- Filing of certain prospectuses and communications in connection with business combination transactions (425)
January 27 2009 - 5:05PM
Edgar (US Regulatory)
Filed by Bookham, Inc.
Pursuant to Rule 425 Under the Securities Act of 1933
And Deemed Filed pursuant to Rule 14a-12
Under the Securities Exchange Act of 1934
Subject Company: Avanex Corporation
Commission File: 000-29175
Bookham and Avanex Merger
Q&A Document
January 27, 2009
Forward Looking Statements
This communication contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about
the timetable for completing the transaction, the benefits of the business combination transaction
involving Bookham and Avanex, including potential synergies and cost savings and the timing
thereof, future financial and operating results including Adjusted EBITDA in the first quarter
following the transaction, quarterly synergies, the combined companys plans, cash balances
together, objectives, expectations and intentions with respect to future operations, products and
services; and other statements identified by words such as potential, expected, think, hope,
believe plan, estimate, intend, will, or words of similar meaning. Such forward-looking
statements are based upon the current beliefs and expectations of Bookhams and Avanexs management
and are inherently subject to significant business, economic and competitive uncertainties and
contingencies, many of which are difficult to predict and generally beyond the control of Bookham
and Avanex. Actual results may differ materially from the results anticipated in these
forward-looking statements. Factors that could cause or contribute to such differences include, but
are not limited to, general business and economic conditions; the performance of financial markets;
the impact of the filing for bankruptcy on Nortels ability to pay for existing products and its
demand for products in the future, risks relating to the consummation of the contemplated merger,
including the risk that required stockholder approval might not be obtained in a timely manner or
at all or that other closing conditions are not satisfied; the failure to realize synergies and
cost-savings from the transaction or delay in realization thereof; the businesses or employees of
Bookham and Avanex not be combined and integrated successfully, or such combination may take
longer, be more difficult, time-consuming or costly to accomplish than expected; and operating
costs and business disruption following the merger, including adverse effects on employee retention
and on our business relationships with third parties. Additional factors that can cause the
results to materially differ than those described in the forward-looking statements can be found in
the most recent Form 10-Q, most recent Form 10-K and other periodic reports filed by Bookham and
Avanex, with the Securities and Exchange Commission. Neither Bookham nor Avanex assumes any
obligation or intends to update any forward-looking statements, whether as a result of new
information, future events or otherwise.
TRANSACTION RELATED Q&A
Q:
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What is the strategic significance of the deal?
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A:
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A complete portfolio of terminal and line product technologies critical for the
metro and long haul markets.
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Best in class telecom chips based on Indium Phosphide, Lithium Niobate and Gallium
Arsenide.
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Well positioned for 40Gbs and reconfigurable networks.
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Ability to leverage new opportunities quickly within expanded customer base.
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Sufficient resources to enable leading R&D investment in key product lines.
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Ability to leverage both in-house and outsourced manufacturing capacity to maximize
flexibility and gross margin opportunities.
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Company to be led by Alain Couder as CEO and talented executives from both
companies.
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Page 1 of 8
Q:
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What are the competitive advantages for the new company?
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A:
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Bookham primarily brings chip and component excellence and tunable products.
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Avanex primarily brings leadership in modules such as controlled amplifiers and
integrated subsystems.
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Integration of more functionality within a single form factor, be it chip, package,
module or system card, will be the key to driving down costs while improving
performance under the parameters of a Moores law for optics.
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Both companies bring strong IP portfolios and together the combined portfolio is
even stronger.
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Individually, each has at times lacked scale, but together represent arguably the
largest player within the metro and long haul sector of the optical industry.
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A stronger financial position combined.
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Ability to focus R&D dollars rather than spreading more thinly by pursuing same
opportunities as stand-alone companies.
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Complementary customer bases and relationships.
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The historical valuation multiples of each company have tended to lag those of our
larger peers, and together we hope our scale, synergies and combined technologies
elevate our multiples and the related stock valuations accruing to our shareholders.
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Q:
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How was the valuation determined?
