is referred to as Technology Research, or TR. New product introduction, or NPI, follows from this stage, and is the development of a known

technology from initial identification of an application with a market opportunity, through design and testing, to implementation and delivery of products to a customer.

      In connection with the acquisition of the optical components business of Marconi in February 2002, $5.9 million of the $29.9 million total consideration was allocated to in-process research and development 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. We acquired three main programs in the NPI stage of development. All estimated costs to complete were to be funded from our current cash reserves. The current status of each category is given below:

      Of the total $119.0 million consideration for the optical components business of Nortel Networks in November 2002, the initial allocation to acquired in-process research and development was $7.3 million. This initial allocation was subsequently adjusted following the required review of the purchase price allocation during the second half of 2003, resulting in a reduction of the allocated in-process research and development by $1.7 million, which was recognized as a credit in 2003.

      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 TR. The TR projects, which met the criteria for recognition as in-process research and development, were assessed as requiring between one and one and a half 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.

      In connection with the acquisition of Ignis Optics in October 2003, $1.9 million of the $18 million total consideration was allocated to in-process research and development projects. The NPI projects under development at the acquisition date were expected to result in small form factor pluggable optical transceivers or component elements to these products and address quality and reliability requirements. Commercial shipments of the products began during the second half of fiscal 2005. There were no TR projects at the time of acquisition.

      In connection with the acquisition of New Focus in March 2004, $5.9 million of the $211 million total consideration was allocated to in-process research and development projects. The NPI projects at the acquisition date were expected to result in the development of products to support the New Focus OEM and catalog business. Catalog related programs were focused on increasing the wavelength spectrum over which modulator products can operate and developing detectors to operate at higher frequency with lower noise over a broader wavelength, with their first incorporation in shipments in December 2004. Of the OEM related products, two have been completed, namely a super luminous diode light source for use in subsystems and a laser for use in high precision/high stability labs. The final program for development of a small form factor laser for use in fiber sensing applications continues but has been slowed due to lower than expected emergence of market opportunities. There were no TR programs at the time of acquisition.

Results of Operations

     Year Ended July 2, 2005 Versus Twelve Months Ended July 3, 2004

      Revenues for the year ended July 2, 2005 increased by $42.1 million, or 27%, as compared to the twelve months ended July 3, 2004. The increase was primarily due to the inclusion of a full year of revenue from New Focus and Onetta, which we acquired during the twelve months ended July 3, 2004. Revenues from products and services acquired as part of these acquisitions were $30.4 million for the year

ended July 2, 2005 compared to $8.7 million in revenues for the twelve months ended July 3, 2004, which included only approximately three months of revenues from New Focus and one month of revenues from Onetta. In addition, sales of products and services to customers other than Nortel Networks and Marconi increased to $88.9 million in fiscal 2005 from $52.2 million in the twelve months ended July 3, 2004.

      Revenues from our optics segment, which designs, manufactures, markets and sells optical solutions for telecommunications and industrial applications, increased to $176.6 million in fiscal 2005 from $147.8 million in the twelve months ended July 3, 2004, primarily as a result of increased sales of products and services. The research and industrial segment designs, manufactures, markets and sells photonic and microwave solutions and primarily comprises the products and services of New Focus. Revenues from the research and industrial segment increased to $23.7 million in fiscal 2005 from $10.4 million in the twelve months ended July 3, 2004, primarily as a result of these products and services contributing sales for the entire year.

      Our largest customer for the year ended July 2, 2005 and the twelve months ended July 3, 2004 was Nortel Networks. Sales of products and services to Nortel Networks were $89.5 million in fiscal 2005 compared to $81.4 million in the twelve months ended July 3, 2004, representing 45% and 52% of our revenues in the respective years. The increase in revenue from the twelve months ended July 3, 2004 to fiscal 2005 was due to revisions to our supply agreement with Nortel Networks in March 2005. Pursuant to the terms of the supply agreement with Nortel Networks, Nortel Networks issued non-cancelable purchase orders and last-time buys totaling approximately $100 million, based on revised pricing terms, to be delivered through March 2006. Through July 2, 2005, we delivered products pursuant to these purchase orders having an aggregate price of approximately $34 million. We expect these orders will lead to revenue increases in the first quarter of fiscal 2006 before declining in the second quarter of fiscal 2006 and potentially continuing to decline in future quarters.

      The increase in revenues for the six-month period ended July 3, 2004 over the six-month period ended June 29, 2003 principally resulted from the acquisition of New Focus in March 2004 and higher revenues from products sold to customers other than Nortel Networks and Marconi, offset by lower revenues from Nortel Networks. During the six-month period ended July 3, 2004, revenues from New Focus were $10.4 million, including $2.4 million from JCA Technology, Inc., a subsidiary of New Focus which we sold in the month of July 2004. As part of the acquisition of the optical components business from Nortel Networks, we entered into a three-year, non-exclusive supply agreement with Nortel Networks. The agreement required Nortel Networks to purchase over the six-quarter period from November 8, 2002 to March 31, 2004, which we refer to as the minimum commitment period, a minimum of $120 million of products and services from us. In the six-month period ended June 29, 2003, we sold $40.4 million of products and services, representing 60% of our revenues for the period, to Nortel Networks, compared with $36.5 million and 46% of our revenues for the six-month period ended July 3, 2004. In the quarter ended July 3, 2004, after expiration of the minimum commitment period, we sold $16.8 million of products and services to Nortel Networks. Our revenues over the minimum commitment period of the supply agreement with Nortel Networks may not be indicative of future revenue. As part of the acquisition of the optical components business of Marconi, we entered into a supply agreement, which provided for Marconi to purchase $48.3 million of products and services from us. This agreement expired in June 2004. Revenues from Marconi declined from $9 million for the six-month period ending June 29, 2003 to $7.4 million for the six-month period ended July 3, 2004, representing 13% and 9% of sales, respectively, for the first six months of 2003 and 2004, respectively, however, in 2004 this decline was offset by revenues from other customers which increased as we expanded our customer base through the sale of new products and products we acquired as part of the acquisition of the Nortel Networks optical components business.