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A:
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Both companies engaged investment bankers who assisted in negotiating
the value of the deal. Citigroup was engaged by Bookham and Banc of
America was engaged by Avanex.
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Q:
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How can I review the agreement?
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A:
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A copy of the merger agreement will be filed with the United States
Securities and Exchange Commission (the SEC) on a Current Report on
Form 8-K. This filing will be available to the public.
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Q:
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Will the transaction be accretive or dilutive? What is the timeframe?
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A:
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Based on the work we have done so far, we expect the combination to be
accretive, compared to the Bookham stand alone results, from an
Adjusted EBITDA point of view, in the first full quarter together,
depending on timing of first integration steps phasing in, and the
overall economic climate. We expect our current estimate of $7M in
restructuring costs to be paid back by synergies achieved within
roughly the first two quarters together.
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Q:
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What is the forecasted break-even point of the new company? Do you
have a target business model for the new company?
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A:
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We think that 35% gross margin (GM), 13% research and development
(R&D), 12% sales, general and administrative (SG&A) and 10% non-GAAP
operating margin is ultimately achievable. In fact, we believe that
investing at 13% R&D is important to be a leader in the industry.
As to break-even point, in a combination such as this, that is somewhat a function of the
timing of synergies relative to the timing of revenue ramps. We have not done enough work
to be specific on this. However, subject to the overall economic climate, we do expect to
be break even from an Adjusted EBITDA point of view in the first full quarter together.
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Q:
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When will the new company begin to generate cash?
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A:
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As we mentioned above, we expect to be Adjusted EBITDA positive in our first full quarter together. We also expect our
synergies to be sufficient to cover our total restructuring costs within the first two full quarters together. Beyond this
we havent done enough work to comment more specifically at this time and we are not prepared to provide guidance as to the
combined operating results.
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Page 2 of 8
Q:
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What are the 12-month financial objectives for the new company post-merger?
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A:
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At the end of 12 months after the merger we hope to be around 31% GM, 12 to 13% R&D and 12% SG&A on a quarterly basis. We
need to be cautious to avoid guiding results too far into the future, and there is still work to be done in nailing the
timelines of synergies and combined results together. However this is where wed like to see things come out at that point
in time.
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Q:
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Where are the major cost-cutting items? Which sites will be affected? How many employees will be cut as a result of the
restructuring?
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A:
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As standalone companies through the signing and beyond through the close, there is only so much that can be decided
concretely prior to completion of the merger. Although we have come up with preliminary estimates of savings and costs
associated with our combination, formal plans will be a function of work through the close period and decisions finalized
by the combined management team after the close.
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Q:
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What is the proposed management structure of the new company?
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A:
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Alain Couder will be the CEO and Giovanni Barbarossa will remain in a consulting capacity to assist with the combination.
The other executives will be Jim Haynes, COO; Jerry Turin CFO; Richard Smart, GM of a Telecom Business Unit; Adrian
Meldrum, GM of a Telecom Business Unit; Yves Lemaitre, GM of the Non-Telecom Business Unit; Scott Parker, VP of Sales; Kate
Rundle, General Counsel; and Kathy Zwickert, VP of HR.
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Q:
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What is the Board composition of the new company?
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A:
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The agreement calls for 4 members from the Bookham board, including Alain Couder, and 3 from Avanex, including Giovanni
Barbarossa. Other board members from Bookham will be Edward Collins, Lori Holland and Bernard Couillaud, who will be
Chairman of the new board. Other board members from Avanex will be Greg Dougherty and Joel Smith.
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Q:
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What is the timeline for the restructuring? Do you have an estimate of the cost of restructuring and timing of the charges?
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A:
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Our plans are only preliminary, and right now we expect the restructuring to cost us approximately $7M. The substantial
portion of that would be spent in the first year, with most of the related work done in the first six months. We dont
anticipate any significant restructuring costs beyond that 12 month period.
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Q:
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How much of the charges will be cash?
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The substantial portion will be cash.
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Q:
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Will there be an integration task force?
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We expect there to be an integration team led by a manager from each company, and that it will have a direct report into
the CEOs weekly executive staff meeting during the process.