      The increase in revenue in the period from 2002 to 2003 primarily resulted from sales of our products to Nortel Networks. Revenues from Nortel Networks increased 426% from $16.3 million for the year ended December 31, 2002 to $85.5 million for the year ended December 31, 2003, representing 32% and 59% of our revenues in 2002 and 2003, respectively. A further factor causing revenues to increase in 2003 over 2002 was growth in the sale of products produced by the optical components business acquired from Nortel Networks to customers other than Nortel Networks and Marconi. Sales to customers other than Nortel Networks and Marconi increased 167% from $15.9 million in 2002 to $42.4 million in 2003.

      Our cost of revenues consists of the costs associated with manufacturing our products, and includes the purchase of raw materials, labor and related overhead. It also includes the costs associated with under-utilized production facilities and resources, as well as the charges for the write-down of impaired manufacturing assets or restructuring related costs, which are categorized as “Net Charges.” Charges for inventory obsolescence, the cost of product returns and warranty costs are also included in cost of sales. Costs and expenses of the manufacturing resources, which relate to the development of new products, are included in research and development.

      Our cost of revenues for the year ended July 2, 2005 increased compared to the prior year primarily due to the inclusion of a full year of manufacturing costs associated with the products of the New Focus and Onetta businesses which we acquired in March and June of 2004, respectively.

      Our cost of revenues also increased as a result of adverse movements in foreign exchange rates in fiscal 2005. A substantial portion of our cost of revenues are incurred in U.K. pounds sterling due to the manufacturing expenses associated with our facilities in the United Kingdom. Relative to U.K. pounds sterling, the U.S. dollar declined significantly during the year ended July 2, 2005, with the rates moving from an average rate of 1.736 dollars per U.K. pound sterling for the twelve months ended July 3, 2004 to 1.856 dollars per U.K. pound sterling for the year ended July 2, 2005, reaching a peak of 1.926 dollars per U.K. pound sterling on December 31, 2004, and ending at a rate of 1.792 dollars per U.K. pound sterling on July 2, 2005.

      Our cost of revenues also increased due to the costs of ramping up our manufacturing facility in Shenzhen, China. We are transferring most of our assembly and test operations from Paignton, U.K. to this facility in order to take advantage of lower costs of production. We began shipping products out of our Shenzhen facility during the quarter ended October 2, 2004, and as of July 2, 2005 all of the products being transferred have been qualified to ship to customers. We intended to shut down operations at our Paignton facility in the second quarter of fiscal 2006, however we will continue to operate both the Paignton and Shenzhen facilities until we fulfill the purchase orders and last-time buys required pursuant to the Nortel Networks supply agreement, which we expect to extend into the third quarter of fiscal 2006. We will not realize the full cost savings of the transition to Shenzhen until such time, and we will continue to incur duplicate costs as a result of maintaining both the Paignton and Shenzhen facilities in the interim.

      As part of the acquisition of the optical components business of Nortel Networks, we undertook a comprehensive restructuring plan, which involved closing facilities, consolidating manufacturing operations and workforce reductions. This plan began immediately after the acquisition was completed on November 8, 2002 and was substantially complete by the end of 2003. As a result of this restructuring plan, following the acquisition, fixed overhead was substantially lower for the six-month period ended July 3, 2004 compared with the six-month period ended June 29, 2003. However, cost of sales increased in the six-month period ended July 3, 2004 compared with the six-month period ended June 29, 2003 principally because of higher variable production costs, including direct material and labor costs related to increased revenues, which more than offset the lower fixed manufacturing overhead.

      The increase in our cost of revenues from 2002 to 2003 was due to the higher direct product costs related to higher revenues and, to a lesser degree, the higher fixed manufacturing overhead costs of the optical components businesses acquired from Nortel Networks and Marconi. These increases were partially offset by the reduction in manufacturing overheads resulting from first the reductions in, and then the closure of, manufacturing of our ASOC product line and other manufacturing overhead reductions implemented throughout 2003.

      Gross margin/(loss) consists of revenues less cost of sales. Gross margin rate is the resulting gross margin/(loss) as a percentage of revenue.

      Our gross margin rate improved in fiscal 2005 compared to the twelve months ended July 3, 2004 primarily because of the positive impact of higher revenues spread across our other fixed costs, despite the fact that we continue to experience a difficult competitive environment which was exacerbated in fiscal 2005 by the negative impact of currency fluctuations, and certain costs of maintaining assembly and test facilities in both Paignton and Shenzhen during the transition of these operations to Shenzhen. Over the next few quarters we expect the volume and pricing of sales under the Nortel Networks supply agreement, together with the lower assembly and test costs we expect to realize as we shift production to Shenzhen, will improve our gross margin rate.

      During fiscal 2005, we had revenues of $19.5 million related to, and recognized profits on, inventory that had been carried on our books at zero value. The inventory had originally been acquired in connection with our purchase of the optical components business of Nortel Networks. We believe we will have revenues of between $6 and $7 million related to this zero value inventory in the next twelve months. There were no such profits recorded in the twelve months ended July 3, 2004. While this inventory is on our books at zero value, and its sale generates higher margins than most of our new products, we incur additional costs to complete the manufacturing of these products prior to sale.

      The improved gross margin and gross margin rate improvement between the six-month period ended July 3, 2004 compared with the six-month period ended June 29, 2003 was principally the result of the lower fixed overhead costs in 2004 and, to a lesser degree, the higher revenue.