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Q:
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What will the company name be?
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A:
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We anticipate coming up with a new name, but a name has not been determined at this time.
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Q:
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What will happen to the non-telecom business in the new company?
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A:
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We have made significant progress in our non-telecom businesses in recent quarters, executing the transition of a
substantial portion of PTS manufacturing from San Jose to Shenzhen, and gaining some market share with new products in our
high power laser business. We are also making progress in identifying new markets and new applications for some of our core
competencies in these areas, as well as in VCSELs and thin film filters. We look forward to an improving contribution from
this portfolio of our business over the upcoming quarters.
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Page 3 of 8
Q:
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Whom should I contact for investor related questions?
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A:
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Until the final close, contact:
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Bookham
Jerry Turin
CFO
408.919.2788
AVNX
Mark Weinswig
CFO
510.897.4188
LEGAL Q&A
Q:
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How can I submit my vote in favor/against the merger?
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A:
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Bookham is planning to file with the SEC a Registration Statement on Form S-4 containing a Joint Proxy
Statement/Prospectus. The Joint Proxy Statement/Prospectus will have instructions how to vote your shares. Please see
Additional Information and Where to Find it.
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Q:
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What approvals are necessary?
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The stockholders from both companies must approve the transaction after the SEC has declared the Registration Statement
on Form S-4 effective.
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Q:
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When will the deal close?
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A:
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The merger is subject to customary conditions, including approval by the stockholders of each of the companies and is
expected to close 3 to 6 months after the signing of the definitive agreement.
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Q:
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When will the stockholder vote occur?
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A:
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We expect the shareholder vote to be in 3 to 6 months barring regulatory delays.
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BUSINESS Q&A
Q:
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Do you have a detailed integration plan?
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A:
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The management teams from both companies are in the process of finalizing a plan.
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Q:
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Who is leading the integration team?
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A:
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We expect to a have a team leader from each company, with the team having a direct line into the CEOs weekly executive
staff meeting.
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Q:
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How long do you expect integration to take?
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A:
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We anticipate the process will take approximately 6 to 9 months.
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Q:
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What effects, if any, do you see with suppliers?
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A:
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The goal is to use the new companys higher volumes to help drive lower average supply chain costs.
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Q:
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What will be the manufacturing strategy of the new company? In-house operations or contract manufacturing?
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Page 4 of 8
A:
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The complete integration and business model has not yet been finalized but the manufacturing strategy for the new company
will be a mixed model. Decisions will be based on how best to achieve the lowest cost and flexibility.
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Q:
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Will any manufacturing sites be closed as a result of the merger?
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A:
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We do not expect that any manufacturing sites will be closed as a result of this
deal. However, the new company will reevaluate its assessment on a regular basis.
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Q:
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Will lead-times be affected by the merger? Will my orders be cancelled or postponed?
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A:
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Customer satisfaction and ease of doing business will remain our top priority. Until the final close of the deal, your
orders will be managed and processed by whichever company you gave the order. Also, until the final close of the deal,
please contact your regular channel.
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Q:
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What will be the approach taken with regard to the technologies currently residing within each company?
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A:
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We intend to sell and continue to develop products from both companies product lines, rationalizing the best-in-class
capabilities from each, creating broader product coverage than either company could provide alone in order to maximize both
revenue and customer satisfaction.
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Besides creating a broader product line, we expect the integration of the product lines will
result in continuing increases in gross margins. Besides the near term cost and coverage
benefits of taking the best of both product lines, we expect to devote a significant portion
of the new companys enhanced capability to develop next-generation products more rapidly,
which could extend the current lead in the marketplace.
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The new company, when launched, will have very broad coverage both geographically and in
product and service capability.
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Q:
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What is the overlap between the two companies products and technologies?
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A:
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By combining largely complementary product lines, the new company will have one of the broadest product portfolios in the
industry covering both the line (amps, pumps and passives) and terminal (transmit, receive, transponders) areas and have a
vertical integration from chips to components, transponders and subsystems. There is some overlap in the area of optical
amplifiers, subsystems and optical modulators and we will rationalize over time the benefits and best parts of both
organizations.