      The reduced gross margin loss and improved negative gross margin rate in 2003 over 2002 was the result of higher revenues which were partially offset by the higher fixed manufacturing overhead costs.

      Research and development expense consists primarily of salaries and related costs of employees engaged in research and design activities, costs of design tools and computer hardware, and costs related to prototyping.

      Research and development expenses decreased in fiscal 2005 compared to the twelve months ended July 3, 2004 as a result of the significant reductions made in connection with our 2004 restructuring plan, which we describe below in Restructuring, offsetting the increase in research and development spending that resulted from acquiring New Focus and Onetta and the negative effects of the weakness in the U.S. dollar relative to the U.K. pound sterling and other currencies in which we operate. We expect that expenses related to our research and development will remain relatively unchanged in the first quarter of fiscal 2006.

      Research and development expenses rose by 2% in the six months ended July 3, 2004 compared to the six months ended June 29, 2003 due to increased spending of approximately $7.2 million that resulted from our acquisition of New Focus and Ignis, which was partially offset by the effect of cost cutting measures implemented in 2003.

      Research and development expenses were relatively constant in 2003 compared to 2002. Increases were related to the research and development programs of the optical components businesses we acquired from Nortel Networks and Marconi, offset by cost-cutting measures implemented in 2003 that included the discontinuance of our research and development of the ASOC product line.

      Selling, general and administrative expenses consist primarily of personnel-related expenses, legal and professional fees, facilities expenses, insurance expenses and information technology costs.

      Selling, general and administrative expenses increased by $14.9 million in fiscal 2005 compared to the twelve months ended July 3, 2004. The increase was due to higher selling costs to support revenue growth, the inclusion of the operations of New Focus and Onetta for an entire year, the negative impact of the weakness in the U.S. dollar relative to the U.K. pound sterling, costs associated with compliance with the Sarbanes-Oxley Act of 2002 and costs associated with moving administrative activities to the newly established U.S. headquarters in San Jose, California in the second quarter of fiscal 2005. In total, these costs more than offset the cost reductions attained in connection with the 2004 restructuring plan. We expect that selling, general and administrative expenses will decrease in the first quarter of fiscal 2006 as we complete our first year-end Sarbanes-Oxley compliance cycle.

      The increase between the six-month period ended July 3, 2004 compared with the six-month period ended June 29, 2003 resulted from the inclusion of the operations of New Focus and, to a lesser extent, the inclusion of the business acquired from Cierra Photonics, combined with higher legal and professional fees relating to various corporate development activities.

      The increase in selling, general and administrative expenses in fiscal 2003 compared to fiscal 2002 was due to the inclusion of a full year of results of the operations of the optical components business we acquired from Nortel Networks.

      In May 2004, we announced a plan of restructuring, primarily related to the transfer of our assembly and test operations from Paignton, U.K. to Shenzhen, China, along with reductions in research and development and selling, general and administrative expenses. In September 2004, we announced that the

plan would also include the transfer of our main corporate functions, including consolidated accounting, financial reporting, tax and treasury, from Abingdon U.K. to our new U.S. headquarters in San Jose, California. In December 2004, we announced additional cost reduction measures designed to expand the savings under the plan to within a range of $16 million to $20 million per quarter, which is expected to primarily affect the manufacturing, and also the research and development and selling, general and administrative, lines in our statement of operations. In the third and fourth fiscal quarters of 2005, we recorded additional restructuring charges, primarily personnel and other costs needed to operate the Paignton assembly and test facility into the third quarter of fiscal 2006, which is approximately six months longer than originally intended, in order to fulfill the purchase orders and last-time buys required under the Nortel Networks supply agreement. In the fourth fiscal quarter of 2005, we also incurred charges of $2.2 million related to revising certain assumptions on our accrual for lease commitments.

      As of July 2, 2005, we had spent $11 million related to this plan ($10 million related to personnel and $1 million related to lease commitments). In total, we expect to spend approximately $24 million to $30 million related to this plan (approximately 90% related to personnel and 10% related to lease commitments). We accrued and spent $500,000 in the year ended July 2, 2005 in the research and industrial segment. There are no additional expenditures expected in that segment. The remaining reductions will occur in the optics segment. The full cost savings of the plan are expected to be realized in nine to twelve months.

      During the six months ended July 3, 2004, we recorded a $2 million credit from the completion of the closure of our facility in Ottawa, Canada at costs less than previously anticipated, partially offset by the initial charges under the restructuring plan announced in May 2004.

      Prior to May 2004, we engaged in other restructuring plans. In the year ended December 31, 2003, we recorded charges for a separate major restructuring program, the main element of which was the closure of a semiconductor fabrication facility in Ottawa, Canada and the transfer of related fabrication capabilities to Caswell, U.K. We also closed a few smaller manufacturing-related sites in Milton, U.K., Harlow, U.K. and Poughkeepsie, New York, and consolidated certain production processes into new locations. The transfer was successfully completed in August 2003. In connection with this transfer, certain products and research projects were discontinued. We achieved annualized cost savings in excess of $25 million related to this plan. In the year ended December 31, 2003, we achieved additional annualized savings in excess of $20 million as a result of the final decommissioning of the ASOC product line. Substantially all cash expenditures related to the 2003 restructuring plan have been incurred prior to July 3, 2004. All charges recorded in the year ended December 31, 2003 related to the optics segment. Related to this restructuring plan, we also assumed $16.8 million of restructuring charges related to facility commitments previously entered into by companies acquired by Bookham during that period, the substantial portion of which represents lease commitments in the research and industrial segment.

      In 2002, we incurred restructuring charges of $55.1 million in connection with our decision to discontinue further development of our ASOC product line, consisting of $37.7 million for the impairment of equipment used in our ASOC product line, $4.5 million for inventory and $1.5 million for purchase commitments. Also included in net charges in 2002 was $7.7 million related to the closure of our sites in Columbia, Maryland and Swindon, U.K., which had been manufacturing ASOC products.

      We implemented three significant exit programs during 2002, all of which related to our decision to discontinue further development of our ASOC product line. During 2002, management performed reviews of the market conditions for ASOC products, and each time concluded that the market for these products was in decline. As a result of these reviews, management decided to close the manufacturing sites in

Maryland and Swindon sites, and subsequently to close the production facility and a significant portion of the research and development facility in Abingdon, U.K.

      The closure of the Maryland site was completed in December 2002. All production at the Swindon assembly and test facility was terminated and the premises were vacated during the summer of 2002. Prior to closure of the Maryland and Swindon sites, a small portion of the assets was transferred to other Bookham sites. The remaining assets from the Swindon and Maryland sites were auctioned to third parties for an aggregate consideration of approximately $6.9 million in 2003 and $0.3 million in 2002.

      In 2002, we incurred charges related to inventory write-downs on excess inventory of $5 million, which includes write-downs of $1.8 million related to the downsizing of our ASOC product line. When calculating write-downs, consideration was given to internal six-month marketing and sales forecasts, as well as, in the case of raw materials, sales and operations planning, in order to produce estimates of the final quantity of finished goods that would be produced. The total amount of forecast finished goods was compared to the sales forecasts, and the difference was written-down. Raw materials were written-down to the extent not required by planned levels of production. We also considered inventory levels of customers in establishing our inventory valuation levels. No inventory was held by distributors. We had limited ability to reduce orders with suppliers. Previous experience has indicated that the usual negotiation process results in our having either to take the full order or to pay a termination penalty in lieu of receiving the products.

      In connection with each of these restructuring programs, we conducted a complete program of employee consultation prior to each closure, and undertook measures to ensure that key personnel were retained in order to successfully complete outstanding projects. We planned inventory build-outs and communicated with customers that would be affected by the discontinuation of certain product lines and research projects.

      We have acquired six companies and businesses, and the amortization of intangible assets purchased in connection with these acquisitions has increased with each acquisition. In the year ended December 31, 2002, we acquired the optical components businesses of Nortel Networks and Marconi. In the year ended December 31, 2003, amortization of purchased intangible assets increased due to the effect of including the results of the optical components businesses of Nortel Networks and Marconi for the full year, and of our acquisition of Ignis Optics and the business of Cierra Photonics during the year. Amortization of purchased intangible assets increased in the six months ended June 3, 2004 compared to the six months ended June 29, 2003, due to our acquisition of New Focus in March 2004 and Onetta in June 2004, and increased again in the year ended July 2, 2005 as compared to the twelve months ended July 3, 2004 due to the effect of amortizing the purchased intangible assets of New Focus and Onetta for the full year.

      In the year ended July 2, 2005, we recorded charges of $114.2 million, primarily related to the impairment of goodwill related to the acquisitions of New Focus, Ignis Optics and Onetta, including $0.6 million related to the impairment of certain intangible assets related to the acquisition of New Focus. We 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. In the third quarter of the year ended July 2, 2005, the continued decline in our stock

price, and therefore market capitalization, combined with continuing net losses and a history of not meeting revenue and profitability targets, suggested that the goodwill related to certain of our acquisitions may have been impaired. As a result of these triggering events, we performed a preliminary evaluation of the related goodwill balances. In the fourth quarter, we finalized this evaluation during our annual evaluation of goodwill, and also performed our annual evaluation of acquired intangible assets. In performing these evaluations, we applied discounted future cash flow models as permitted by SFAS No. 142. We recorded no charges for the impairment of goodwill or intangible assets during any of the other periods presented herein (see Note 14 to our consolidated financial statements included elsewhere in this prospectus).

      Net interest and other income/expense decreased in the year ended July 2, 2005 compared to the twelve months ended July 3, 2004 due to amortization of the interest costs related to the issuance of $25.5 million of convertible notes in December 2004, and lower cash balances during the year. The decrease was partially offset by a one-time gain of $1.1 million arising from the release of an acquisition provision related to the closure of the Bookham (Switzerland) AG pension arrangement in the first quarter of fiscal 2005. The decrease for the six months ended July 3, 2004 compared to the six months ended June 29, 2003 was due to lower cash balances during the period. The decrease for the year ended December 31, 2003 compared to the year ended December 31, 2002 was due to lower cash balances, and interest expense related to the issuance of $50 million of notes payable to Nortel Networks in November 2002.

      We have incurred substantial losses to date and expect to incur additional losses in the future. Due to the uncertainty surrounding the realization of the benefits of the net loss carry-forward, a full valuation allowance has been placed against the otherwise recognizable deferred tax assets of $330.4 million at July 2, 2005 and $282.9 million at July 3, 2004. Income tax benefits have been insignificant in each of the fiscal years ended July 2, 2005 and December 31, 2002 and in the six-month period ended July 3, 2004. In 2003, we recognized a credit of $3.7 million related to a payment received in 2002 from the U.K. Inland Revenue as compensation for certain research and development expenditures. As our business develops globally, we may incur local tax charges which we will not be able to offset.

Liquidity, Capital Resources and Contractual Obligations

Operating Activities

      In the past five years, we have funded our operations from several sources, including through public offerings of equity, issuance of debt and net cash from acquisitions. As of July 2, 2005, we held $24.9 million in cash and cash equivalents (excluding restricted cash of $7.4 million), which represents our source of cash for funding operations for the immediate future. We do not have any bank lending facilities, borrowings or lines of credit, except for the secured notes in the current aggregate principal amount of $45.9 million we issued to Nortel Networks and the 7.0% senior unsecured convertible debentures we issued in a private placement on December 20, 2004.