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Q:
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How does this compare with other leading players in the optical space?
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A:
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The new company will be among the leaders in optical amplifiers in terms of technology and market share. We will have
access to internal pumps and passives and will have a very broad customer base. On the transmit side we have a strong
component play today and have the internal technology required to grow our transponder business and take advantage of the
large addressable market at 10G and the growing market at 40G where we believe the combined entity has key differentiated
technology and an ability to lead the market.
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Q:
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Are there other technologies currently not addressed by either company that you want to add to the product portfolio of the
new company?
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A:
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There are always areas that we would consider expanding into.
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Q:
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What product changes can I expect Avanex to make with Bookham products?
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A:
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Customer needs and support are paramount and will be a primary factor in determining the product portfolio of the new
company.
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Q:
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Will any products be discontinued or obsoleted?
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Page 5 of 8
A:
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Customer needs and support are paramount and will be a primary factor in determining the product portfolio of the new
company.
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Q:
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How do the different business models fit together, Bookham invest in chip technology and vertical integration vs. Avanex
outsource infeed technology and manufacturing, fit together?
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A:
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There are merits of both business models and the combination will take advantage of this. Infeed of components from Bookham
into Avanex amplifiers and subsystems will improve gross margins and cost points. This will further improve vertical
integration on the product side. In manufacturing we will leverage both the internal capability and outsourcing to ensure
maximum efficiency.
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Q:
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Will you continue to support older platforms that are not part of your future roadmap?
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A:
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Customer needs and support are paramount and will be a primary factor in determining the product portfolio of the new
company.
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Q:
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Are delivery lead times and product prices expected to increase in the short-term as a result of supplier consolidation in
some accounts?
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A:
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We will continue to work with our customers to determine the best price and the market will determine long-term price
evolution.
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Q:
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Where do I call for support for more information pertaining to my products?
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Present contact and channels should be maintained. After the close of the deal, you will be notified of changes, if any.
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Q:
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What product changes can I expect the new company to make with its combined existing products?
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A:
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No decisions have been made on the product lines, however, customer support and maintenance is paramount in the post-merger
process.
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Q:
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Does this deal mean we will invest more or less in R&D?
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A:
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Both companies are reaching critical mass to invest competitively in each key product line. As a new company, we intend to
ultimately invest at a 13% of revenues level, which we believe is necessary in this industry.
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Q:
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What benefit does this merger bring to customers?
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A:
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Customers will benefit from the Avanex-Bookham merger by having a financially robust supplier able to drive innovation and
support a longer-term vision for the telecom industry. The new companys broad product portfolio and technologies make it
a natural strategic supplier to all leading optical system and sub-systems manufacturers.
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Our geographical proximity with our customers in the three major markets (EMEA, Americas and
Asia) , in each of which we will have substantial R&D and product support resources, will
further reinforce the close partnerships with these customers and simplify our business
dealings. Our customers in the industrial, semiconductor equipment, and R&D markets will
benefit from an even broader set of advanced optical technologies.
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Q:
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What will be the market focus of the new company?
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A:
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The new company will be a leader in the optical telecom segment,
primarily for metro, long-haul and undersea networks. The majority of
the business of the new company will be in telecom, however, the
company will continue to serve adjacent markets where our optical
technologies bring significant value-add.
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Q:
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What will the market positioning of the new company be?
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Page 6 of 8
A:
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The new company will be a leading supplier of optical components,
modules and sub-systems for telecom and non-telecom applications
delivering advanced optical solutions for a variety of customers and
applications.
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Q:
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How big is the overall market(s)?
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A:
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The global optical component market is quite large and has shown
steady growth for several decades due to the more and more pervasive
importance of telecommunications in business in personal activities.
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Outside analyst firms estimate the total market for optical components in the third quarter
of calendar 2008 to be around $4.8B.
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Q:
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Which will be the primary competitors of the new company?
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A:
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JDSU will be a primary competitor of the new company. A lot of other companies, such as Finisar, Sumitomo, Opnext, EMCORE
and others will compete with us in selected market segments. The industry as a whole is fragmented, with many small players
also capable of competing.