      Based on our cash balances and our cash flow forecasts, and given our continuing losses, we estimate that we will need to raise between $20 million and $30 million prior to December 2005 in order to maintain our planned level of operations. Since the end of fiscal 2005, we have generated approximately $24 million through the sale of land and the acquisition of City Leasing (Creekside) Limited, which we expect will substantially meet our cash requirements through the end of calendar 2005. Taking into account these proceeds, we will need to raise between $30 million and $40 million on a cumulative basis between now and August 2006 in order to comply with the $25 million minimum cash balance required by the terms of the $45.9 million in aggregate principal amount of promissory notes held by Nortel Networks. If we are unable to maintain this cash balance after August 2006, we will be in default under the promissory notes. To this end, we plan to dispose of non-core assets, take actions to raise additional equity capital, including pursuant to this offering, and are considering the disposal of selected assets or businesses. Beyond this, we will need to raise additional funds to repay the notes issued to Nortel Networks in the aggregate principal amounts of $25.9 million and $20 million that will be due and payable in November 2006 and 2007, respectively, and to repay, if still outstanding, $25.5 million principal amount of our 7% convertible debentures due in December 2007. There can be no assurances that we will be able to raise additional funds or reduce our operating expenses, and in the event we are unable to raise sufficient capital to meet our requirements, we will not be able to continue some or all of our current operations.

      Net cash used in operating activities for the year ended July 2, 2005 was $98.8 million, primarily resulting from the net loss of $248.0 million, reduced by non-cash accounting charges of $149.5 million, including $114.2 million for the impairment of goodwill and certain intangibles recorded in connection with past acquisitions, primarily New Focus, and $32.2 million for depreciation and amortization. The increase in working capital also resulted in a reduction in cash in the amount of $0.3 million, primarily related to higher levels of inventory required to support our increasing level of sales through the period, and our expectations regarding the first quarter of fiscal 2006.

      Net cash used in operating activities for the six-month period ended July 3, 2004 was $50.2 million, primarily resulting from the net loss of $67.4 million, offset by non-cash accounting charges of $14.2 million and a $3.0 million decrease in working capital. The decrease in working capital was the result of a reduction in inventory, primarily through the sale of inventory purchased as part of the acquisition of the optical components business from Nortel Networks.

      Net cash used in operating activities in 2003 was $98 million, primarily resulting from the net loss of $125.8 million, offset by non-cash accounting charges of $8.9 million and an $18.9 million decrease in working capital. The decrease in working capital was the result of a reduction in inventory, primarily through the sale of inventory purchased as part of the acquisition of the optical components business from Nortel Networks.

      Net cash used in operating activities in 2002 was $84.7 million, primarily resulting from the net loss of $165 million, offset by non-cash accounting charges of $71.3 million and a $9 million decrease in working capital. The working capital decrease was primarily the result of the acquisition of the optical components business from Nortel Networks, which resulted in an increase in the levels of accounts payable partially offset by an increase in the level of accounts receivable.

Return/Loss on Investments

      Return/loss on investments represents net interest, which is the difference between interest received on our cash and interest paid on our debts, which has declined as our cash balances have been reduced. Loss on investments were $4.3 million in the year ended July 2, 2005, and we had a return on investment of $0.2 million in the six months ended July 3, 2004, $6.3 million in the year ended December 31, 2003 and $8 million in the year ended December 31, 2002. The decreasing returns on investment and the loss on investment in fiscal 2005 are due to lower interest income earned on declining cash balances, interest on balances outstanding from the $50 million of notes payable issued to Nortel Networks in November 2002 and the amortization of interest, costs and warrants associated with our issuance of $25.5 million of convertible debt in December 2004.

Investing Activities

      Net cash used in investing activities for the year ended July 2, 2005 was $2.3 million, primarily relating to the purchases of property and equipment of $16.0 million along with a $1.7 million transfer of funds to restricted cash, partially offset by proceeds of $7 million from the sale of marketable securities, proceeds of $5.7 million from the disposal of certain of our subsidiaries, net of costs, proceeds of $1.4 million from the sale of property and equipment, and proceeds of $1.2 million received from the settlement of a loan note issued by a former New Focus executive officer.

      Net cash provided by investing activities for the six months ended July 3, 2004 was $87.4 million primarily consisting of $102.6 million of cash assumed in connection with our acquisitions of New Focus and Onetta. Proceeds from the sale of property and equipment of $5.2 million were partially offset by purchases of property and equipment of $6.6 million.

      Net cash used in investing activities for the year ended December 31, 2003 was $12 million, which was primarily the result of purchases of $19.2 million of property and equipment, partially offset by $7.1 million received in connection with the sale of property and equipment. The principal area of capital spending in 2003 was to upgrade the Caswell, U.K. wafer fabrication site to a capability required to produce products transferred from Ottawa, Canada. In 2002, $18.1 million was expended in connection with acquisitions, and capital spending was $15.2 million, principally relating to implementation of an integrated enterprise resource planning and factory management solution, based at our Abingdon, U.K. and Caswell, U.K. sites, that permits our systems to interface with the systems we acquired from Nortel Networks.

Financing Activities

      Net cash provided by financing activities for the year ended July 2, 2005 was $14.9 million. During the period, we received net proceeds of $24.2 million from the issuance of convertible debentures and warrants to purchase common stock. This was offset by the repayment of $4.2 million due to Nortel Networks under a loan note. In addition, during the year ended July 2, 2005, we paid $5.1 million related to capital lease obligations that were assumed primarily in connection with the Onetta acquisition.

      Net cash provided by financing activities for the six months ended July 3, 2004 was $1.7 million, primarily resulting from the issuance of common stock.

      At the time of our acquisition of the optical components business of Nortel Networks in November 2002, our wholly-owned subsidiary, Bookham Technology plc, issued a $30 million secured loan note due November 8, 2005 and a $20 million unsecured loan note due November 8, 2007 to affiliates of Nortel Networks. In September 2004, the $20 million unsecured loan note was exchanged for a $20 million note convertible into shares of our common stock.

      On December 2, 2004, (i) the $30 million secured loan note was amended and restated to, among other things, extend the final maturity date by one year from November 8, 2005 to November 8, 2006 and (ii) the $20 million note was further amended and restated to, among other things, provide that it will not convert into shares of our common stock. These notes, as amended and restated on December 2, 2004 and further amended on February 7, 2005 and May 2, 2005, are each secured by the assets that secured the $30 million secured note issued in November 2002, as well as certain additional property, plant and equipment and Nortel Networks specific accounts receivables and inventory covered by our supply agreement with Nortel Networks. The amended and restated notes also contain certain covenants, including restrictions on assets sales and a requirement that we maintain a cash balance of at least $25 million or be deemed in default under the amended and restated notes, however, compliance with that covenant has been waived through August 7, 2006.

      On December 20, 2004, we closed a private placement of $25.5 million of our 7.0% senior unsecured convertible debentures and warrants to purchase common stock which resulted in net proceeds of $24.2 million. We used $4.2 million to repay certain of our indebtedness to Nortel Networks. We are using and intend to continue to use the remaining net proceeds from the private placement for general corporate purposes, including, among other things, payment of outstanding indebtedness, working capital to support new growth and to fund our operations through our current restructuring. The debentures may be converted into shares of our common stock at the option of the holder prior to the maturity of the debentures on December 20, 2007. The conversion price of the debentures is $5.50, which represents a premium of approximately 16% over the closing price of our common stock on December 20, 2004. We may also convert the debentures into shares of common stock 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 years from the date of grant at an initial exercise price of $6.00 per share, which represents a premium of approximately 26% over the closing price of our common stock on December 20, 2004.

Acquisitions

      On February 1, 2002, we acquired the optical components business of Marconi for 1,289,100 shares of our common stock valued at $28.0 million. In exchange, we received fixed assets, including equipment,

land and buildings of $4.8 million and inventory of $10.4 million. We assumed no liabilities and incurred no debt in connection with this transaction.

      On November 8, 2002, we completed the acquisition of the optical components business of Nortel Networks for 6,100,000 shares of common stock, warrants to purchase 900,000 shares of common stock, notes in the aggregate amount of $50 million and the payment of net cash consideration of $9.2 million for an aggregate value of $111.2 million. In exchange, we received intangible assets valued at $27.4 million, representing the patent portfolio for the amplifiers and active devices acquired from Nortel Networks; tangible fixed assets of $32.5 million, including equipment, land and buildings; and inventory of $61.9 million. As part of the transaction, we assumed certain liabilities falling due within one year of $8.4 million. In accordance with SFAS No. 141 “Business Combinations”, an adjustment was made in the accounts for the year ended December 31, 2003 for amendments to those provisional values. During fiscal 2003, a larger amount of inventory was sold than was expected at the time the transaction with Nortel Networks was completed. As a consequence, we adjusted the purchase price allocation and increased the value of the inventory by $20.2 million, reduced intangible assets by $9.1 million, reduced property, plant and equipment by $9.8 million and increased current liabilities by $1.3 million as part of the allocation of the fair value of the remaining assets.

      On June 10, 2004, we acquired the entire issued share capital of Onetta for 2,764,030 shares of our common stock valued at $24.7 million. As part of the agreement, the Onetta stockholders agreed to discharge liabilities of $6.1 million.

      On March 8, 2004, we acquired New Focus by a merger of a wholly-owned subsidiary with and into New Focus, with New Focus surviving as our wholly-owned subsidiary. Pursuant to the merger agreement, on March 8, 2004, each New Focus stockholder received a cash distribution from New Focus in the amount of $2.19 per share of New Focus common stock held on that date. In the merger, we issued an aggregate of 7,866,600 shares of our common stock valued at $197.2 million. In addition, we assumed all outstanding options to purchase shares of New Focus common stock, on the same terms and conditions as were applicable to that option under the applicable New Focus option plan and option agreement. Pursuant to the merger agreement, two directors of New Focus, Peter Bordui and Winston Fu, joined our board of directors. Winston Fu has since resigned, and Peter Bordui is currently the Chairman of our board of directors.

      On July 4, 2003, we acquired substantially all of the assets and certain liabilities of Cierra Photonics for 307,148 shares of our common stock valued at $3.7 million. Up to an additional 420,000 shares of our common stock may be issued if the Cierra Photonics business meets a revenue target of at least $5.0 million in the 12-month period prior to October 1, 2004, or at least $8.5 million in the 12-month period prior to October 1, 2005. As of July 2, 2005, an additional 38,810 shares have been issued pursuant to these terms. In exchange, we received fixed assets of $1.7 million and inventory of $0.1 million. We also assumed liabilities of $1.6 million.

      On October 6, 2003, we acquired the entire issued share capital of Ignis Optics for 802,081 shares of our common stock valued at $17.7 million. Up to an additional 78,084 shares of our common stock could have been issued in early 2005 if Ignis Optics had met a revenue target of at least $4 million for the twelve months ended December 31, 2004. No additional shares of common stock were issued, as this target was not achieved.

Sources of Cash

      In the past five years, we have funded our operations from several sources, including through public offerings of equity, issuance of debt and net cash from acquisitions. As of July 2, 2005, we held $24.9 million in cash and cash equivalents (excluding restricted cash of $7.4 million), which represents net cash from the issuance of debt; the source of cash that will fund operations for the immediate future. As of that date, we did not have any bank lending facilities, borrowings or lines of credit, except for the secured notes in the current aggregate principal amount of $45.9 million we issued to Nortel Networks and $25.5 million of 7% senior unsecured convertible debentures we issued in a private placement on December 20, 2004.