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Q:
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What will happen to the non-telecom products in the new company?
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A:
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The new company will continue to develop and expand its leadership into the photonics tools and solutions market. In
addition, the company has launched a variety of products aimed at non-telecom applications such as high power lasers,
filters and VCSELs. The new company will continue to selectively invest into diversified markets where our optical
technology can bring significant value to our customers and create a profitable business to the company.
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Q:
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Will the new company have a play in Datacom optics components and modules? Will the new company start to look into the FTTx
space?
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A:
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The new company will primarily be focused on the telecom optics space, but could consider branching into these areas if
opportunities are available.
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Q:
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How does this merger make the new company more competitive than either company on a standalone basis?
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A:
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The new company will have the industrys broadest portfolio of optical technologies and products for long-haul and metro,
it will have a solid, long standing, strategic relationship with the top 15 optical OEMs in the world. This combination
gives us a unique opportunity to become the undisputed leader in our market.
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Q:
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Is the new company positioned to face the challenges of a global economy and market for optical components, including
opportunities in developing parts of the world, including China?
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A:
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Our new company has a global presence with R&D, customer support, manufacturing and manufacturing leadership in all
regions of the globe. This presence will help in our objective of maximizing the ease of our worldwide customers doing
business with us.
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Q:
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Are delivery lead times and product prices expected to increase in the short-term as a result of supplier consolidation in
some accounts?
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A:
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All process and procedures will remain managed by each independent company. The teams of each company will continue to
work diligently and efficiently to make sure customers are not adversely affected by the merger and integration in the near
or long term.
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Q:
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Where do I call for support for more information pertaining to my products?
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A:
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Until the final close of the merger, business will continue as usual. Please contact each company through your normal
channels until further notice.
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Q:
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How do I place an order for Bookham products?
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Page 7 of 8
A:
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Until the final close of the merger, business will continue as usual. Please contact each company through your normal
channels until further notice.
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Q:
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How do I place an order for Avanex products?
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A:
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Until the final close of the merger, business will continue as usual. Please contact each company through your normal
channels until further notice.
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Q:
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Will Avanex or Bookham change its distribution channels and/or sales representatives?
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A:
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The combined executive teams are reviewing all the options and will decide on a plan that makes the most sense.
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Additional Information and Where to Find It
This communication is being made in respect of the proposed business combination involving Bookham
and Avanex. In connection with the proposed transaction, Bookham and Avanex plan to file documents
with the SEC, including the filing by Bookham of a Registration Statement on Form S-4 containing a
Joint Proxy Statement/Prospectus and each of Bookham and Avanex plan to file with the SEC other
documents regarding the proposed transaction. Investors and security holders of Bookham and Avanex
are urged to carefully read the Joint Proxy Statement/Prospectus (when available) and other
documents filed with the SEC by Bookham and Avanex because they will contain important information
about the proposed transaction. Investors and security holders may obtain free copies of these
documents (when they are available) and other documents filed with the SEC at the SECs web site at
www.sec.gov and by contacting Bookham Investor Relations at (408) 404-5400 or Avanex Investor
Relations at (510) 897-4188. Investors and security holders may obtain free copies of the documents
filed with the SEC on Bookhams website at www.bookham.com or Avanexs website at www.avanex.com or
the SECs website at www.sec.gov. Bookham, Avanex and their respective directors and executive
officers may be deemed participants in the solicitation of proxies with respect to the proposed
transaction. Information regarding the interests of these directors and executive officers in the
proposed transaction will be included in the Joint Proxy Statement/Prospectus described above.
Additional information regarding the directors and executive officers of Bookham is also included
in Bookhams proxy statement for its 2008 Annual Meeting of Stockholders, which was filed with the
SEC on September 18, 2008, and additional information regarding the directors and executive
officers of Avanex is also included in Avanexs proxy statement for its 2008 Annual Meeting of
Stockholders, which was filed with the SEC on October 14, 2008, respectively.
Page 8 of 8
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