Future Cash Requirements

      Based on our cash balances and our cash flow forecasts, and given our continuing losses, we estimate that we will need to raise between $20 million and $30 million prior to December 2005 in order to maintain our planned level of operations. Since the end of fiscal 2005, we have generated approximately $24 million through the sale of land and the acquisition of City Leasing (Creekside) Limited, which we expect will substantially meet our cash requirements through the end of calendar 2005. Taking into account these proceeds, we will need to raise between $30 and $40 million on a cumulative basis between now and August 2006 in order to comply with the $25 million minimum cash balance required by the terms of the promissory notes held by Nortel Networks. If we are unable to maintain this cash balance after August 2006, we will be in default under the promissory notes. To this end, we plan to dispose of non-core assets, take actions to raise additional equity capital, including pursuant to this offering, and are considering the disposal of selected assets or businesses. Beyond this, we will need to raise additional funds to repay the notes issued to Nortel Networks in the aggregate principal amounts of $25.9 million and $20 million that will be due and payable in November 2006 and 2007, respectively, and to repay, if still outstanding, $25.5 million principal amount of our 7% senior unsecured convertible debentures due in December 2007. There can be no assurances that we will be able to raise additional funds or reduce our operating expenses, and in the event we are unable to raise sufficient capital to meet our requirements, we will not be able to continue some or all of our current operations.

      From time to time, we have engaged in discussions with third parties concerning potential acquisitions of product lines, technologies and businesses. We continue to consider potential acquisition candidates. Any of these transactions could involve the issuance of a significant number of new equity securities, debt, and/or cash consideration. We may also be required to raise additional funds to complete any such acquisition, through either the issuance of equity securities or borrowings. If we raise additional funds or acquire businesses or technologies through the issuance of equity securities, our existing stockholders may experience significant dilution.

Recent Events

     Purchase of City Leasing (Creekside) Limited

      On August 10, 2005, Bookham Technology plc, our wholly-owned subsidiary, entered into a share purchase agreement pursuant to which Bookham Technology plc purchased all of the issued share capital of City Leasing (Creekside) Limited, a subsidiary of Deutsche Bank, for consideration of £1.00 (plus professional fees of approximately £455,000). The parties to the share purchase agreement are Bookham Technology plc, Deutsche Bank and London Industrial Leasing Limited, a subsidiary of Deutsche Bank, which we refer to as London Industrial. Creekside was utilized by Deutsche Bank in connection with the leasing of four aircraft to a third party. The leasing arrangement is structured as follows: Phoebus Leasing Limited, a subsidiary of Deutsche Bank, which we refer to as Phoebus, leases the four aircraft to Creekside under the primary leases and Creekside in turn sub-leases the aircraft to a third party. Under the sub-lease arrangement, the third party lessee who utilizes the aircraft, whom we refer to as the Sub-Lessee, makes sublease payments to Creekside, who in turn must make lease payments to Phoebus under the primary leases. To insulate Creekside from any risk that the Sub-Lessee will fail to make payments under the sub-lease arrangement, prior to the execution of the share purchase agreement, Creekside assigned its interest in the Sub-Lessee payments to Deutsche Bank in return for predetermined deferred consideration amounts, which we refer to as Deferred Consideration, which are paid directly from Deutsche Bank. Additionally, on closing the transaction, Deutsche Bank loaned Creekside funds to (i) pay substantially all of the rentals under the primary lease with Phoebus, excluding an amount equal to £400,000, and (ii) repay an existing loan made by another wholly owned subsidiary of Deutsche Bank to Creekside. The obligation of Creekside to repay the Deutsche Bank loans may be fully offset against the obligation of Deutsche Bank to pay the Deferred Consideration to Creekside.

As a result of these transactions, Bookham Technology plc will have available through Creekside cash of approximately £6.63 million (approximately $12.2 million, based on an exchange rate of £1.00 to $1.8403, the noon buying rate on September 2, 2005 for cable transfers in foreign currencies as certified by the Federal Reserve Bank of New York). Under the terms of the agreement, Bookham Technology plc received £4.2 million (approximately $7.5 million) of available cash when the transaction closed on August 10, 2005. Additional amounts of £1 million (approximately $1.8 million) will be available on October 14, 2005, £1 million (approximately $1.8 million) will be available on July 14, 2006 and the balance of approximately £431,000 (approximately $793,000) will be available on July 16, 2007.

      At the closing of this transaction, Creekside had receivables (including services and interest charges) of £73.8 million (approximately $135.8 million) due from Deutsche Bank in connection with certain aircraft subleases of Creekside and cash of £4.7 million (approximately $8.6 million), of which £4.2 million is immediately available. The assignment was made in exchange for the receivables, which are to be paid by Deutsche Bank to Creekside in three installments, with the last payment being made on July 16, 2007. In accounting for this transaction, we will be recording the receivables and payables as net assets on our balance sheet.

      Creekside and Deutsche Bank entered into two facility agreements relating to a loan in the principal amount of £18.3 million (approximately $33.7 million) and a loan in the principal amount of £42.5 million including interest (approximately $78.2 million), which together will accrue approximately £3.6 million (approximately $6.6 million) in interest during the term of these loans. At the closing, Creekside used the loans to repay amounts outstanding under a loan dated April 12, 2005 between Creekside, as borrower, and City Leasing (Donside) Limited, a subsidiary of Deutsche Bank, as lender, and to pay part of Creekside’s rental obligations under the lease agreements.

      At August 10, 2005, Creekside had long-term liabilities to Deutsche Bank under the loans, an agreement to pay Deutsche Bank £8.3 million (approximately $15.3 million)(including principal and interest) to cover settlement of current Creekside tax liabilities and £0.4 million (approximately $0.7 million) of outstanding payments due to Deutsche Bank under the lease agreements; we refer to these collectively as the Obligations.

      Creekside will use the Deferred Consideration to pay off the Obligations over a period of two years, or the Term, such that the Obligations will be offset in full by the receivables and result in Bookham Technology plc having excess cash of approximately £6.63 million (approximately $12.2 million) available to it during the Term. Bookham Technology plc expects to surrender certain of its tax losses against any U.K. taxable income that may arise as a result of the Deferred Consideration, to reduce any U.K. taxes that would otherwise be due from Creekside.

      The loans issued by Deutsche Bank may be prepaid in whole at any time with 30 days’ prior written notice to Deutsche Bank. The loan for £18.3 million is repayable by Creekside on October 14, 2005, and the loan for £42.5 million is repayable by Creekside in installments of £23.5 million (approximately $43.2 million) on July 14, 2006 and £22.5 million (approximately $41.4 million) on July 16, 2007. The loans accrue interest at rates of 5.54% and 5.68% per year, respectively. Events of default under the loans include failure by Creekside to pay amounts under the loans when due, material breach by Creekside of the terms of the lease agreements and related documentation, a judgment or order made against Creekside that is not stayed or complied with within seven days or an attachment by creditors that is not discharged within seven days, insolvency of Creekside or failure by Creekside to make payments with respect to all or any class of its debts, presentation of a petition for winding up of Creekside, and appointment of any administrative or other receiver with respect to Creekside or any material part of Creekside’s assets. While Deutsche Bank may accelerate repayment under the facility agreements upon an event of default, these loans will be fully offset against the receivables, as described above.

      Pursuant to the terms of the agreements governing this transaction, we believe that we have not assumed any material credit risk in connection with these arrangements. The material cash flow obligations associated with Creekside are directly related to Deutsche Bank’s obligations to pay Creekside the Deferred Consideration, and Creekside’s obligation to repay the loans to Deutsche Bank. The

obligations of Creekside to repay the Deutsche Bank loans can be fully offset against Deutsche Bank’s obligation to pay the Deferred Consideration. Any Sub-Lessee default has no impact on Deutsche Bank’s obligation to pay Creekside the Deferred Consideration. Regarding the primary leases between Phoebus and Creekside, all but £400,000 has been paid. For these reasons, we believe we do not bear a material risk and have no substantial continuing payments or obligations.

      Under the share purchase agreement and related documents, London Industrial and Deutsche Bank have indemnified us, Bookham Technology plc and Creekside with respect to contractual obligations and liabilities entered into by Creekside prior to the closing of the transaction and certain tax liabilities of Creekside that may arise in taxable periods both prior to and after the closing.

      Pursuant to an administration agreement between Creekside, City Leasing Limited, a subsidiary of Deutsche Bank, and Deutsche Bank, Creekside is to be administered during the Term by City Leasing Limited to ensure Creekside complies with its obligations under the lease agreements.

      In accordance with the terms of the primary leases and the sub-leases, Phoebus is ultimately entitled to the four aircraft in the event of default by the Sub-Lessee. An event of default will not impact the payment obligations described above.

      We intend to apply SFAS 141 “Business Combinations” in accounting for the acquisition of Creekside, and will apply the consideration paid for Creekside’s shares of £1.00 (plus professional fees of approximately £455,000) to the assets acquired and liabilities assumed from Creekside, first to account for the stated monetary values of cash, receivables and debt (receivables and debt being shown on a net basis to reflect our right of offset of these amounts pursuant to FASB Interpretation No. 39 “Offsetting of Amounts Related to Certain Contracts”), with the remainder to be allocated to deferred tax liabilities. All of these are monetary assets or liabilities, except for the deferred tax liability. The total purchase consideration will be allocated first to the monetary assets and liabilities. The residual amount will be assigned to the deferred tax liability. The value assigned to the deferred tax liability will be lower than the value carried on the books of the predecessor entity, which is appropriate as we anticipate applying existing Bookham Technology plc tax losses to ultimately reduce this liability. We do not anticipate allocating any of the purchase consideration to goodwill. After accounting for the acquisition of Creekside, Creekside’s total assets (approximately two-thirds of which will consist of cash), liabilities and stockholders’ equity will represent 5.7%, 8.6% and 0.9%, respectively, of our consolidated assets, liabilities and equity as of July 2, 2005.

     Sale of Land in United Kingdom

      On September 13, 2005, Bookham Technology plc, a wholly-owned subsidiary of Bookham, entered into a contract with Abbeymeads LLP to sell a parcel of vacant land at Haydon Wick, Blunsdon, Swindon, Wiltshire, U.K. The transaction closed on September 13, 2005, resulting in proceeds to us of £8.5 million (approximately $15.5 million, based on the exchange rate of £1.00 to $1.8214, the noon buying rate on September 13, 2005 for cable transfers in foreign currencies as certified by the Federal Reserve Bank of New York).

Risk Management — Foreign Currency Risk

      We are exposed to fluctuations in foreign currency exchange rates and interest rates. As our business has grown and become increasing multinational in scope, we have become increasingly subject to fluctuations based upon changes in the exchange rates between the currencies in which we collect revenues and pay expenses. Despite our change in domicile from the United Kingdom to the United States, in the future we expect that a substantial portion of our revenues will be denominated in U.S. dollars, while the majority of our expenses will continue to be denominated in U.K. pounds sterling until such time as our facility in Shenzhen, China is fully operational. Fluctuations in the exchange rate between the U.S. dollar and the U.K. pound sterling and, to a lesser extent, other currencies in which we collect revenues and pay expenses, could affect our operating results. We enter into in foreign currency contracts in an effort to mitigate our exposure to such fluctuations, and we may be required to convert currencies to meet our obligations. Under certain circumstances, foreign currency contracts can have an adverse effect on our financial condition. As of July 2,